Document:

Exhibit 10.16

 

THIS
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT
BE SOLD, PLEDGED, OFFERED FOR SALE, ASSIGNED OR TRANSFERRED UNLESS (A) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT, AND ANY APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (B) EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND THE
REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS
ARE AVAILABLE.

 

	
   

  	
  $      ,000.00

  
	
   

  	
  Principal Amount of

  
	
   

  	
  Bridge Note

  

 

ICOP DIGITAL, INC.

 

PROMISSORY NOTE

 

,
2005

 

1.                                       Bridge
Note.  FOR VALUE RECEIVED, ICOP
Digital, Inc., a Colorado corporation (the “Borrower”), promises to pay to
the order of                        
(the “Bridge Note Lender”), the principal amount of                   
Thousand Dollars ($    ,000.00).  The unpaid balance of the principal amount
shall accrue interest at the rate of eight (8%) percent per annum based on a 365-day
year.

 

2.                                       Maturity.  Except as otherwise provided herein, the
principal and interest hereunder shall become due and payable in full on the
date six months from the first Closing (as defined herein), except that in the
event of the closing of a Public Offering (as defined herein), the principal amount and
accrued and unpaid interest will become immediately due and payable.  The first Closing of the Bridge
Note(s) Offering will be on the second business day following the
receipt by First National Bank of Olathe, KS, as Escrow Agent of not less than $1,200,000 of the loan principal
from the Bridge Note Lender(s) as a
group (the “Closing”).  The Borrower plans to sells units of its
equity securities for total gross proceeds of an aggregate amount of
approximately Ten Million Dollars ($10,000,000.00) in a secondary offering of
units of Common Stock and Warrants (the “Public
Offering”).

 

3.                                       Prepayment.  Subject to the conversion rights provided for
in paragraph 5, hereof, Borrower may prepay any or all amounts due under this
Bridge Note at any time without penalty in readily available funds.  The prepayment shall not effect the Bridge
Note Lender’s rights to receive the Warrants provided for in paragraph 4
hereof.

 

4.                                       Warrants
Issued Upon Public Offering or Otherwise. 
At Closing each Lender will receive Warrant(s) to purchase a number of
shares of the Borrower’s Common Stock equal to the

 

quotient of the principal amount of such Lenders’ Bridge Note(s),
divided by the Public Offering Unit
Price and the product of such quotient
shall then be multiplied by 1.5 to yield the number of shares.  The Warrant(s)
will have an exercise price per share equal to 50% of the Public Offering Unit Price.  In the event there is no Public Offering within twelve (12)
months of the first Closing,
the number of shares under the Warrant shall equal the quotient of (a) 0.75
times the principal amount of such
Lenders’ Bridge Note(s), divided by the lesser of $5.00 ( assuming a
1:10 reverse stock split) and the average 4 PM NY Time closing bid price as
reported on the Bloomberg system for the 10 trading days ending on the trading
day immediately preceding the delivery of an exercise notice to the
Company.  The exercise price of the Warrants
shall be the lesser of $5.00 (assuming a 1:10 reverse stock split) and the
average 4 PM NY Time closing bid price as reported on the Bloomberg system for
the 10 trading days ending on the trading day immediately preceding the
delivery of an exercise notice.  The Warrants will be exercisable for five
years from the date of issuance, provided that if the Borrower files a
registration statement for a Public
Offering, then the Warrant(s)
will not be exercisable until the earlier of 90 days after the Public Offering closing and one (1) year
after filing of the Public Offering registration
statement.  Subject to the exercisability
limitations in the foregoing sentence, the Warrant(s) will provide for cashless exercise if, at any time
after one (1) year from the date of issuance of the Bridge Note(s) and Warrant(s), the Borrower does not
have available both an effective registration statement and current prospectus
covering the issuance or resale of the Borrower’s Common Stock issued or
issuable upon exercise of the Warrant(s).  The Warrant(s)
will be non-callable.

 

5.                                       Conversion
Rights                                            In
the event there is no Public Offering of the Borrower’s Common Stock and/or Warrants
within twelve (12) months from the first Closing, the Lender(s) shall have the right to
convert the principal
and unpaid interest of the Bridge Note(s) into shares of Common Stock at
a conversion price of $5.00 per share (assuming a 1:10 reverse stock split).

 

6.                                       SEC
Reporting                  As long as any
of the Bridge Note(s) and/or Warrant(s) are outstanding the Borrower
will maintain the listing of Borrowers Common Stock under Section 12 (g) of
the Securities Exchange Act of 1934, as amended (Exchange Act), and will file
all reports required by the Exchange Act in a timely manner.

 

7.                                       Anti
Dilution Provision.  Except for the
1:10 reverse stock split anticipated herein, should at any time from the date
of Closing until the conversion of the Bridge Notes provided for in paragraph 5
the Borrower issue a stock dividend, combine outstanding shares into a lesser
number of shares (reverse split) or increase the number of outstanding shares
without a receipt of new consideration (forward split) then the number of
shares into which the Bridge Note may be converted and the conversion price
shall be adjusted to reflect such event so that the relative interest of the
Bridge Note Lender shall be fully protected from dilution resulting from such
an event.  Notice of the required
adjustment including the number  of
shares and the new conversion price shall be promptly mailed to each Bridge
Note Lender subsequent to each such adjustment event.

 

8.                                       Default.  In the event of an occurrence of any event of
default specified below, the principal and all accrued interest on this Bridge
Note shall become immediately due and payable

 

2

 

without notice, except as specified below.  The occurrence of any of the following events
shall constitute an event of default under this Bridge Note:

 

(a)                                  The
Borrower fails to make any payment hereunder when due, which failure has not
been cured within fifteen (15) days following such failure.

 

(b)                                 If the
Borrower shall default in the payment or performance of any material
obligation, or any defined event of default, under any contract or instrument
pursuant to which Borrower has incurred any debt or other liability to any
person or entity, including the Bridge Note Lender.

 

(c)                                  If the
Borrower shall file a petition to take advantage of any insolvency act; make an
assignment for the benefit of its creditors; commence a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself of a
whole or any substantial part of its property; file a petition or answer
seeking reorganization or arrangement or similar relief under the federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state.

 

(d)                                 If a
court of competent jurisdiction shall enter an order, judgment or decree
appointing a custodian, receiver, trustee, liquidator or conservator of the
Borrower or of the whole or any substantial part of its properties, or approve
a petition filed against the Borrower seeking reorganization or arrangement or
similar relief under the federal bankruptcy laws or any other applicable law or
statute of the Untied States of America or any state; or if, under the
provisions of any other law for the relief or aid of debtors, a court of
competent jurisdiction shall assume custody or control of the Borrower or of
the whole or any substantial part of its properties; or if there is commenced
against the Borrower any proceeding for any of the foregoing relief and such
proceeding or petition remains undismissed for a period of 30 days; or if the
Borrower by any act indicates its consent to or approval of any such proceeding
or petition.

 

(e)                                  If (i) any judgment
remaining unpaid, unstayed or undismissed for a period of 60 days is rendered
against the Borrower which by itself or together with all other such judgments
rendered against the Borrower remaining unpaid, unstayed or undismissed for a
period of 60 days, is in excess of $500,000, or (ii) there is any
attachment or execution against the Borrower’s properties remaining unstayed or
undismissed for a period of 60 days which by itself or together with all other
attachments and executions against the Borrower’s properties remaining unstayed
or undismissed for a period of 60 days is for an amount in excess of $500,000.

 

9.                                       Security.  Repayment of the Bridge Note shall be secured
by a lien on all tangible and intangible assets of the Borrower as described in
that certain Security Agreement executed contemporaneously herewith.

 

10.                                 Successors and Assigns.  This Bridge Note is transferable and
assignable by the Bridge Note Lender subject to the requirement that any such
assignment or transfer be, in the opinion of the Borrower’s counsel, in full
compliance with applicable federal and state securities laws.  All

 

3

 

covenants, agreements and undertakings in
this Bridge Note by or on behalf of any of the parties shall bind and inure to
the benefit of the respective successors and assigns of the parties whether so
expressed or not.

 

11.                                 Notices.  Any and all notices, requests, consents and
demands required or permitted to be given hereunder shall be in writing and
shall be deemed given and received (i) upon personal delivery, (ii) upon
the first business day following the receipt of confirmation of facsimile
transmission to the telefax number as indicated below, or (iii) upon the
third business day after deposit in the United States mail, by certified or
registered mail, postage prepaid and addressed as follows:

 

To Bridge
Note Lender:

 

 

To the
Borrower:

 

ICOP Digital, Inc.

11011 King
Street, Suite 260

Overland
Park, Kansas 66210

Telefax:  (913) 469-1662

 

Either party may change by notice the address to which notices to that
party are to be addressed.

 

12.                                 Waiver/Amendment.  The Borrower hereby waives presentment for
payment, demand, protest and notice of protest for nonpayment of this Bridge Note
and consents to any extension or postponement of the time of payment or any
other indulgence.  This Bridge Note may
only be amended or modified by written agreement signed by the Borrower and
Bridge Note Lender.

 

13.                                 Expenses.  In the event that Bridge Note Lender brings
legal action against the Borrower, or the Borrower brings legal action against
Bridge Note Lender, to enforce or otherwise determine the meaning or
enforceability of this Bridge Note or any provision hereof, each party shall
bear its own expenses, including attorney fees, directly attributable to such
action.  However, in any action for
breach of this Bridge Note, including nonpayment, the prevailing party in any
such dispute shall be entitled to recover all reasonable costs and attorney
fees incurred in connection with such action.

 

14.                                 Bridge
Note Bridge Note Lender is Not a Shareholder.  No Bridge Note Lender of this Bridge Note,
solely by virtue of the ownership of this Bridge Note, shall be considered a
shareholder of the Borrower for any purpose, nor shall anything in this Bridge
Note be construed to confer on any Bridge Note Lender of this Bridge Note any
rights of a shareholder of the Borrower including, without limitation, any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings of shareholders or receive dividends.

 

15.                                 Registration
Rights.  In the event there is no
Public Offering of the Borrower’s common shares and warrants within 12 months
of the first Closing therefore permitting the right of Bridge

 

4

 

Note Lenders to convert pursuant to paragraph 5 above, the Borrower
agrees to immediately register the resale of the Common Shares of the Borrower
to be received by the Bridge Note Lender upon conversion of all or any portion
of this Bridge Note in a Registration Statement filed with the U.S. Securities
and Exchange Commission.  The Borrower
agrees to pay all expenses of registration and the Bridge Note Lender agrees to
cooperate in all reasonable respects with the Borrower and its counsel as
required to file the Registration Statement registering the resale of the
shares.  The Borrower agrees to use its
reasonable best efforts to have said Registration Statement declared effective
at the earliest practicable date after filing.

 

16.                                 Choice
of Law.  This Bridge Note shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Colorado.

 

IN WITNESS WHEREOF, this Bridge Note has been executed and delivered on
the date specified on the first page hereof by the duly authorized
representative of the Borrower and the Bridge Note Lender.

 

Borrower:

 

	
   

  	
  ICOP DIGITAL, INC., a Colorado corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  DAVID C.
  OWEN, President & CEO

  

 

5

 

CONVERSION NOTICE

 

To convert this Bridge Note into common stock of the Borrower, check
the box:  o

 

To convert only part of this Bridge Note, state the principal amount to
be converted (must be a minimum of $100,000 or a multiple of $100,000):  $            .

 

If you want the stock certificate made out in another person’s name,
fill in the form below:

 

(Insert assignee’s soc. sec. or tax I.D. no.)

 

 

(Print or type assignee’s name, address and
zip code)

 

 

	
  Your Signature:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
  (Sign exactly as your name appears on the

  Bridge Note)

  
				

 

6Exhibit 10.17

 

THESE WARRANTS 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 (i) AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THE WARRANTS UNDER SUCH ACT, OR (ii) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

ICOP DIGITAL, INC.

 

BRIDGE WARRANT

 

	
  Warrant to Purchase
  Shares of

  Common Stock

  	
  , 2005

  

 

 

This certifies that pursuant
to the terms of this Common Stock Warrant (this “Warrant”), for value received,
ICOP Digital, Inc, a Colorado corporation (the “Company”), hereby grants to                              
(the “Holder” or “Bridge Note
Lender”), or its registered assigns, the right to purchase from the Company the
number of shares of the Company’s Common Stock equal to the quotient of the principal
amount of the Bridge Note Lender’s Bridge Note dated          ,
2005 divided by the Public Offering Unit Price as defined in the Principal
Terms of the Financing Terms Agreement (hereinafter “Principal Terms”),
attached hereto as Exhibit ”A”, and the product of such quotient shall then be
multiplied by 1.5 to yield the number of shares.  In the event of a Public Offering within twelve (12)
months of the first Closing of the Bridge Notes, the exercise price of the Warrants
shall be 50% of the final approved public offering unit price (the “Public
Offering Unit Price “), of the planned secondary offering, (“Public Offering”) of
two shares of common stock and one warrant, (collectively the “Unit”).  In the event there is no Public Offering
within twelve (12) months of the first Closing, the Holder, or its registered
assigns, shall have the right to purchase from the Company the number of shares
of the Company’s Common Stock as calculated pursuant to the formula described
in § 2.3 hereof

 

1.                                       Exercise
of Warrant.

 

1.1                                 Exercise
Period.  Except as restricted as set
forth in § 1.2 below, Holder may exercise this Warrant, in whole or in
part, at any time and from time to time after its Date of Issuance (as defined
below) and prior to 5:00 p.m. (central standard time) on January 31,
2010 (the “Expiration Date”).

 

1.2                                 Procedure
for Exercising Warrant.

 

(a)                                  This
Warrant will be deemed to have been exercised at such time as the Company has
received all of the following items (the “Exercise Date”):

 

 

(i)                                     A
completed Exercise Agreement, as described in Section 1.3 below, executed
by the person exercising all or part of the purchase rights represented by this
Warrant (the “Purchaser”);

 

(ii)                                  This
Warrant;

 

(iii)                               If this Warrant is not
registered in the name of the Purchaser, an Assignment in the form set forth in
Exhibit C, evidencing the assignment of this Warrant to the
Purchaser and the consent of the Company thereto; and

 

(iv)                              A
check payable to the Company in an amount equal to the product of the Exercise
Price multiplied by the number of shares of Common Stock being purchased upon
such exercise.

 

(b)                                 Certificates
representing shares of Common Stock purchased upon exercise of this Warrant
will be delivered by the Company to the Purchaser within 10 days after the
Exercise Date.  Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
Company will prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised.  Company will
deliver such new Warrant to the person designated to receive it in the Exercise
Agreement.

 

(c)                                  The
Common Stock issuable upon the exercise of this Warrant will be deemed to have
been issued to the Purchaser on the Exercise Date, and the Purchaser will be
deemed for all purposes to have become the record holder of such Common Stock
on the Exercise Date.

 

(d)                                 The
issuance of certificates for shares of Common Stock upon exercise of this
Warrant will be made without charge to the Holder or the Purchaser for any
issuance tax in respect thereof or any other cost incurred by the Company in
connection with such exercise and the related issuance of shares.

 

(e)                                  If,
during the first year of the term of the Warrants, the Company files a
registration statement for the Public Offering then the Warrants will not be
exercisable until the earlier of 90 days after Public Offering closes and one (1) year
after filing the Public Offering registration statement.

 

1.3                                 Exercise
Agreement.  The Exercise Agreement
will be substantially in the form set forth in Exhibit B hereto,
except that if the shares of Common Stock are not to be issued in the name of
the Holder, the Exercise Agreement will also state the name of the person to
whom the certificates representing the shares of Common Stock are to be issued,
and if the number of shares of Common Stock to be issued does not include all the
shares of Common Stock purchasable hereunder, it will also state the name of
the person to whom a new Warrant for the unexercised portion of the rights
hereunder is to be delivered.

 

2

 

1.4                                 Fractional
Shares.  The Company is not required
to issue any fraction of a share of Common Stock upon exercise of this Warrant.

 

1.5                                 Securities
Acts Compliance.  As a condition to
its delivery of the certificates representing the Common Stock, the Company may
require the Purchaser to deliver to the Company, in writing, representations
regarding the Purchaser’s sophistication, investment intent, acquisition for
his, her or its own account and such other matters as are reasonable and
customary for purchasers of securities in an unregistered private offering, and
Company may place conspicuously upon each certificate representing the Common
Stock a legend restricting the assignment, transfer or other disposition of the
shares of Common Stock, unless such shares have been registered or qualified
under the Act and applicable blue sky laws or there has been delivered to the
Company an opinion of counsel, satisfactory to the Company, to the effect that
such registration and qualification is not required.

 

2.                                       Adjustment
in Shares of Common Stock and Exercise Price.  The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price per share
are subject to adjustment from time to time as provided in this Section 2;
provided, however, that the Exercise Price per share will not be
less than the $.01 per share.

 

2.1                                 Subdivision
or Combination of Shares.  If the
Company at any time subdivides its outstanding shares of Common Stock into a
greater number of shares (including a stock split effected as a stock dividend)
or combines its outstanding shares of Common Stock into a lesser number of
shares, the number of shares issuable upon exercise of this Warrant will be
adjusted to such number as is obtained by multiplying the number of shares
issuable upon exercise of this Warrant immediately prior to such subdivision or
combination by a fraction, the numerator of which is the aggregate number of
shares of Common Stock outstanding immediately after giving effect to such
subdivision or combination and the denominator of which is the aggregate number
of shares of Common Stock outstanding immediately prior to such subdivision or
combination, and the Exercise Price will be correspondingly adjusted to such
amount as will, when multiplied by the number of shares issuable upon full
exercise of this Warrant (as increased or decreased to reflect each subdivision
or combination of outstanding shares of Common Stock, as the case may be),
equal the product of the Exercise Price in effect immediately prior to such
subdivision or combination multiplied by the number of shares issuable upon
exercise of this Warrant immediately prior to such subdivision or combination.

 

2.2                                 Effect
of Sale, Merger or Consolidation.  If
any capital reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with another corporation, or
sale of all or substantially all of the Company’s assets to another
corporation, is effected after the date hereof in such a way that holders of
Common Stock will be entitled to receive stock, securities or assets with
respect to or

 

3

 

in exchange for
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision will be made
whereby the Holder will thereafter have the right to purchase and receive, upon
the basis and the terms and conditions specified in this Warrant and in lieu of
the shares immediately theretofore purchasable and receivable upon the exercise
of this Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this Warrant, and in any such
case appropriate provision will be made with respect to the rights and
interests of the Holder to the end that the provisions of this Warrant
(including, without limitation, provisions for adjustments of the Exercise
Price and of the number of shares issuable upon the exercise of this Warrant)
will thereafter be applicable, as nearly as may be possible, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of this Warrant.  The Company will not
effect any such consolidation, merger or sale unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets assumes, by written instrument executed and delivered to
the Holder at its last address appearing on the books of the Company, the
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing sentence, the Holder may be entitled to
purchase.

 

2.3                                 Adjustment
if there is No Public Offering. In the event there is no Public Offering
within twelve (12) months of the first Closing, the number of shares under the
Warrant shall equal the quotient of (a) 0.75 times the principal amount of
such
Lender(s)’ Bridge Note, divided by the lesser of $5.00 (assuming a 1:10
reverse stock split): and   the average 4
PM NY Time closing bid price as reported on the Bloomberg system for the 10
trading days ending on the trading day immediately preceding the delivery of an
exercise notice to the Company. The exercise price of the Warrants
shall be the lesser of $5.00 (assuming a 1:10 reverse stock split) and the
average 4 PM NY Time closing bid price as reported on the Bloomberg system for
the 10 trading days ending on the trading day immediately preceding the
delivery of an exercise notice. The Warrants will be exercisable for five years from the date of issuance, provided
that if the Company files a registration statement for a Public Offering
within the first year that the warrant is outstanding, then the  Warrant(s)
will not be exercisable until the earlier of 90 days after the Public Offering
closing and six months after filing of the Public Offering registration statement.

 

2.4                                 Cashless
Exercise.  If, at any time after one (1) year from the date of issuance of the
Warrant(s),
the Company does not have available both an effective registration statement
and current prospectus covering the issuance or resale of the Company’s Common
Stock issued or issuable upon exercise of the Warrant(s), then the Warrant(s) may
be exercised in whole or in part on a cashless basis and be exchanged for a
number of shares of Common Stock equal to the quotient of (A) (I) the
product of the number of shares for which this Warrant is being exercised
multiplied by the average 4 PM NY Time closing bid price as reported on the
Bloomberg system for the 10 trading days ending on the trading day immediately
preceding the delivery of an exercise notice,

 

4

 

less (II) the
product of the number of shares for which this Warrant is being exercised
multiplied by the exercise price per share on the date of exercise, divided by (B) the
average 4 PM NY Time closing bid price as reported on the Bloomberg system for
the 10 trading days ending on the trading day immediately preceding the
delivery of an exercise notice.

 

2.5                                 Warrants
Not Callable.  The Warrants will be non-callable.

 

2.6                                 Notice
to Holder of Adjustment.  Whenever
the number of shares purchasable upon exercise of this Warrant or the Exercise
Price is adjusted as herein provided, the Company will cause to be mailed to
the Holder notice setting forth the adjusted number of shares purchasable upon
the exercise of the Warrant and the adjusted Exercise Price and showing in
reasonable detail the computation of the adjustment and the facts upon which
such adjustment is based.

 

3.                                       Prior
Notice as to Certain Events.  In the
event the Company pays any dividend payable in cash or stock upon its Common
Stock or makes any distribution to the holders of its Common Stock, then the
Company will give prior written notice, by first class mail, postage prepaid,
addressed to the Holder at the address of such holder as shown on the books of
Company, of the date on which (i) the books of Company will close or a
record taken for such dividend or distribution. 
Such notice will also specify the date as of which the holders of the Common
Stock of record will participate in said dividend or distribution.  Such written notice will be given not less
than 20 days prior to the record date in respect thereto.  Not withstanding the rights established in
the § 3, the Warrants are subject to restrict an exercise as set forth in § 1.2(e).

 

4.                                       Reservation
of Common Stock.  Not later than the
date hereof, the Company will have authorized Common Stock in an amount
sufficient to permit the exercise in full of this Warrant.  At all times from and after such date, the
Company will reserve and keep available for issuance upon the exercise of
Warrants such number of its authorized but unissued shares of Common Stock as
will be sufficient to permit such exercise. 
Upon issuance, such shares of Common Stock will be validly issued, fully
paid and nonassessable.

 

5.                                       No
Voting Rights; Limitations of Liability. 
This Warrant does not confer upon the holder hereof any voting rights or
other rights as a stockholder of the Company, either at law or equity.  The rights of the Holder are limited to those
expressed herein and the Holder by acceptance hereof, consents to and agrees to
be bound by and to comply with all the provisions of this Warrant.  No provision of this Warrant, in the absence
of affirmative action by the Holder to purchase Common Stock, and no
enumeration in this Warrant of the rights or privileges of the Holder, will
give rise to any liability of such Holder for the Exercise Price of Common
Stock purchasable by exercise hereof or as a stockholder of Company.

 

6.                                       Restrictions
on Transfer of Warrant.

 

(a)                                  This
Warrant and the Holder’s rights hereunder may not be transferred, assigned or
subjected to a pledge or security interest without the prior written consent of
the Company and unless transferred by surrender of this

 

5

 

Warrant with a
properly executed Assignment (in the form of Exhibit B hereto) at
the principal office of the Company.  If
the Company determines that the proposed assignment is permitted pursuant to
the provisions hereof and the requirements of applicable securities law, the
Company will register the assignment of this Warrant in accordance with the
information contained in the Assignment and will, without charge, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees
named in such assignment instrument and this Warrant will promptly be
cancelled.  Conditions to the transfer of
this Warrant or any portion thereof will be that (i) the Holder must
deliver to the Company an opinion of counsel, reasonably satisfactory in form
and substance to the Company’s counsel, to the effect that the proposed
transfer will not be in violation of the Act or of any applicable state law and
that (ii) the proposed transferee deliver to the Company his, her or its
written agreement to accept and be bound by all of the terms and conditions of
this Warrant.  The date the Company
initially issues this Warrant will be deemed to be the “Date of Issuance” of
this Warrant regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant are
issued.

 

(b)                                 The
Holder acknowledges that this Warrant has not been registered under the Act,
and, except in the limited instance described in Section 6(a) above,
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Common Stock issued upon its exercise in the
absence of (i) an effective registration statement as to this Warrant or
such Common Stock under the Act, or (ii) an opinion of counsel for Company
to the effect that such registration is not, under the circumstances, required.

 

7.                                       Registration
Rights.  The Company will (1) file
a resale registration statement within 180 days of Public Offering closing and (2) cause
it to be effective within 240 days of Public Offering closing covering the resale
of the common shares underlying the Warrant(s). 
If the Company fails to satisfy either or both of these requirements, it
will be subject to 2% cash late registration fee (“Late Fee”) (i.e. 2% of outstanding Bridge Note(s) principal) per month
or part thereof that such failure continues. Such Late Fee shall cease to accrue  on the earliest date more than one year from
the Closing
that the Company is current in its reporting obligations under the Exchange Act
and has been subject to such reporting requirements for at least 90 days.

 

8.                                       Miscellaneous.

 

8.1                                 Waiver.  No delay or failure of the Holder in
exercising any right, power, privilege or remedy under this Warrant will affect
such right, power, privilege or remedy or be deemed to be a waiver of the same
or any part thereof, nor will any single or partial exercise thereof or any
failure to exercise the same in any instance preclude any further or future
exercise thereof, or the exercise of any other right, power, privilege or
remedy.

 

8.2                                 Notices.  All notices, requests and consents hereunder
must be in writing.  Notices, requests
and consents to the Company will be effectively given and delivered when (a) sent
by facsimile to the Company at (913) 469-1662 or (b) mailed by first class

 

6

 

mail, postage
prepaid, to the Company at its offices at 11011 King Street, Suite 260,
Overland Park, Kansas 66210.  Notices,
requests, and consents to the Holder will be effectively given and delivered
when sent by facsimile or mailed by first class mail, postage prepaid, to the
Holder at the facsimile number or address of the Holder appearing on the books
and records of the Company.  Either party
by notice to the other may from time to time change the facsimile number or
address for any such notice, request, or consent.

 

8.3                                 Governing
Law; Venue.  This Warrant and all
rights and obligations hereunder, including matters of construction, validity,
and performance, will be governed by and construed and interpreted in
accordance with the laws of the State of Colorado, without regard to the choice
or conflicts of laws rules of such state. 
The parties agree that venue for any suit, action, proceeding or
litigation arising out of or in relation to this Agreement will be in any
federal or state court in the State of Colorado having subject matter
jurisdiction.

 

8.4                                 Successors.  This Warrant will inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns;
provided, however, that this Warrant may not be assigned without
the prior written consent of the Company as set forth in Section 6.

 

8.5                                 Headings
and Exhibits.  The headings used in
this Warrant are for convenience only and will not constitute a part of this
Warrant.  All of the exhibits attached
hereto are incorporated herein and made a part of this Warrant by reference
thereto.

 

8.6                                 Defined
Terms.  Any defined term utilized
herein shall be defined as provided for herein or as defined in the Principal
Terms of the Financing Terms Agreement (hereinafter “Principal Terms”),
attached hereto as Exhibit ”A”.  To
the extent there exists any conflict in the definition of a term, the
definition contained in the Principal Terms shall control.

 

IN WITNESS WHEREOF, this Warrant has been executed and
delivered by a duly authorized representative of the Company on the day and
year first above written.

 

	
   

  	
  ICOP Digital, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  David C. Owen, President/CEO

  

 

7

 

EXHIBIT “A”

 

SALE
OF SECURED PROMISSORY NOTES AND WARRANTS

 

PRINCIPAL
TERMS

 

Issuer:                                                                                                                                                                                                         Icop Digital, Inc. (“ICPD” or the “Company”)

 

Amount:                                                                                                                                                                                                Up
to $2,000,000.00 in twenty (20) Units of $100,000 in exchange for bridge notes
(“Bridge Note(s)”) and warrants to
purchase the Company’s Common Stock (“Warrant(s)”).  The Placement Agent has agreed with the Company
to allow a creditor to convert its $200,000 debt to identical Bridge Note(s) and Warrants.

 

Lender(s):                                                                                                                                                                                      All
“accredited” investors as defined in Regulation D of the Securities Act of
1933.  See signature pages hereto
for names, addresses, and principal amounts of Bridge Note(s) being purchased.

 

Term of
Note:                                                                                                                                                                    Interest and Pre-Payment: 
Interest will accrue on the principal amount of the Bridge Note(s) at the rate of eight (8%)
percent per annum, based on a 365-day year. 
The Company will have the right to prepay without penalty any amount
owed under the Bridge
Note(s) in whole or in part at any time.

 

Maturity Date:  The principal amount and accrued and unpaid
interest on the Bridge
Note(s) will be due and payable six months from the first Closing (as defined herein),
except that in the event of the closing of a Public Offering (as defined herein), the
principal amount and accrued and unpaid interest will become immediately due
and payable.  The Company plans to raise
approximately $10 Million in a secondary offering of units (consisting of two
shares of common stock and one warrant) (the “Public Offering”).

 

Closing
Date/Escrow:                                                                                                                         The
first Closing
of the Bridge Note(s)
Offering will be on the second business day following the receipt by First
National Bank of Olathe, KS, as Escrow Agent of not less than $1,200,000 of the loan
principal from the Lender(s)
(the “Closing).  In the event such amount has not been
received into Escrow on
or before January 21, 2005, unless extended by agreement between the
Placement Agent and ICOP for up to an additional 30 days, the Escrow Agent shall
promptly return all of the funds on deposit with it to the respective Lender(s).

 

Conversion
Right:                                                                                                                                           In
the event there is no Public
Offering of the Company’s common stock and/or warrants within
twelve (12) months from the first Closing, the Lender(s) shall have the right to
convert the

 

 

principal and unpaid interest of the Bridge Note(s) into
shares of Common Stock at a conversion price of $5.00 per share (assuming a
1:10 reverse stock split).

 

Security:                                                                                                                                                                                            Repayment
of the Bridge Note(s)  shall
be secured by       a lien on all
tangible and intangible assets of the Company.

 

Warrants:                                                                                                                                                                                     75 % warrant coverage:  At Closing each Lender(s) will receive Warrant(s) to
purchase a number of shares of the Company’s Common Stock equal to the quotient
of the principal amount of such Lender(s)’  Bridge
Note(s), divided by the Public Offering Unit Price and the product of
such quotient shall then be multiplied by 1.5 to yield the number of shares.  The Warrant(s)
will have an exercise price per share equal to 50% of the Public Offering Unit Price.  In the event there is no Public Offering
within twelve (12) months of the first Closing, the number of shares under the
Warrant shall equal the quotient of (a) 0.75 times the principal amount of
such Lender(s)’ Bridge
Note, divided by the lesser of $5.00 (assuming a 1:10 reverse
stock split): and   the average 4 PM NY
Time closing bid price as reported on the Bloomberg system for the 10 trading
days ending on the trading day immediately preceding the delivery of an
exercise notice to the Company. The exercise price of the Warrants shall be the
lesser of $5.00 (assuming a 1:10 reverse stock split) and the average 4 PM NY
Time closing bid price as reported on the Bloomberg system for the 10 trading
days ending on the trading day immediately preceding the delivery of an
exercise notice. The Warrants
will be exercisable for five years from the date of issuance,
provided that if the Company files a registration statement for a Public Offering, then
the  Warrant(s)
will not be exercisable until the earlier of 90 days after the Public Offering
closing and  six months after filing of
the Public Offering registration
statement.  Subject to the exercisability
limitations in the foregoing sentence, the Warrant(s) will provide for cashless exercise
if, at any time after one (1) year from the date of issuance of the Bridge Note(s) and Warrant(s), the Company does not have
available both an effective registration statement and current prospectus
covering the issuance or resale of the Company’s Common Stock issued or
issuable upon exercise of the Warrant(s).  The Warrant(s) will be
non-callable.

 

SEC
Reporting                                                                                                                                                             As
long as any of the Bridge
Note(s)
and/or Warrant(s)
is outstanding the Company will maintain the listing of its common stock under Section 12
(g) of the Securities Exchange Act of 1934, as amended (Exchange Act), and
will file all reports required by the Exchange Act in a timely manner.

 

Registration
Rights:                                                                                                                               The
Company will (1) file a resale registration statement within 180 days of
the Public Offering
closing and (2) cause it to be effective within 240 days of the Public Offering
closing

 

 

covering the resale of
the common shares underlying the Warrant(s). 
If the Company fails to satisfy either or both of these requirements, it
will be subject to 2% cash late registration fee (“Late Fee”) (i.e. 2%
of outstanding Bridge Note(s)
principal) per month or part thereof that such failure continues. Such Late Fee shall cease
to accrue on the earliest date more than one year from the first Closing that the
Company is current in its reporting obligations under the Exchange Act and has
been subject to such reporting requirements for at least 90 days.

 

Anti Dilution Provisions:                                                                                                       If
at any time from the date of first Closing until the conversion of the Bridge Note(s) or
exercise of the Warrant(s)
the Company issues a stock dividend, combines outstanding shares into a lesser
number of shares (reverse split) or increases the number of outstanding shares
without the receipt of new consideration (forward split), then the number of
shares into which the Bridge
Note(s) may be converted or the Warrant(s) may be exercised for and the
conversion price shall be adjusted to reflect such event so that the relative
interests of the Lender(s)
shall be fully protected from dilution resulting from such an event.  Notice of the required adjustment including
the number of shares and the new exercise/conversion price shall be promptly
mailed to each Lender(s)
subsequent to each such adjustment event.

 

Placement Agent:                                                                                                                                              The Company has retained Paulson
Investment Company, Inc to assist it with various financing matters, including
the private placement of these Bridge Note(s).  Paulson Investment company, Inc will be
retained on a best efforts basis, and receive a fee not to exceed 5% of any
investment in the Bridge
Note(s).  The Company also anticipates reimbursing
certain expenses of Paulson Investment Company, Inc and indemnifying them, their
directors, officers, agents, employees and controlling persons against certain
liabilities.

 

Jurisdiction/Choice
of Law:                                                                                         All
transaction documents shall be governed by and construed under the laws of the
state of Colorado as applied to agreements entered into and to be performed
entirely within the state of Colorado, without giving effect to principles of
conflicts of law.  The parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in Denver, CO in connection with any action relating to this
transaction.  At or prior to any Closing, the Lender(s) shall
receive a legal  opinion from Company
counsel in form and substance satisfactory to each of them as to the validity
and enforceability of the Bridge
Note(s),  Warrants,
and Security Agreement.

 

Binding
Agreement:                                                                                                                                All
parties executing this Financing Terms Agreement shall be legally bound by the
above terms and shall execute such further 
documents (“Further Documents”), including without limitation  Bridge Note(s),  Warrant(s) and a Security Agreement.  If there

 

 

are any inconsistencies
between  this Financing Terms Agreement
and any such  Further Documents executed
in connection with this transaction, the terms of this Financing Terms
Agreement shall govern.  This Financing
Terms Agreement may be signed in two or more counterparts, all of which taken
together shall constitute an original. 
Facsimile signatures shall be deemed to be original signatures.

 

 

EXHIBIT “B”

 

Exercise Agreement

 

 

	
  To:  ICOP DIGITAL, INC

  	
  Dated:                     

  

 

The undersigned, pursuant to the provisions set forth
in the within Warrant, hereby agrees to subscribe for and purchase                                      
shares of the Common Stock covered by such Warrant and makes payment herewith
in full for such Common Stock at the price per share provided by such Warrant.

 

The undersigned requests that a certificate for the
shares of Common Stock be issued as follows:

 

	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  

 

 

 

and, if said number of shares is not all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance of the
remaining shares of Common Stock purchasable under the within Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below:

 

	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  

 

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HOLDER:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature:

  	
   

  	
   

  

 

 

EXHIBIT “C”

 

Assignment

 

To be executed by the registered Holder to request a
permitted transfer of the attached Warrant.

 

FOR VALUE RECEIVED

 

	
   

  	
  (“Assignor”)

  
	
   

  	
   

  
	
  hereby
  sells, assigns and transfers unto

  	
   

  
	
   

  	
   

  
	
   

  	
  (“Assignee”)

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Name)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Address)

  	
   

  

 

the right to purchase shares of Common Stock of ICOP
DIGITAL, INC. evidenced by the attached Warrant, together with all right, title
and interest therein, and does irrevocably constitute and appoint                          
attorney to transfer the said right on the books of said corporation with full
power of substitution in the premises.

 

	
  Date:

  	
   

  	
   

  	
  Assignor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  APPROVED:

  	
  ICOP DIGITAL, INC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Signature

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