ICOP Digital Inc. (fka ICOPQ)

[SteveF]

http://www.sec.gov/Archives/edgar/data/1094572/000119312510081653/dprer14a.htm

Overview

On February 3, 2010, we completed a registered direct offering (the “Financing Transaction”) of 3,500,000 shares of our common stock, Series 1 warrants to purchase up to 3,500,000 shares of common stock (the “Series 1 Warrants”) and Series 2 warrants to purchase up to 1,232,580 shares of common stock (the “Series 2 Warrants”). The securities were sold to two institutional investors. The initial exercise price of the Series 1 Warrants is $0.42 per share (as adjusted for any stock dividend, stock split, combination, reclassification or similar transaction, the “Series 1 Floor Price”), and they are exercisable from August 4, 2010 until August 4, 2015. The initial exercise price of the Series 2 Warrants is $0.3833 per share (as adjusted for any stock dividend, stock split, combination, reclassification or similar transaction, the “Series 2 Floor Price”), and they expire in May 2010. The Series 1 Warrants and Series 2 Warrants together constitute the “Warrants.”

In the event of (1) a stock dividend, (2) a stock split or (3) with certain customary exceptions, an issuance or deemed issuance by us of common stock (or securities convertible into common stock) at a per share price less than the then applicable Series 1 Floor Price or Series 2 Floor Price (a “Dilutive Event), then the Series 1 Warrant exercise price and Series 2 Warrant exercise price will, in the case of a stock dividend or stock split be adjusted proportionately, or in the case of a Dilutive Event be adjusted down (but not up) to that new issuance price; provided, however, that the exercise price of each Warrant will not be adjusted to be less than the Series 1 Floor Price (in the case of Series 1 Warrants) or the Series 2 Floor Price (in the case of Series 2 Warrants) without prior shareholder approval. In connection with any foregoing adjustment to the exercise price of a Warrant, the number of shares issuable upon exercise of that Warrant shall be increased or decreased proportionately, so that after such adjustment, the aggregate Warrant exercise price payable after the adjustment shall be same as the aggregate Warrant exercise price payable before the adjustment. Consequently, a reduction in the exercise price of a Warrant may result in an increase in the total number of shares issuable upon exercise of that Warrant.

In connection with the Financing Transaction, we agreed to seek shareholder approval of, and are now asking our shareholders to approve, these anti-dilution provisions, including adjustments of the Series 1 Warrant and Series 2 Warrant exercise prices below the Series 1 Floor Price, and the issuance of any additional shares of common stock resulting from or related to such adjustments.

Reasons for the Financing Transaction

As of December 31, 2009, our cash balance was approximately $1.2 million. In order to facilitate forecasted inventory purchases and general corporate expenses, our Board in January 2010 determined that it was in the best interests of the Company to raise additional funds through a registered direct offering of securities utilizing a shelf registration statement that had been declared effective in October 2009. On February 3, 2010, we completed a registered direct offering to two institutional investors of 3,500,000 shares of our common stock, Series 1 Warrants to purchase up to 3,500,000 shares of common stock and Series 2 Warrants to purchase up to 1,232,580 shares of common stock pursuant to a prospectus supplement dated January 29, 2010 and related base prospectus.

We believe that the Financing Transaction, which yielded net proceeds of approximately $1.2 million, provided needed capital to support our continuing operations, including purchase of additional inventory for sale in the near-term. We also believed that the anti-dilution protections afforded the Warrants were reasonable in light of market conditions and the size and type of the offering, and that we would not have been able to complete the sale of the securities unless such anti-dilution provisions were offered.