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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1996
COMMUNICATION INTELLIGENCE CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-19301 94-2790442
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(Commission File Number) (I.R.S. Employer Identification No.)
275 SHORELINE DRIVE, SUITE 520, REDWOOD SHORES, CA 94065
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 802-7888
NOT APPLICABLE
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
On December 31, 1996, Communication Intelligence Corporation (the
"Company") consummated a private placement of 450,000 shares of 5% cumulative
convertible preferred stock at a purchase price of $25 per share for
$11,250,000. In connection with the transaction, the Company received gross
cash proceeds of $9,495,000 and accepted for exchange 390,000 shares of common
stock (and rights to receive additional shares) for 70,200 shares of preferred
stock from investors who purchased these common shares from the Company in June
1996.
Each share of preferred stock is convertible by the holder into shares of
common stock at any time beginning six months from December 31, 1996 pursuant
to a conversion formula determined by dividing (i) the sum of $25 multiplied by
the number of shares being converted, plus accrued and unpaid dividends
thereon, by (ii) a conversion price which ranges from approximately 85% to 72%
of the marketprice of the common stock. In addition, all outstanding shares of
preferred stock must be converted by the holders into shares of the Company's
common stock by December 31, 1999, subject to the satisfaction of certain
conditions and other events. Under the terms of the preferred stock, the
holders are entitled to receive, out of assets legally available therefor,
cumulative dividends at the rate of $1.25 per share per annum, compounded
semi-annually, when payable (whether or not declared). Such dividends may be
paid at the Company's option in cash or additional shares of preferred stock.
The Company is required to pay any accrued and unpaid dividends on the
outstanding shares of preferred stock before declaring or paying any dividends
for any other class or series of stock, including the common stock.
Holders of the preferred stock have the right to vote with the holders of
the common stock, combined as one class, for the election of directors and
such other matters to be voted on at a meeting of the stockholders. Each
share of preferred stock has one vote on such matters. In addition, the
affirmative vote of holders of 75% of the outstanding shares of preferred
stock is required for the consummation of certain business combinations and
other extraordinary transactions, amendments or waivers to the Company's
certificate of designations or amendments to the Company's organizational
documents which may change the rights of the holders of the preferred stock.
In the event of the Company's liquidation, dissolution or winding up, the
holders of the preferred stock are entitled to receive, prior and in
preference to any distribution of Company assets to the holders of any other
class or series of shares, $25 per share plus any accrued but unpaid
dividends. For a more complete description of the terms of the preferred stock,
see the Certificate of Designations of the Company filed as Exhibit 3 hereto,
which is incorporated by reference herein.
In connection with the sale of the preferred stock, the Company entered
into a registration rights agreement with the holders of the preferred stock
which provides that the Company file a registration statement with the
Securities and Exchange Commission relating to the shares of common stock
issuable upon conversion of the preferred stock no later than March 31, 1997
and will use its best efforts to cause such registration statement to become
effective. For a more complete description of the terms of the registration
rights agreement, see the Registration Rights Agreement filed as Exhibit 2
hereto, which is incorporated by reference herein.
Libra Investments, Inc. ("Libra") acted as the Company's placement agent
in connection with the private placement and in connection therewith received
$675,000 in commissions and a five-year warrant to purchase 337,500 shares of
common stock with an exercise price of $2.50 per share. The Company also
granted Libra registration rights with respect to the shares of common stock
underlying the warrant. For a more complete description of the warrant and
registration rights granted to Libra, see the Warrant Certificate and the
Registration Rights Agreement filed as Exhibits 5 and 4, respectively, hereto,
which are incorporated by reference herein.
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ITEM 7. EXHIBITS.
(c) The following documents are filed herewith as exhibits to this
Form 8-K:
1. Preferred Stock Investment Agreement, dated as of December 31,
1996, between the Company and the Investors listed on Schedule I
attached thereto.
2. Registration Rights Agreement, dated as of December 31, 1996,
between the Company and the Investors listed on Schedule I
attached thereto.
3. Certificate of Designations of the Company with respect to the 5%
Cumulative Convertible Preferred Stock.
4. Registration Rights Agreement, dated as of December 31, 1996,
of the Company and Libra Investments, Inc.
5. Warrant Certificate, dated as of December 31, 1996, issued to
Libra Investments, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMMUNICATION INTELLIGENCE CORPORATION
Date: January 6, 1997 By: /s/ Francis V. Dane
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Name: Francis V. Dane
Title: Vice President, Secretary and
Treasurer
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EXHIBIT INDEX
EXHIBIT PAGE
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1. Preferred Stock Investment Agreement, dated as of
December 31, 1996, between the Company and the investors
listed on Schedule I attached thereto.
2. Registration Rights Agreement, dated as of December 31, 1996,
between the Company and the Investors listed on Schedule I
attached thereto.
3. Certificate of Designations of the Company with respect to the 5%
Cumulative Convertible Preferred Stock.
4. Registration Rights Agreement, dated as of December 31, 1996, of the
Company and Libra Investments, Inc.
5. Warrant Certificate, dated as of December 31, 1996, issued to Libra
Investments, Inc.
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Exhibit 1
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("Agreement") dated as of December
31, 1996 between Communication Intelligence Corporation, a Delaware corporation
("CIC"), and each person or entity listed as an investor on Schedule I attached
to this Agreement (each individually an "Investor" and collectively the
"Investors").
W I T N E S S E T H:
WHEREAS, CIC desires to sell and issue to the Investors, and the Investors
wish to purchase from CIC, an aggregate of 450,000 shares of CIC's 5% Cumulative
Convertible Preferred Stock, par value $0.01, having the rights, designations
and preferences set forth in the Certificate of Designations of CIC (the
"Designation") in the identical form and substance of Exhibit 2.1(c) attached
hereto (the "Preferred Shares"), on the terms and conditions set forth herein;
and
WHEREAS, the Preferred Shares will be convertible into shares ("Common
Shares") of common stock, par value $0.01, of CIC ("Common Stock"), pursuant to
the terms of the Designation, and the Investors will have registration rights
with respect to such Common Shares issuable upon conversion, pursuant to the
terms of that certain Registration Rights Agreement to be entered into between
CIC and the Investors substantially in the form of Exhibit 4.2(f) hereto
("Registration Rights Agreement"), and the Preferred Shares will be subject to
certain rights of redemption of CIC and the Investors;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 PURCHASE AND SALE OF PREFERRED STOCK. Upon the following terms
and conditions, CIC shall issue and sell to each Investor severally, and each
Investor severally shall purchase from CIC, the number of Preferred Shares
indicated next to such Investor's name on Schedule I attached hereto.
Section 1.2 PURCHASE PRICE. The purchase price for the Preferred Shares
(the "Purchase Price") shall be $25 per share.
Section 1.3 THE CLOSING. (a) The closing of the purchase and sale of
the Preferred Shares (the "Closing"), shall take place at the offices of the
Investors' counsel, at 10:00 am., local time on the later of the following: (i)
the date on which the last to be fulfilled or waived of the conditions set forth
in Article IV hereof and applicable to the Closing shall be fulfilled or waived
in accordance herewith, or (ii) such other time and place and/or on such other
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date as the Investors and CIC may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."
(b) On the Closing Date, CIC shall deliver to each Investor certificates
(with the number of and denomination of such certificates reasonably requested
by such Investor) representing the Preferred Shares purchased hereunder by such
Investor registered in the name of such Investor or its nominee or deposit such
Preferred Shares into accounts designated by such Investor, and such Investor
shall deliver to CIC the Purchase Price for the number of Preferred Shares
purchased by such Investor hereunder (i) by wire transfer in immediately
available funds to an account designated in writing by CIC, and/or (ii) by
transfer and delivery to CIC of the Swap Shares (as defined below), together
with any certificates evidencing such Swap Shares and duly executed stock
powers, as appropriate. CIC shall immediately cancel such Swap Shares upon
receipt. The delivery of payment by each Investor of the Purchase Price
applicable to it as set forth in this paragraph shall constitute a payment
delivered to CIC in satisfaction of such Investor's obligation to pay the
Purchase Price hereunder. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
Section 1.4 SWAP SHARES. Upon Closing, CIC and each Investor paying the
Purchase Price for Preferred Shares in whole or in part by delivering to CIC
shares ("Swap Shares") of Common Stock issued to such Investor pursuant to a
Subscription Agreement (each a "Subscription Agreement") dated in June, 1996
between CIC and such Investor in connection with the June 1996 Private Placement
(as defined below) ("Swap Investors") acknowledge and agree that any and all
rights with respect to such Swap Shares shall terminate, including without
limitation any and all rights with respect to the June 1996 Private Placement to
the extent relating to the Swap Shares and any and all agreements or instruments
executed in connection therewith, including without limitation any rights under
the Registration Rights Agreement dated in June, 1996 between CIC and such
Investor with respect to such Swap Shares and any rights to acquire Extra Shares
(as defined in the Subscription Agreement) with respect to the value of the Swap
Shares (at $4.50 per share). Upon Closing, CIC and the Swap Investors
acknowledge and agree that any and all rights under the Swap Shares and under
agreements relating to the Swap Shares shall be null and void and of no further
force and effect. CIC represents and warrants that as of the date hereof and
the Closing Date no Extra Shares have been issued to any such Investor under any
Subscription Agreement with respect to the value of the Swap Shares (at $4.50
per share). The term "June 1996 Private Placement" shall mean the private
placement by CIC of 600,000 shares of Common Stock at $4.50 per share in June,
1996 to various investors pursuant to subscription agreements and registration
rights agreements entered into between CIC and such investors in connection with
such private placement. For purposes of Section 4.2(l) below, the term
"November 1995 Private Placement" shall mean the private placement by CIC of
5,500,000 shares of Common Stock at $2.00 per share on or about November 28,
1995 to various investors pursuant to subscription agreements and registration
rights agreements entered into between CIC and such investors in connection with
such private placement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF CIC. CIC hereby makes the
following representations and warranties to each of the Investors as of the date
hereof and on the Closing Date:
(a) ORGANIZATION AND QUALIFICATION. CIC is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. CIC does not have any direct or
indirect subsidiaries other than the subsidiaries listed on Schedule 2.1(a)
attached hereto. CIC is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
other than those in which the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect" means any adverse effect on the
business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlling or controlled by such entity taken as a
whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Registration Rights Agreement or any other agreement or
document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) CIC has the requisite corporate power
and authority to enter into and perform this Agreement and the Registration
Rights Agreement and to issue the Preferred Shares in accordance with the terms
hereof, (ii) the execution and delivery of this Agreement and the Registration
Rights Agreement by CIC and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Preferred Shares,
and the resolutions contained in the Designation, have been duly authorized by
all necessary corporate action, and no further consent or authorization of CIC
or its Board of Directors or stockholders is required, (iii) this Agreement and
the Registration Rights Agreement have been duly executed and delivered by CIC,
and (iv) this Agreement and the Registration Rights Agreement constitute valid
and binding obligations of CIC enforceable against CIC in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of CIC consists of
80,000,000 shares of common stock and 10,000,000 shares of preferred stock;
there are 42,095,375 shares of common stock and no shares of preferred stock
issued and outstanding. All of the outstanding shares of CIC's common stock
have been validly issued and are fully paid and nonassessable. No Common Shares
are entitled to preemptive rights; 12,917,857 Common Shares are entitled to
registration rights; and there are outstanding options for 6,111,838 Common
Shares and outstanding warrants for 3,830,000 Common Shares. There are no other
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights exchangeable or convertible into, any
shares of capital stock of CIC, or contracts, commitments, understandings, or
arrangements by which CIC is or may become bound to issue additional shares of
capital stock of CIC or options, warrants, scrip, rights to subscribe to, or
commitments
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to purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of CIC (except as contemplated by this Agreement or
disclosed in the SEC Documents (as defined below)). Attached hereto as Exhibit
2.1(c) are true and correct copies of CIC's Certificate of Incorporation (the
"Charter") and the Designation, each as in effect on the date hereof, and CIC
has furnished or made available to the Investors true and correct copies of
CIC's By-Laws, as in effect on the date hereof (the "By-Laws"). The Designation
has been duly filed in the State of Delaware.
(d) ISSUANCE OF COMMON SHARES. The Common Shares issuable upon conversion
of the Preferred Shares pursuant to the Designation (the "Underlying Shares")
are duly authorized and reserved for issuance and, upon such conversion in
accordance with the Designation, such Underlying Shares will be validly issued,
fully paid and non-assessable, free and clear of any and all liens, claims and
encumbrances, and entitled to be traded on the NASDAQ Small Capitalization
Market, and the holders of such Underlying Shares shall be entitled to all
rights and preferences accorded to a holder of Common Shares. The outstanding
Common Shares are currently listed on the NASDAQ Small Capitalization Market.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by CIC and the consummation by
CIC of the transactions contemplated hereby and thereby and the filing of the
Designation do not and will not (i) result in a violation of CIC's Charter or
By-Laws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which CIC or any
of its subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to CIC or any of
its subsidiaries or by which any property or asset of CIC or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Investors and not to CIC. The business of CIC
and its direct and indirect subsidiaries is not being conducted in violation of
any law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. CIC is not required under Federal, state or local law,
rule or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement and the Registration Rights Agreement and the Designation
or issue and sell the Preferred Shares in accordance with the terms hereof and
issue the Underlying Shares upon conversion thereof, except for the registration
provisions provided in the Registration Rights Agreement, provided that, for
purposes of the representation made in this sentence, CIC is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Investors herein.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Common Stock of CIC is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and CIC has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC")
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pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by CIC with the
SEC (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "SEC Documents"). CIC has delivered or made
available to the Investors true and complete copies of all SEC Documents
(including, without limitation, proxy information and solicitation materials and
registration statements) filed with the SEC since December 31, 1995 and all
annual SEC Documents filed with the SEC since December 31, 1994. CIC has not
provided to the Investor any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by CIC but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such SEC Documents, and none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The SEC Documents contain all material information
concerning CIC, and no event or circumstance has occurred which would require
CIC to disclose such event or circumstance in order to make the statements in
the SEC Documents not misleading on the date hereof or on the Closing Date but
which has not been so disclosed. The financial statements of CIC included in
the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of CIC as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) PRINCIPAL EXCHANGE/MARKET. The principal market on which the Common
Shares are currently traded is the NASDAQ Small Capitalization Market.
(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 1996, the date
through which the most recent quarterly report of CIC on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to CIC
or its subsidiaries, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent to September 30, 1996 and
except that since September 30, 1996 there has been a continuation of the losses
reflected therein in an amount not exceeding $1,500,000 and if additional equity
is not received or if revenues generated from sales do not increase, this would,
among other things, affect CIC's ability to maintain its listing on the NASDAQ
Small Capitalization Market.
(i) NO UNDISCLOSED LIABILITIES. CIC and its direct and indirect
subsidiaries have no liabilities or obligations not disclosed in the SEC
Documents, other than those liabilities incurred in the ordinary course of CIC's
or its subsidiaries' respective businesses since September 30, 1996, which
liabilities, individually or in the aggregate, do not or would not have a
Material Adverse Effect on CIC or its direct or indirect subsidiaries.
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(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to CIC or its direct or indirect subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by CIC but which has not been so publicly announced
or disclosed.
(k) NO GENERAL SOLICITATION. Neither CIC, nor any of its affiliates, or,
to its knowledge, any person acting on its or their behalf (including Libra
Investments, Inc. ("Placement Agent")), has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act of 1933, as amended (the "Act")) in connection with the offer
or sale of the Preferred Shares or Common Shares.
(l) NO INTEGRATED OFFERING. Neither CIC, nor any of its affiliates, nor to
its knowledge any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Preferred Shares under the Act.
(m) FORM S-3. CIC is eligible to file the Registration Statement (as
defined in the Registration Rights Agreement) on Form S-3 under the Act and
rules promulgated thereunder, and Form S-3 is permitted to be used for the
transactions contemplated hereby under the Act and rules promulgated thereunder.
(n) INTELLECTUAL PROPERTY. CIC (and/or its wholly-owned subsidiaries)
owns or has licenses to use certain patents, copyrights and trademarks
("intellectual property") associated with its business. To its knowledge CIC
and its subsidiaries have all intellectual property rights which are needed to
conduct the business of CIC and its subsidiaries as it is now being conducted or
as proposed to be conducted as disclosed in the SEC Documents. CIC and its
subsidiaries have no reason to believe that the intellectual property rights
which it owns are invalid or unenforceable or that the use of such intellectual
property by CIC or its subsidiaries infringes upon or conflicts with any right
of any third party, and neither CIC nor any of its subsidiaries has received
notice of any such infringement or conflict. CIC and its subsidiaries have no
knowledge of any infringement of its intellectual property by any third party.
(o) STANDOFF COMMITMENTS. CIC has received binding assurances from James
Dao, Philip Sassower and CIC Standby Ventures, L.P., and CIC shall use its best
efforts to promptly cause all of the other executive officers and directors of
CIC to agree, that none of them will sell any Common Shares until the
Restrictive Covenant Termination Date (as defined below), except that with the
approval of the Chairman of the Board of CIC, such executive officers and
directors may sell individually up to ten percent (10%) of their present
holdings of Common Shares (including Common Shares to be received in the future
upon the exercise of any presently held options, warrants, stock appreciation
rights or the like), and may sell amounts in excess of 10% with the approval of
a majority in interest of the holders of the outstanding Preferred Shares. CIC
represents and warrants that such amount of present holdings of Common Shares is
as set forth on Schedule 2.1(o) attached hereto.
(p) NO LITIGATION. No litigation or claim (including those for unpaid
taxes) against CIC or any of its subsidiaries is pending or, to CIC's knowledge,
threatened, and no
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other event has occurred, which if determined adversely would have a Material
Adverse Effect on CIC or would materially adversely affect the transactions
contemplated hereby.
(q) BROKERS. CIC has taken no action which would give rise to any claim
by any person for brokerage commissions, finder's fees or similar payments by
any Investor relating to this Agreement or the transactions contemplated hereby,
except for amounts owing to the Placement Agent, which amounts shall be paid by
CIC.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of
the Investors, severally and not jointly, hereby makes the following
representations and warranties to CIC as of the date hereof and on the Closing
Date:
(a) AUTHORIZATION; ENFORCEMENT. (i) Such Investor has the requisite power
and authority to enter into and perform this Agreement and the Registration
Rights Agreement and to purchase the Preferred Shares being sold hereunder, (ii)
the execution and delivery of this Agreement and the Registration Rights
Agreement by such Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement and the Registration
Rights Agreement constitute valid and binding obligations of such Investor
enforceable against such Investor in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Investor of the transactions contemplated hereby and thereby do not and will not
(i) result in a violation of such Investor's organizational documents, or (ii)
conflict with any agreement, indenture or instrument to which such Investor is a
party, or (iii) result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Investor. Such Investor is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement or the Registration Rights Agreement.
(c) INVESTMENT REPRESENTATION. Such Investor is purchasing the Preferred
Shares for its own account and not with a view to distribution in violation of
any securities laws. Such Investor has no present intention to sell the
Preferred Shares and such Investor has no present arrangement (whether or not
legally binding) to sell the Preferred Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold the Preferred Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares at any
time in accordance with Federal and state securities laws applicable to such
disposition.
(d) ACCREDITED INVESTOR. Such Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general and investments in
particular, so that such Investor is able to evaluate the merits and risks of an
investment in the Preferred Shares and to protect its own interests in
connection with such investment. In addition (but without limiting the effect
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of CIC's representations and warranties contained herein), such Investor has
received such information as it considers necessary or appropriate for deciding
whether to purchase the Preferred Shares pursuant hereto. Such Investor
acknowledges that no representation or warranty is made by the Placement Agent
or any persons representing the Placement Agent with respect to CIC or the sale
of the Preferred Shares.
(e) RULE 144. Such Investor understands that there is no public trading
market for the Preferred Shares, that none is expected to develop, and that the
Preferred Shares must be held indefinitely unless such Preferred Shares are
converted or registered under the Act or an exemption from registration is
available. Such Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
(f) BROKERS. Such Investor has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by CIC relating to this Agreement or the transactions contemplated
hereby, except for amounts owing to the Placement Agent, which amounts shall be
paid by CIC.
(g) RELIANCE BY CIC. Such Investor understands that the Preferred Shares
are being offered and sold in reliance on a transactional exemption from the
registration requirements of Federal and state securities laws and that CIC is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of such Investor to acquire the Preferred Shares.
ARTICLE III
COVENANTS
Section 3.1 REGISTRATION AND LISTING. Until such time as no Preferred
Shares are outstanding or, if earlier, until the Forced Conversion Date (as
defined in the Designation), CIC will cause the Common Shares to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under the Exchange Act, and
will not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting and
filing obligations. Until such time as no Preferred Shares are outstanding or,
if earlier, until the Forced Conversion Date, CIC shall, to the extent permitted
by the rules of NASDAQ, continue the listing or trading of the Common Shares on
the NASDAQ Small Capitalization Market or National Market and comply in all
respects with CIC's reporting, filing and other obligations under the bylaws or
rules of the NASD and NASDAQ and any exchange or market where the Common Shares
are then traded. CIC shall cause the Underlying Shares to be listed on the
NASDAQ Small Capitalization Market or National Market or such other market on
which the Common Shares are then trading if traded on the New York Stock
Exchange or American Stock Exchange, prior to the Conversion Commencement Date.
As used herein and in the Registration Rights Agreement and the Designation, the
term "Effective Registration" shall mean that all registration obligations of
CIC pursuant to the Registration Rights Agreement have been satisfied, such
registration is not subject to any suspension or stop order, the prospectus for
the Common Shares issuable upon conversion of the Preferred Shares is current
and such Common
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Shares are listed for trading on the NASDAQ Small Capitalization or National
Market, or such other market on which the Common Shares are then trading if
traded on the New York Stock Exchange or American Stock Exchange, and such
trading has not been suspended for any reason, and none of CIC or any direct or
indirect subsidiary of CIC is subject to any bankruptcy, insolvency or similar
proceeding.
Section 3.2 CERTIFICATES ON CONVERSION. Upon any conversion by an
Investor (or then holder of Preferred Shares) of the Preferred Shares pursuant
to the Designation, CIC shall issue and deliver to such Investor (or holder)
within three (3) days of the Conversion Date (as defined in the Designation) a
new certificate or certificates for the number of Preferred Shares which such
Investor (or holder) has not yet elected to convert but which are evidenced in
part by the certificate(s) submitted to CIC in connection with such conversion
(with the number of and denomination of such new certificate(s) designated by
such Investor or holder).
Section 3.3 REPLACEMENT CERTIFICATES. The certificate(s) representing
the Preferred Shares held by any Investor (or then holder) may be exchanged by
such Investor (or such holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Preferred Shares, as reasonably requested by such Investor (or such holder)
upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
Section 3.4 EXPENSES. CIC shall pay, at the Closing and promptly upon
receipt of any further invoices relating to same, all reasonable due diligence
fees and expenses and reasonable attorneys' fees and expenses of Kleinberg,
Kaplan, Wolff & Cohen, P.C., up to a maximum amount of $100,000, incurred by the
Investors in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Registration Rights Agreement, the Designation
and the related agreements and documents and the transactions contemplated
hereunder and thereunder. At Closing CIC shall pay the amount due for such fees
and expenses (which may include fees and expenses estimated to be incurred for
completion of the transaction including post-closing matters). In the event
such amount is ultimately less than the actual fees and expenses, CIC shall
promptly pay such deficiency upon receipt of an invoice regarding same. CIC
shall pay all fees and/or commissions payable to the Placement Agent in
connection with the transactions contemplated hereby and the agreements and
documents related hereto. The Placement Agent's compensation shall be (i) a
cash payment of 6% of the aggregate gross proceeds received by CIC from the sale
of the Preferred Shares hereunder and (ii) the issuance to the Placement Agent
by CIC of warrants to purchase 30,000 shares of CIC's Common Stock for each
$1,000,000 of aggregate gross proceeds received by CIC from the sale of the
Preferred Shares hereunder (with an exercise price equal to the lesser of $2.50
per share or the closing price of CIC's Common Stock as reported on the NASDAQ
Small Capitalization Market on the Closing Date).
Section 3.5 SECURITIES COMPLIANCE. CIC shall notify the SEC and NASD, in
accordance with their requirements, of the transactions contemplated by this
Agreement, the Designation and the Registration Rights Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares hereunder and the Common Shares issuable upon conversion
thereof.
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Section 3.6 INTERCOMPANY TRANSACTIONS. Until the Restrictive Covenant
Termination Date (as defined below) and except for up to $2,000,000 of funds
required in connection with payments to the China Joint Venture (as described in
the SEC Documents) and strategic alliances with other unrelated entities: (i)
any monies or assets paid or transferred from CIC to any direct or indirect
subsidiary of CIC for any reason whatsoever shall be treated and deemed as a
loan from CIC to such subsidiary; (ii) any monies or assets paid or transferred
from any direct or indirect subsidiary of CIC to CIC for any reason whatsoever
shall be treated and deemed as a dividend and/or distribution from such
subsidiary to CIC; (iii) CIC shall not issue or transfer any of its shares of
Common Stock to any direct or indirect subsidiary; and (iv) CIC shall not, and
shall cause its direct and indirect subsidiaries not to, without the prior
written consent of a majority in interest of the holders of Preferred Shares,
create any new subsidiaries. The term "Restrictive Covenant Termination Date"
shall mean the date which is the earlier of (i) the date which is the last day
of the 13th fiscal month following the Closing Date ("Maximum Restrictive
Covenant Termination Date"), or (ii) such date on which all the Preferred Shares
have been converted for Common Shares, provided that the Maximum Restrictive
Covenant Termination Date shall not occur until such time as CIC has performed
all material obligations under this Agreement, the Registration Rights Agreement
and the Designation which were required under the terms hereof or thereof to
have been so performed, and provided further that the Maximum Restrictive
Covenant Termination Date shall be deferred one day for each day that there is
no Effective Registration after the date which is six (6) months following the
Closing Date.
Section 3.7 DIVIDENDS OR DISTRIBUTIONS. Until the Restrictive Covenant
Termination Date, CIC agrees that it shall not (a) declare or pay any dividends
or make any distributions to any holder or holders of Common Shares, (b)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of CIC either junior to or on parity with the
Preferred Shares, or (c) authorize or issue any other equity security senior to
the Preferred Shares.
Section 3.8 NO SENIOR SECURITIES. Until the Restrictive Covenant
Termination Date, CIC agrees that neither CIC nor any direct or indirect
subsidiary of CIC shall (i) create, incur, assume, guarantee, secure or in any
manner become liable in respect of any indebtedness, or permit any liens, claims
or encumbrances to exist against CIC or any direct or indirect subsidiary of CIC
or any of their assets, except for trade payables incurred in the ordinary
course of business consistent with past practices and except for a working
capital facility in form and substance and with a lender reasonably satisfactory
to the Investors, which working capital facility shall not exceed $10,000,000,
or (ii) issue any shares of its preferred stock or any securities convertible
into its preferred stock without prior written approval of such preferred stock
(or convertible security) issuance by a majority in interest of the holders of
outstanding Preferred Shares, except for preferred stock which is junior to or
on parity with the Preferred Shares in all respects.
Section 3.9 NOTICES. CIC agrees to provide all holders of Preferred
Shares with copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to the holders of shares of Common Shares, contemporaneously with the delivery
of such notices or information to such Common Share holders.
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Section 3.10 USE OF PROCEEDS. Until the Restrictive Covenant Termination
Date, CIC agrees that the proceeds received by CIC from the sale of the
Preferred Shares hereunder shall be used for working capital purposes (including
the funding of up to $2,000,000 for the China Joint Venture and strategic
alliances with other unrelated entities).
Section 3.11 OTHER OFFERINGS; RIGHT OF FIRST REFUSAL; CONVERSION PRICE
ADJUSTMENT; MORE FAVORABLE FINANCING.
(a) OTHER OFFERING. Notwithstanding anything contained herein, in
the event that CIC issues or sells, or proposes to issue or sell, any Common
Shares or any of its securities which are directly or indirectly convertible
into or exchangeable for Common Shares, or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of Common Shares
(other than shares or options issued or which may be issued pursuant to CIC's
employee or director option plans or shares issued upon exercise of options,
warrants or rights outstanding on the Closing Date listed in the SEC Documents),
then such Common Shares so issued or sold and such Common Shares so issuable
upon conversion or exchange of other securities shall be subject to a "lock-up"
provision in form and substance reasonably acceptable to the Investors pursuant
to which such Common Shares may not be sold by any holder thereof until the date
("Lock-Up Date") which is three (3) months following the Conversion Commencement
Date (as defined in the Designation), provided that the Lock-Up Date shall be
deferred by 1.5 days for each day that there is no Effective Registration or
there is not a sufficient amount of Common Shares available for conversion of
all outstanding Preferred Shares at any time on and after the Conversion
Commencement Date, and provided further that such Common Shares may be sold in a
private transaction so long as each successive transferee of such Common Shares
is subject to such lock-up provision.
(b) RIGHT OF FIRST OFFER. Until the Restrictive Covenant Termination
Date, CIC shall not (i) offer, sell, contract to sell or otherwise issue or
deliver or dispose of any debt or any Common Shares or other equity securities
or any securities which are convertible into or exchangeable for its Common
Shares or other equity securities or any convertible security, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of Common Shares or other equity securities (other than in a bona-fide
underwritten primary public offering and other than shares or options issued or
which may be issued pursuant to CIC's employee or director option plans or
shares issued upon exercise of options, warrants or rights outstanding on the
Closing Date listed in the SEC Documents), or (ii) obtain any financing from any
third party (excluding trade payables incurred in the ordinary course of
business consistent with past practices), unless such offer, sale, issuance or
financing ("Financing Transaction") is first offered to the Investors. CIC
shall make such offer by providing each Investor with written notice of CIC's
intention to enter into the Financing Transaction together with a term sheet
containing the economic terms and significant provisions of the Financing
Transaction and any other information reasonably requested by the Investors (the
"Offer"). Such Offer shall be given with respect to each Financing Transaction
contemplated by CIC. The Investors shall have ten (10) business days from
receipt of the Offer to deliver a written notice to CIC that the Investors wish
to accept the Offer (subject to satisfactory due diligence and reasonably
acceptable definitive documentation) for the Financing Transaction. If the
Investors reject the Offer or fail to respond within such ten (10) business day
period, then CIC shall be permitted to complete such Financing Transaction
without the Investors on terms and conditions substantially the same as those
contained in the Offer. If any
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Financing Transaction is contemplated on terms and conditions not substantially
the same as those contained in the Offer or with proposed definitive
documentation not substantially the same as that proposed by CIC with respect
the Offer, then such Financing Transaction shall be deemed a new Financing
Transaction and the Investors shall again be entitled to receive an Offer for
such Financing Transaction on such new terms and conditions (and/or with such
new definitive documentation if applicable). If the Investors accept the Offer
but fail to close the Financing Transaction within twenty (20) business days of
acceptance of the Offer for any reason other than any breach by CIC of its
obligations hereunder, any delay by CIC or reasonable delay in connection with
execution of definitive documentation, failure of the parties to reasonably
agree on definitive documentation or reasonable dissatisfaction by the Investors
with their due diligence examination, the Offer to the Investors shall terminate
and the Investors shall not be entitled to receive any Offer in any future
Financing Transaction, this being in addition to any other rights or remedies
CIC may have against the Investors for their failure to close such Financing
Transaction. As among the Investors, each Investor shall have the right to
participate in the Offer to the full extent of the Offer, provided that if such
Offer is oversubscribed by the Investors, each Investor shall only be entitled
to participate in the Offer up to its pro rata share.
Section 3.12 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. CIC shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of the Preferred
Shares, such number of its Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Preferred Shares, and if
at any time the number of authorized but unissued Common Shares shall not be
sufficient to effect the conversion of all the then outstanding Preferred
Shares, CIC will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued Common Shares to
such number of shares as shall be sufficient for such purpose, including without
limitation engaging in best efforts to obtain the requisite shareholder
approval. Without in any way limiting the foregoing, CIC agrees to reserve and
at all times keep available solely for purposes of conversion of Preferred
Shares such number of authorized but unissued Common Shares that is the greater
of (A) 20,000,000 or (B) 1.5 times the number as shall from time to time be
sufficient to effect conversion of all outstanding Preferred Shares at the
Conversion Price as provided in Section 4(b) of the Designation, which
20,000,000 figure may be reduced by the number of Common Shares actually
delivered pursuant to conversion of Preferred Shares under the Designation and
shall be appropriately and equitably adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock. If at any time
the number of authorized but unissued Common Shares is not sufficient to effect
the conversion of all the then outstanding Preferred Shares, the Investors shall
be entitled to the redemption rights provided in the Registration Rights
Agreement.
Section 3.13 BOARD POSITIONS. So long as any Preferred Shares are
outstanding, if the Registration Statement (as defined in the Registration
Rights Agreement) is not declared effective within 180 days of the Closing Date,
CIC shall use its best efforts to nominate and cause the election of a person
designated by the holders of a majority of the Preferred Stock then outstanding
to serve on the Board of Directors of CIC until the Restrictive Covenant
Termination Date. CIC represents, warrants and covenants that it has the
authority and ability to, and shall, increase the size of the Board of Directors
of CIC if necessary to comply with the provisions of this paragraph.
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Section 3.14 INVESTOR COMMON STOCK SALES. Each Investor covenants and
agrees that if such Investor gives a Conversion Notice (as defined in the
Designation) pursuant to Section 4(b)(i)(y) under the Designation, then such
Investor, during the three (3) trading days prior to such Conversion Notice,
shall not have sold long any shares of Common Stock which were not acquired by
any conversion of any Preferred Shares.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF CIC TO SELL THE
PREFERRED SHARES. The obligation hereunder of CIC to issue and/or sell the
Preferred Shares to the Investors is subject to the satisfaction, at or before
the Closing, of each of the conditions set forth below. These conditions are
for CIC's sole benefit and may be waived by CIC at any time in its sole
discretion.
(a) ACCURACY OF THE INVESTORS' REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Investor shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) PERFORMANCE BY THE INVESTORS. Each Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
such Investor at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement or the Designation.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS TO
PURCHASE THE PREFERRED SHARES. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Investors' sole benefit and may be waived by the Investors at any
time in their sole discretion.
(a) ACCURACY OF CIC'S REPRESENTATIONS AND WARRANTIES. The representations
and warranties of CIC shall be true and correct in all material respects as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a particular date).
(b) PERFORMANCE BY CIC. CIC shall have performed all agreements and
satisfied all conditions required to be performed or satisfied by CIC at or
prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date, trading in CIC's
Common Shares shall not have been suspended by the SEC or the NASDAQ Small
Capitalization Market, and trading in securities generally as reported by NASDAQ
shall not have
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been suspended or limited, and the Common Shares shall not have been delisted
from any exchange or market where they are currently listed, and the market
value of the outstanding Common Shares shall not have decreased below $1.75 per
share.
(d) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement or the Designation.
(e) OPINION OF COUNSEL. At the Closing the Investors shall have received
an opinion of counsel to CIC in the form attached hereto and such other
opinions, certificates and documents as the Investors or their counsel shall
reasonably require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. CIC and the Investors shall have
executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) FULL SUBSCRIPTION. At least 432,000 Preferred Shares shall have been
purchased in the aggregate by the Investors pursuant to this Agreement.
(h) ADVERSE CHANGES. Since September 30, 1996, no event which had or is
likely to have a Material Adverse Effect on CIC or any of its direct or indirect
subsidiaries shall have occurred.
(i) OFFICER'S CERTIFICATE. CIC shall have delivered to the Investors a
certificate in form and substance reasonably satisfactory to the Investors,
executed by an officer of CIC, certifying as to satisfaction of closing
conditions, incumbency of signing officers, charter, by-laws, good standing and
authorizing resolutions of CIC.
(j) DESIGNATION FILED. The Investors shall have received copies of the
filed Designation.
(k) STANDOFF COMMITMENTS. The Investors shall have received copies of the
standoff commitments from James Dao, Philip Sassower and CIC Standby Ventures,
L.P. as set forth in Section 2.1(o) hereof.
(l) PRIOR PRIVATE PLACEMENTS. The registration statement with respect to
the November 1995 Private Placement and the June 1996 Private Placement shall
have been declared effective, the "Pricing Period" under the subscription
agreements for such private placements shall have been fixed, and the "Average
Sales Price" under the subscription agreements for such private placements shall
not be less than $1.75 per share.
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ARTICLE V
LEGEND AND STOCK
Each certificate representing the Preferred Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
CIC agrees to reissue certificates representing the Preferred Shares
without the legend set forth above at such time as (i) the holder thereof is
permitted to dispose of such Preferred Shares pursuant to Rule 144(k) under the
Act, (ii) such Preferred Shares are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to CIC and its counsel) are able to dispose of such
shares publicly without registration under the Act, or (iii) such Preferred
Shares are registered under the Act.
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares shall bear a legend in the same form as the
legend on the Preferred Shares indicated above. Upon such Registration
Statement becoming effective, CIC agrees to promptly, but no later than three
(3) business days thereafter, issue new certificates representing such Common
Shares without such legend. Any Common Shares issued pursuant to conversion of
Preferred Shares after the Registration Statement has become effective shall be
free and clear of any legends, transfer restrictions and stop orders.
ARTICLE VI
TERMINATION
Section 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of CIC
and the Investors.
Section 6.2 OTHER TERMINATION. This Agreement may be terminated by
action of the Board of Directors of CIC or by a majority in interest of the
Investors at any time if the Closing shall not have been consummated by the
fifth business day following the date of this Agreement.
ARTICLE VII
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MISCELLANEOUS
Section 7.1 STAMP TAXES; PLACEMENT AGENT FEES. CIC shall pay all stamp
and other taxes and duties levied in connection with the issuance of the
Preferred Shares pursuant hereto and the Common Shares issued upon conversion
thereof. CIC shall be responsible for timely paying the compensation due to the
Placement Agent in connection with the transactions contemplated hereby.
Section 7.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) CIC and the Investors acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
(b) CIC and each of the Investors (i) hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court, the New York State
courts and other courts of the United States sitting in New York County, New
York for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement and (ii) hereby waives, and agrees not to assert in
any such suit action or proceeding, any claim that it is not personally subject
to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. CIC and each of the Investors consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
Section 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with
the Registration Rights Agreement and the agreements and documents executed in
connection herewith and therewith, contains the entire understanding of the
parties with respect to the matters covered hereby and thereby and, except as
specifically set forth herein or therein, neither CIC nor any Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought. Notwithstanding the foregoing, any of CIC's obligations under
Sections 3.1, 3.6, 3.7, 3.8, 3.10, 3.11 and 3.13 above may be waived from time
to time in whole or in part by the affirmative vote of a seventy-five percent
(75%) majority-in-interest of the holders of Preferred Shares, provided,
however, that holders of Preferred Shares who are affiliates of CIC (and CIC
itself) shall not participate in such vote and the Preferred Shares of such
holders shall be disregarded and deemed not to be outstanding.
Section 7.4 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
actual receipt of such mailing. The addresses for such communications shall be:
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to CIC: Communication Intelligence Corporation
275 Shoreline Drive
Redwood Shores, California 94065
Fax: (415) 802-7888
Attn: Frank Dane, Vice President and
Secretary
with copies to: Donald J. Bezahler, Esq.
Baer, Marks & Upham LLP
805 Third Avenue, 20th Floor
New York, New York 10022
Fax: (212) 702-5941;5810
to the Investors: To each Investor at the address and/or fax number
set forth on Schedule I of this Agreement.
with copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 INDEMNITY. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees but
excluding consequential damages) incurred as a result of such parties' breach of
any representation, warranty, covenant or agreement in this Agreement.
Section 7.6 WAIVERS. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.7 HEADINGS. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The parties hereto may
amend this Agreement without notice to or the consent of any third party. CIC
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that CIC may assign this Agreement in
connection with the sale of all or substantially all of its assets provided that
CIC is not released from any of its obligations
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hereunder, such assignee assumes all obligations of CIC hereunder, and
appropriate adjustment of the provisions contained in this Agreement, the
Registration Rights Agreement and the Designation to place the Investors in the
same position as they would have been but for such assignment, in accordance
with the terms of the Designation. Any Investor may assign this Agreement (in
whole or in part) or any rights or obligations hereunder without the consent of
CIC in connection with any sale or transfer all or any portion of the Preferred
Shares held by such Investor, provided that no Investor may assign this
Agreement prior to the Closing Date without CIC's prior written consent except
to an affiliate or affiliates of such Investor.
Section 7.9 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.10 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 7.11 SURVIVAL. The representations and warranties and the
agreements and covenants of CIC and each Investor contained herein shall survive
the Closing.
Section 7.12 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 PUBLICITY. CIC agrees that it will not disclose, and will not
include in any public announcement, the name of any Investor without its
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.14 SEVERABILITY. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 LIKE TREATMENT OF HOLDERS. Neither CIC nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemptions or
exchange of Preferred Shares, or otherwise, to any holder of Preferred Shares,
for or as an inducement to, or in connection with the solicitation of, any
consent, waiver or amendment of any terms or provisions of the Preferred Shares
or this Agreement or the Registration Rights Agreement, unless such
consideration is required to be paid to all holders of Preferred Shares bound by
such consent, waiver or amendment whether or not such holders so consent, waive
or agree to amend and whether or not such holders tender their Preferred Shares
for redemption or exchange. CIC shall not, directly or indirectly, redeem any
Preferred Shares unless such offer of redemption is made pro rata to all holders
of Preferred Shares on identical terms.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CIC:
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/James Dao
-----------------------------------------
Name: James Dao
Title: Chief Executive Officer
INVESTORS:
ANVIL INVESTMENT PARTNERS, L.P.
By: Anvil Investors, Inc., as general partner
By: /s/Mark S. Zucker
--------------------------------------
Name: Mark S. Zucker
Title: President
OTATO LIMITED PARTNERSHIP
By: /s/Richard M. Cayne
------------------------------------------
Name: Richard M. Cayne
Its: General Counsel for OTA Grand Cayman
General Partner for OTATO Limited Partnership
PRAIRIE PATH CORPORATION
By: /s/Cathleen S. McKinzie
------------------------------------------
Name: Cathleen S. McKinzie
Title: Vice President
-19-
<PAGE>
GLOBAL BERMUDA LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
------------------------------------
Name: Richard J. Emmerich
Title: President
MERCED PARTNERS LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
------------------------------------
Name: Richard J. Emmerich
Title: President
LAKESHORE INTERNATIONAL LTD.
By: Global Capital Management, Inc.
Its: Investment Manager
By: /s/Richard J. Emmerich
-------------------------------------
Name: Richard J. Emmerich
Title: Director
ELLIOTT ASSOCIATES, L.P.
By: /s/Paul E. Singer
------------------------------------------
Name: Paul E. Singer
Its: General Partner
WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as Attorney-In-Fact
By: /s/Paul E. Singer
-------------------------------------
Name: Paul E. Singer
Its: President
-20-
<PAGE>
JMG CAPITAL PARTNERS, L.P.
By: /s/Jonathan Glaser
----------------------------------------------
Name: Jonathan Glaser
Its: General Partner
RAVICH REVOCABLE TRUST OF 1989
By: /s/Jess Ravich
----------------------------------------------
Name: Jess Ravich
Its: Trustee
NAVESINK INVESTMENT FUND LDC
By: /s/John Burke
----------------------------------------------
Name: John Burke
Title: Managing Member
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.P., as General Partner
By: /s/Stephen Feinberg
-----------------------------------------
Name: Stephen Feinberg
Title: General Partner
CERBERUS INTERNATIONAL, LTD
By: /s/Stephen Feinberg
----------------------------------------------
Name: Stephen Feinberg
Title: Investment Advisor
-21-
<PAGE>
Exhibit 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
December 31, 1996 between Communication Intelligence Corporation, a Delaware
corporation with offices at 275 Shoreline Drive, Redwood Shores, California
94065 ("CIC"), and each of the entities listed under "Investors" on the
signature page hereto (each an "Investor" and collectively the "Investors"),
each with offices at the address listed under such Investor's name on Schedule I
hereto.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Preferred Stock Investment Agreement
by and between CIC and the Investors (the "Investment Agreement"), CIC has
agreed to sell and issue to the Investors, and the Investors have agreed to
purchase from CIC, an aggregate of 450,000 shares, par value $0.01, of CIC's 5%
Cumulative Convertible Preferred Stock (the "Preferred Shares") on the terms and
conditions set forth therein;
WHEREAS, the Investment Agreement contemplates that the Preferred
Shares will be convertible into shares ("Common Shares") of common stock, par
value $0.01, of CIC ("Common Stock") pursuant to the terms and conditions set
forth in the Certificate of Designations (the "Designation") for such Preferred
Shares; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Investment Agreement, CIC has agreed
to provide the Investors with certain registration rights with respect to the
Common Shares and certain other rights and remedies with respect to the
Preferred Shares as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Investment Agreement and this Agreement, CIC and the Investors agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed thereto in the Investment
Agreement or the Designation. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in the Investment Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Liquidation Preference" shall have the meaning ascribed to such term
in the Designation. For clarification purposes, "Liquidation Preference"
hereunder shall include any accrued and unpaid dividends on the Preferred Shares
on a per diem basis through the date of any event for which default payments are
payable pursuant to Section 2(b) below and thereafter.
<PAGE>
"Registrable Securities" shall mean: (i) the Common Shares issued to
each Holder or its permitted transferee or designee upon conversion of the
Preferred Shares or upon any stock split, stock dividend, recapitalization or
similar event with respect to such Common Shares; (ii) any securities issued or
issuable to each Holder upon the exchange or conversion of any Preferred Shares
or Common Shares; (iii) any other security of CIC issued as a dividend or other
distribution with respect to, in exchange of or in replacement of Registrable
Securities; and the Common Shares issued pursuant to the exercise of the
warrants delivered to the Placement Agent as described in Section 3.4 of the
Investment Agreement.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by CIC
in connection with each Holder's registration rights under this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for CIC, blue sky fees and expenses,
reasonable fees and disbursements of counsel to Holders (using a single counsel
selected by a majority in interest of the Holders) for a "due diligence"
examination of CIC and review of the Registration Statement and related
documents, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of CIC,
which shall be paid in any event by CIC).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
"Holder" and "Holders" shall include an Investor or the Investors,
respectively, and any transferee of the Preferred Shares or Common Shares or
Registrable Securities which have not been sold to the public to whom the
registration rights conferred by this Agreement have been transferred in
compliance with this Agreement.
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
2. REGISTRATION REQUIREMENTS. CIC shall use its best efforts to
effect the registration of the Registrable Securities (including without
limitation the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holder. Such best efforts by CIC shall
include the following:
-2-
<PAGE>
(a) CIC shall, as expeditiously as reasonably possible after the
Closing Date:
(i) Prepare and file a registration statement with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3 under
the Securities Act (or in the event that CIC is ineligible to use such
form, such other form as CIC is eligible to use under the Securities Act)
covering the Registrable Securities ("Registration Statement") by March 31,
1997. Thereafter CIC shall use its best efforts to cause such Registration
Statement and other filings to be declared effective prior to 180 days
following the Closing Date. CIC shall provide Holders reasonable
opportunity to review any such Registration Statement or amendment or
supplement thereto prior to filing.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement and notify the Holders of
the filing and effectiveness of such Registration Statement and any
amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the Act, copies of
the Registration Statement, any amendment or supplement thereto and any
documents incorporated by reference therein and such other documents as
such Holder may reasonably require in order to facilitate the disposition
of Registrable Securities owned by such Holder.
(iv) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by each Holder; provided that CIC shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(v) Notify each Holder immediately of the happening of any
event as a result of which the prospectus (including any supplements
thereto or thereof) included in such Registration Statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and use its best efforts to promptly update and/or correct such
prospectus.
(vi) Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. CIC shall use its best
efforts to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time.
(vii) Permit a single firm of counsel, designated as
Holders' counsel by a majority of the Registrable Securities included in
the Registration Statement, to review the Registration Statement and all
amendments and supplements thereto within
-3-
<PAGE>
a reasonable period of time prior to each filing, and shall not file any
document in a form to which such counsel reasonably objects.
(viii) Use its best efforts to list the Registrable
Securities covered by such Registration Statement with any securities
exchange(s) and/or markets on which the Common Stock is then listed and
prepare and file any required filings with the National Association of
Securities Dealers, Inc. or any exchange or market where the Common Shares
are traded.
(b) (i) CIC agrees that it shall file the Registration
Statement complying with the requirements of this Agreement by March 31,
1997 and shall use its best efforts to cause such Registration Statement to
become effective within 180 days from the Closing Date. In the event that
such Registration Statement has not been declared effective within 180 days
from the Closing Date, then CIC shall pay to each Holder a default payment
in an amount equal to three percent (3%) of the Liquidation Preference for
the Preferred Shares held by such Holder for each 30-day period from and
after the 180th day following the Closing Date during any part of which
such Registration Statement is not effective.
(ii) In the event that CIC fails, refuses or is unable to
cause the Registrable Securities covered by the Registration Statement to
be listed with the securities exchange(s) and markets on which the Common
Stock is then traded and the NASDAQ Small Capitalization Market or the
National Market at all times during the period ("Listing Period") from the
Conversion Commencement Date (subject to acceleration pursuant to Section 4
of the Designation) until the date which is the last day of the 13th fiscal
month following the Closing Date (provided that such date shall be deferred
1.5 days for each day that there is no Effective Registration after the
Conversion Commencement Date), then CIC shall pay to each Holder a default
payment in an amount equal to three percent (3%) of the Liquidation
Preference for the Preferred Shares held by such Holder for each 30-day
period during the Listing Period from and after such failure, refusal or
inability to so list the Registrable Securities until the Registrable
Securities are so listed.
(iii) In the event any Holder's ability to sell
Registrable Securities under the Registration Statement is suspended for
more that sixty (60) days in the aggregate ("Suspension Grace Period") or
if any Holder's ability to sell Registrable Securities under the
Registration Statement is suspended at any time during the 12th or 13th
fiscal month following the Closing Date, including without limitation by
reason of any suspension or stop order with respect to the Registration
Statement or the fact that an event has occurred as a result of which the
prospectus (including any supplements thereto) included in such
Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, then CIC shall pay to each Holder a
default payment in an amount equal to three percent (3%) of the Liquidation
Preference for the Preferred Shares held by such Holder for each 30-day
period from and after the last day of the Suspension Grace Period or during
the 12th or 13th fiscal month following the Closing Date, as the case may
be, until such suspension no longer exists.
-4-
<PAGE>
(iv) In the event that CIC does not have a sufficient number
of Common Shares available to satisfy CIC's obligations to any Holder upon
receipt of a Conversion Notice (as defined in the Designation) or is
otherwise unable to issue such Common Shares (including without limitation
by reason of the limit described in Section 11 below) in accordance with
the terms of the Designation for any reason after receipt of a Conversion
Notice, then CIC shall pay to each Holder a default payment in an amount
equal to three percent (3%) of the Liquidation Preference for the Preferred
Shares held by such Holder for each 30-day period from and after the
Conversion Date (as defined in the Designation) that CIC fails or refuses
to issue Common Shares in accordance with the terms thereof.
(v) Each default payment provided for in the foregoing
clauses (i) through (iv) shall be in addition to each other default
payment; provided, however, that in no event shall CIC be obligated to pay
to any Holder default payments in an aggregate amount greater than three
percent (3%) of the Liquidation Preference for the Preferred Shares held by
such Holder for any 30-day period. All default payments required to be
made in connection with the above provisions shall be paid in cash by the
tenth (10th) day of each calendar month (which payments shall be pro rata
on a per diem basis for any period of less than 30 days); provided,
however, that in the event of the circumstance described in clause (i)
above, CIC may pay the default payments due for the first 60 days under
such clause in additional Preferred Shares (with each new Preferred Share
valued at $25 per share) instead of in cash. In the event that CIC fails
or refuses to pay any default payment when due, at any Holder's request and
option CIC shall purchase all or a portion of the Preferred Shares held by
such Holder (with default payments accruing through the date of such
purchase), within five (5) days of such request, at a purchase price equal
to the Premium Redemption Price (as defined below), provided that such
Holder may revoke such request at any time prior to receipt of such payment
of such purchase price. Until such time as the CIC purchases such
Preferred Shares at the request of such Holder pursuant to the preceding
sentence, the default payment amounts due shall accrue interest at the
lower of 38.65% per annum or the highest rate permitted by law, and at any
Holder's request and option CIC shall pay such amount in additional
Preferred Shares (with each new Preferred Share valued at $25 per share) or
by adding and including the amount of such default payment to the
Conversion Amount and the Liquidation Preference) instead of in cash.
(vi) CIC acknowledges that any failure, refusal or inability
by CIC described in the foregoing clauses (i) through (iv) will cause the
Holders to suffer damages in an amount that will be difficult to ascertain,
including without limitation damages resulting from the loss of liquidity
in the Registrable Securities and the additional investment risk in holding
the Registrable Securities, whether or not such Holders ultimately achieve
the return on investment contemplated in the Designation. Accordingly, the
parties agree that it is appropriate to include in this Agreement the
foregoing provisions for default payments in order to compensate the
Holders for such damages. The parties acknowledge and agree that the
default payments set forth above represent the parties' good faith effort
to quantify such damages and, as such, agree that the form and amount of
such default payments are reasonable and will not constitute a penalty.
The default payments provided for above are in addition to and not in lieu
or limitation of any other rights the Holders may have at law, in equity or
under the terms
-5-
<PAGE>
of the Designation, the Investment Agreement or this Agreement, including
without limitation the right to specific performance. Each Holder shall be
entitled to specific performance of any and all obligations of CIC in
connection with the registration rights of the Holders hereunder. In the
event of any of the circumstances described in the foregoing clauses (i)
through (iv) above, then the Forced Conversion Date (as defined in the
Designation) shall be deferred by 1.5 days for each day that any of the
circumstances in clauses (i), (ii), (iii) (without regard to the
applicability of the Suspension Grace Period), or (iv) exist. In addition
to and without in any way limiting the foregoing, CIC agrees that in the
event that (A) any failure, refusal or inability by CIC described in the
clauses (ii) and (iii) of this Section 2(b) is not cured within sixty (60)
days of such event or (B) the Registration Statement has not been declared
effective by the 13th month following the Closing Date, then at the option
of each Holder and to the extent such Holder so elects, CIC shall redeem
the Preferred Shares and/or Common Shares held by such Holder, in whole or
in part, as follows: (i) in the case of Preferred Shares, such shares
shall be redeemed at a redemption price per share equal to the Premium
Redemption Price (as defined below); and (ii) in the case of Common Shares
issued to such Holder pursuant to conversion of Preferred Shares, such
shares shall be redeemed at a redemption price per share equal to 1.3865
times the dollar amount which is the product of (x) the number of shares so
to be redeemed pursuant to this paragraph, and (y) the closing market price
on the principal trading market or exchange of CIC's Common Stock on the
date of such redemption; provided, however, that such Holder may revoke
such request at any time prior to receipt of such payment of such
redemption price. Default payments shall no longer accrue on Preferred
Shares after such shares have been redeemed by CIC pursuant to the
foregoing provision.
(vii) In the event any Holder at any time is unable to
convert any Preferred Shares under the Designation due to an insufficient
number of Common Shares available for any reason, then at any time
thereafter at the request of any Holder pursuant to a redemption notice,
CIC promptly shall purchase from such Holder, at a purchase price equal to
the "Premium Redemption Price", the number of Preferred Shares equal to
such Holder's pro rata share of the "Deficiency", as such terms are defined
below; provided, however, if within three (3) business days of such
redemption notice CIC delivers to such Holder a notice stating that CIC
will have a sufficient number of Common Shares available for conversion of
all outstanding Preferred Shares within ten (10) business days, then CIC
shall not be required to redeem such Preferred Shares pursuant to this
Section unless CIC shall fail to have a sufficient number of Common Shares
available for conversion of all outstanding Preferred Shares after such ten
(10) business day period. Notwithstanding the foregoing, in the event any
Holder delivers a Conversion Notice and CIC is unable to convert any
Preferred Shares under the Designation due to an insufficient number of
Common Shares available for any reason, CIC promptly shall purchase from
such Holder, at a purchase price equal to the Premium Redemption Price, the
number of Preferred Shares requested to be converted in such Conversion
Notice which are not so converted. The "Premium Redemption Price" is equal
to 1.3865 (i.e., 1 DIVIDED BY .72125) times the following: the sum of $25
times the number of Preferred Shares which cannot be converted plus accrued
and unpaid dividends thereon (with dividends deemed accrued on a per diem
basis through the date of such purchase even if such date is not a Dividend
Payment Date (as defined in the Designation)) plus any default payments
owing to such Holder pursuant to this Agreement. The "Deficiency"
-6-
<PAGE>
shall be equal to the number of Preferred Shares that would not be able to
be converted for Common Shares, due to an insufficient number of Common
Shares available, if all the outstanding Preferred Shares were submitted
for conversion at the Conversion Price set forth in the Designation as of
the date such Deficiency is determined.
(viii) In the event CIC becomes obligated to make default
payments on Preferred Shares hereunder in cash, then once per month during
any such period in which CIC is obligated to make such cash payments, CIC
may, by written notice ("PIK Notice") to all the Holders of Preferred
Shares, request that CIC either, at each Holder's option (i) be permitted
to pay such default payments to such Holder in additional Preferred Shares
(with each new Preferred Share valued at $25 per share) instead of in cash
for the following thirty (30) day period, or (ii) have the right to
repurchase such Preferred Shares at the Premium Redemption Price. Such PIK
Notice shall be delivered to all the Holders at least ten (10) days before
the default payment for any such month is due. Each Holder shall respond
to such PIK Notice at least five (5) days before such payment is due by
selecting clause (i) or (ii) above, provided that if any Holder fails to
respond to such PIK Notice by such time, such Holder shall be deemed to
have selected clause (i) above. In the event any Holder selects clause
(ii) above, then the repurchase of the Preferred Shares contemplated by
this paragraph shall occur on the date in which the default payment is due
for such month. In the event any Holder selects clause (i) above (whether
by responding or failing to respond to the PIK Notice), then CIC shall
issue and deliver to such Holder the requisite number of additional
Preferred Shares constituting such default payment on the date in which the
default payment is due for such month.
(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder(s) shall so advise CIC. Any
such underwriting may only be administered by investment bankers reasonably
satisfactory to CIC. CIC shall only be obligated to permit one underwritten
offering, which offering shall be determined by a seventy-five percent (75%)
majority-in-interest of the Holders.
(d) CIC shall enter into such customary agreements for secondary
offerings (including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions reasonably
requested by the Holders in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities are to be sold in an underwritten offering:
(i) make such representations and warranties to the Holders
and the underwriter or underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of
independent counsel to CIC, on and dated as of the effective day (or in the
case of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the Registration
Statement, and within ninety (90) days following the end of each fiscal
year thereafter, which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory
-7-
<PAGE>
to the Holders and the underwriter(s), if any, and their counsel and
covering, without limitation, such matters as the due authorization and
issuance of the securities being registered and compliance with securities
laws by CIC in connection with the authorization, issuance and registration
thereof and other matters that are customarily given to underwriters in
underwritten offerings, addressed to the Holders and each underwriter, if
any; such counsel shall have undertaken in each such opinion delivered
pursuant to the preceding sentence to update the same during each such
fiscal year so that such updates received by the Holders during such year,
if any, shall have been reasonably satisfactory to such Holders. CIC
hereby covenants and agrees to advise such counsel of any and all factual
matters which might pertain to any such update or as to which such an
update may be so required, and such counsel may rely upon such advice in
providing any such update. In the absence of such advice from CIC, any
such update shall be provided to and upon such counsel's best knowledge
insofar as and to the extent such update depends upon a factual matter.
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each fiscal year
following a year during which CIC's independent certified public
accountants shall have reviewed any of CIC's books or records, a "comfort"
letter from CIC's independent certified public accountants addressed to the
Holders and each underwriter, if any, stating that such accountants are
independent public accountants within the meaning of the Securities Act and
the applicable published rules and regulations thereunder, and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of the independent certified public
accountants delivered in connection with secondary offerings, subject to
the receipt by such accountants of a representation letter from the Holders
reasonably acceptable to such accountants to enable such accountants to
issue a comfort letter to the Holders in a non-underwritten offering; such
accountants shall have undertaken in each such letter to update the same
during each such fiscal year in which such books or records are being
reviewed so that each such letter shall remain current, correct and
complete throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the Holders.
(iv) if an underwriting agreement is entered into, the same
shall include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten offerings;
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of the Registrable Securities being
sold or the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any; and
(vi) deliver to the Holders on the effective day (or in the
case of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the Registration
Statement, and at the beginning of each fiscal quarter thereafter, a
certificate in form and substance as shall be reasonably satisfactory to
the Holders, executed by an executive officer of CIC and to the effect that
all the
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<PAGE>
representations and warranties of CIC contained in the Investment Agreement
are still true and correct except as disclosed in such certificate; CIC
shall, as to each such certificate delivered at the beginning of each
fiscal quarter, update or cause to be updated each such certificate during
such quarter so that it shall remain current, complete and correct
throughout such quarter; and such updates received by the Holders during
such quarter, if any, shall have been reasonably satisfactory to the
Holders.
(e) CIC shall make available for inspection by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of CIC
and review of any Registration Statement, all SEC Documents (as defined in the
Investment Agreement) filed subsequent to the Closing, pertinent corporate
documents and properties of CIC, and cause CIC's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, CIC may suspend the use of
any prospectus used in connection with the Registration Statement only (i) in
the event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission, or (ii) in the event such a suspension
is required by the underwriter in a bona fide, underwritten primary public
offering, provided that such suspension or suspensions under the foregoing
clauses (i) and (ii) shall not in the aggregate exceed sixty (60) days. CIC
will use its best efforts to cause such suspension to terminate at the earliest
possible date.
(g) CIC shall file a Registration Statement with respect to any
newly authorized and/or reserved shares within five (5) business days of any
shareholders meeting authorizing same and shall use its best efforts to cause
such Registration Statement to become effective within sixty (60) days of such
shareholders meeting. If the Holders become entitled, pursuant to an event
described in clause (iii) of the definition of Registrable Securities, to
receive any securities in respect of Registrable Securities that were already
included in a Registration Statement, subsequent to the date such Registration
Statement is declared effective, and CIC is unable under the securities laws to
add such securities to the then effective Registration Statement, CIC shall
promptly file, in accordance with the procedures set forth herein, an additional
Registration Statement with respect to such newly Registrable Securities. CIC
shall use its best efforts to (i) cause any such additional Registration
Statement, when filed, to become effective under the Securities Act, and (ii)
keep such additional Registration Statement effective during the period
described in Section 5 below. All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities, including without limitation the provisions
providing for default payments contained herein.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by CIC, and all Selling Expenses of a
Holder shall be borne by such Holder.
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<PAGE>
4. REGISTRATION ON FORM S-3. CIC shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms, or in the event that CIC is ineligible to use such form, such form as CIC
is eligible to use under the Securities Act.
5. REGISTRATION PERIOD. In the case of the registration effected by
CIC pursuant to this Agreement, CIC will use its best efforts to keep such
registration effective until all the Holders have completed the sales or
distribution described in the Registration Statement relating thereto or, if
earlier, until such Registerable Securities may be sold under Rule 144(k)
(provided that CIC's transfer agent has accepted an instruction from CIC to such
effect).
6. INDEMNIFICATION.
(a) CIC INDEMNITY. CIC will indemnify each Holder, each of its
officers, directors and partners, and each person controlling each Holder,
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder, any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on 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, or any violation by CIC of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to CIC and relating to action or inaction required of CIC in connection with any
such registration, qualification or compliance, and will reimburse each Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that CIC will not be liable in any such case to a Holder to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to CIC by such Holder or the underwriter (if any) therefor and stated
to be specifically for use therein. The indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of CIC (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify CIC, each of its directors, officers, partners, and each underwriter,
if any, of CIC's securities covered by such a registration statement, each
person who controls CIC or such underwriter within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person
controlling such other Holder(s) against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and will reimburse CIC and such other Holder(s) and their directors,
officers and partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or
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<PAGE>
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to CIC by such Holder and stated to be specifically for
use therein, and provided that the maximum amount for which such Holder shall be
liable under this indemnity shall not exceed the net proceeds received by such
Holder from the sale of the Registrable Securities. The indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any such claims, losses, damages or liabilities if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under
this Article (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to provide notice. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
7. CONTRIBUTION. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between CIC on the one hand and any Holder on the other, in such
proportion as is appropriate to reflect the relative fault of CIC and of such
Holder 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 CIC on the one hand and of any Holder on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by CIC or by
such Holder.
-11-
<PAGE>
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
CIC and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or 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 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 the immediately
preceding 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 section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or 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 was not guilty of such fraudulent misrepresentation.
8. SURVIVAL. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of CIC referred to in
Section 2(d)(i) shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or the Investment Agreement or any
underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of CIC, and (iii) the consummation of the
sale or successive resales of the Registrable Securities.
9. INFORMATION BY HOLDERS. Each Holder shall furnish to CIC such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as CIC may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement. The intended method or methods of disposition
and/or sale (Plan of Distribution) of such securities as so provided by such
Investor shall be included without alteration in the Registration Statement
covering the Registrable Securities and shall not be changed without written
consent of such Holder.
10. CHANGE IN CONTROL TRANSACTION. Prior to the Restrictive Covenant
Termination Date (as defined in the Investment Agreement), in the event CIC
desires to effect a Change in Control Transaction (as defined in the
Designation) at any time (whether occurring before or after the Preferred Shares
become convertible), the closing of such transaction shall be conditioned upon
the prior purchase and redemption by CIC of, and payment for, at the request of
any Holder, all (or such portion requested by such Holder) of the outstanding
Preferred Shares held by such Holder at a purchase price equal to the Premium
Redemption Price. CIC shall provide all Holders of Preferred Shares with 30
days' prior notice of any such transaction, and such notice shall be deemed an
offer to redeem the Preferred Shares pursuant to this paragraph.
-12-
<PAGE>
11. NASDAQ LIMIT ON STOCK ISSUANCES. In the event that CIC is unable
to issue any Common Shares upon conversion of Preferred Shares under the
Designation due to the rules or regulations of any market or exchange regulator
for the market or exchange on which the Common Shares are then trading, CIC
shall, at the request of any Holder promptly following such determination,
purchase such Preferred Shares of such Holder which cannot be converted at a
purchase price equal to the Premium Redemption Price.
12. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Common Shares held by any Investor (or then Holder) may be exchanged by such
Investor (or such Holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Common
Shares, as reasonably requested by such Investor (or such Holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
13. TRANSFER OR ASSIGNMENT. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
CIC under this Agreement to cause CIC to register Registrable Securities may be
transferred or assigned (in whole or in part) to a transferee or assignee of not
less than 5,000 Preferred Shares, and all other rights granted to the Investors
by CIC hereunder may be transferred or assigned to any transferee or assignee of
any Preferred Shares (regardless of the number of Preferred Shares transferred);
provided in each case that CIC must be given written notice by the such Investor
at the time of or within a reasonable time after said transfer or assignment,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned; and provided further that the transferee or assignee of such rights
agrees in writing to be bound by the registration and exchange provisions of
this Agreement.
14. MISCELLANEOUS.
(a) REMEDIES. CIC and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) JURISDICTION. CIC and each of the Investors (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court, the New York State courts and other courts of the United States sitting
in New York County, New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. CIC and each of the Investors consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process
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<PAGE>
and notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
(c) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
actual receipt of such mailing. The addresses for such communications shall be:
to CIC: Communication Intelligence Corporation
275 Shoreline Drive
Redwood Shores, California 94065
Fax: (415) 802-7888
Attn: Frank Dane, Vice President and
Secretary
with copies to: Donald J. Bezahler, Esq.
Baer, Marks & Upham LLP
805 Third Avenue, 20th Floor
New York, New York 10022
Fax: (212) 702-5941;5810
to the Investors: To each Investor at the address and/or fax
number set forth on Schedule I of this
Agreement.
with copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
(d) INDEMNITY. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) WAIVERS. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. The representations and warranties and the agreements and
covenants of CIC and each Investor contained herein shall survive the Closing.
Notwithstanding anything contained herein, CIC's obligation to pay default
payments hereunder may be waived from time to time in whole or in part by the
affirmative vote of a seventy-five percent (75%) majority-in-interest of the
holders of Preferred Shares, provided, however, that holders of Preferred Shares
who are affiliates of CIC (and CIC itself) shall not participate in such
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<PAGE>
vote and the Preferred Shares of such holders shall be disregarded and deemed
not to be outstanding.
(f) EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(g) PUBLICITY. CIC agrees that it will not disclose, and will not
include in any public announcement, the name of any Investor without its
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
(h) ENTIRE AGREEMENT. This Agreement, together with the Investment
Agreement and the Designation and the agreements and documents contemplated
hereby and thereby, contains the entire understanding and agreement of the
parties, and may not be modified or terminated except by a written agreement
signed by both parties.
(i) GOVERNING LAW; CONSENT OF JURISDICTION. This Agreement and the
validity and performance of the terms hereof shall be governed by and construed
in accordance with the laws of the State of New York, except to the extent that
the law of Delaware regulates CIC's issuance of securities.
(j) SEVERABILITY. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
(k) TITLES. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CIC:
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/James Dao
-----------------------------------------------
Name: James Dao
Title: Chief Executive Officer
INVESTORS:
ANVIL INVESTMENT PARTNERS, L.P.
By: Anvil Investors, Inc., as general partner
By: /s/Mark S. Zucker
------------------------------------------
Name: Mark S. Zucker
Title: President
OTATO LIMITED PARTNERSHIP
By: /s/Richard M. Cayne
-----------------------------------------------
Name: Richard M. Cayne
Its: General Counsel for OTA Grand Cayman
General Partner of OTATO Limited Partnership
PRAIRIE PATH CORPORATION
By: /s/Cathleen S. McKinzie
-----------------------------------------------
Name: Cathleen S. McKinzie
Title: Vice President
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<PAGE>
GLOBAL BERMUDA LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
---------------------------------------------
Name: Richard J. Emmerich
Title: President
MERCED PARTNERS LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
------------------------------------------
Name: Richard J. Emmerich
Title: President
LAKESHORE INTERNATIONAL LTD.
By: Global Capital Management, Inc.
Its: Investment Manager
By: /s/Richard J. Emmerich
-----------------------------------------
Name: Richard J. Emmerich
Title: Director
ELLIOTT ASSOCIATES, L.P.
By: /s/Paul E. Singer
-----------------------------------------------
Name: Paul E. Singer
Its: General Partner
WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as Attorney-In-Fact
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<PAGE>
By: /s/Paul E. Singer
------------------------------------------
Name: Paul E. Singer
Its: President
JMG CAPITAL PARTNERS, L.P.
By: /s/Jonathan Glaser
-----------------------------------------------
Name: Jonathan Glaser
Its: General Partner
RAVICH REVOCABLE TRUST OF 1989
By: /s/Jess Ravich
-----------------------------------------------
Name: Jess Ravich
Its: Trustee
NAVESINK INVESTMENT FUND LDC
By: /s/John Burke
-----------------------------------------------
Name: John Burke
Title: Managing Member
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.P., as General Partner
By: /s/Stephen Feinberg
------------------------------------------
Name: Stephen Feinberg
Title: General Partner
CERBERUS INTERNATIONAL, LTD
By: /s/Stephen Feinberg
-----------------------------------------------
Name: Stephen Feinberg
Title: Investment Advisor
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Exhibit 3
CERTIFICATE OF DESIGNATIONS
OF
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
FOR
COMMUNICATION INTELLIGENCE CORPORATION
Communication Intelligence Corporation, a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designations and does hereby state and certify that pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the Certificate
of Incorporation of the Corporation, the Board of Directors duly adopted the
following resolutions, which resolutions remain in full force and effect as of
the date hereof:
RESOLVED, that, pursuant to Article FOURTH of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
600,000 shares, par value $0.01, to be designated "5% Cumulative Convertible
Preferred Stock" (the "Preferred Shares").
RESOLVED, that each of the Preferred Shares shall rank equally in all
respects and shall be subject to the following terms and provisions:
1. DIVIDENDS.
(a) CUMULATIVE. The holders of the Preferred Shares shall be
entitled to receive out of any assets legally available therefor cumulative
dividends at the rate of $1.25 per share per annum compounded semi-annually when
payable (whether or not declared), payable on the Conversion Commencement Date
(as defined below) and semi-annually every six (6) months thereafter (each a
"Dividend Payment Date"), when and as declared by the Board of Directors, in
preference and priority to any payment of any dividend on the Common Stock (as
defined below) or any other class or series of stock of the Corporation. Such
dividends shall accrue on any given share from the most recent date on which a
dividend has been paid with respect to such share, or if no dividends have been
paid, from the date of the original issuance of such share, and such dividends
shall accrue from day to day whether or not declared, based on the actual number
of days elapsed. If at any time dividends on the outstanding Preferred Shares
at the rate set forth above shall not have been paid or declared and set apart
for payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for the shares of any other class or series
of stock of the Corporation.
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<PAGE>
(b) CASH OR PIK. Any dividend payable on the outstanding
Preferred Shares may be paid, at the option of the Corporation, either (i) in
cash or (ii) in additional Preferred Shares (with each new Preferred Share
valued at $25 per share); provided, however, that if the Corporation shall fail
to pay any dividend on a Dividend Payment Date, the amount of such dividend
shall be added to the Liquidation Preference (as defined below) for such
Preferred Shares.
2. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Preferred Shares shall be entitled to receive, prior and in
preference to any distribution of any assets of the Corporation to the holders
of any other class or series of shares, the amount of $25 per share plus any
accrued but unpaid dividends (with dividends deemed accrued on a per diem basis
through the date of such event and thereafter even if such event or any
distribution is not on a Dividend Payment Date) (the "Liquidation Preference").
3. ISSUANCE OF PREFERRED SHARES. The Preferred Shares shall be
issued by the Corporation pursuant to a Preferred Stock Investment Agreement
("Investment Agreement") to be entered into between the Corporation and the
initial subscribers for the Preferred Shares, and holders of Preferred Shares
shall enjoy the benefits of the Registration Rights Agreement ("Registration
Rights Agreement") to be entered into between such parties in connection with
the Investment Agreement. The 150,000 Preferred Shares authorized and
designated hereunder which are not issued pursuant to the Investment Agreement
may only be issued to the initial subscribers for Preferred Shares under the
Investment Agreement or the holders of Preferred Shares for the sole purpose of
paying stock dividends hereunder or default payments under the Registration
Rights Agreement to the extent permitted hereunder and under the Registration
Rights Agreement.
4. CONVERSION. On and after the date ("Conversion Commencement
Date") which is six (6) months from the Closing Date (as defined in the
Investment Agreement), or such earlier date as may be permitted pursuant to
Section 4(i) below, each holder of the Preferred Shares shall have the right at
any time and from time to time, at the option of such holder, to convert any or
all Preferred Shares for such number of fully paid, validly issued and
nonassessable shares ("Common Shares") of common stock, par value $0.01, of the
Corporation ("Common Stock"), free and clear of any liens, claims or
encumbrances, as is determined by dividing (i) the sum of $25 times the number
of Preferred Shares being converted plus accrued and unpaid dividends thereon up
to and including the most recent Dividend Payment Date (or up to and including
the Conversion Date (as defined below) if the Conversion Date occurs on the
Conversion Commencement Date or another Dividend Payment Date) plus any default
payments owing to such holder on the Conversion Date pursuant to the
Registration Rights Agreement (the "Conversion Amount"), by (ii) the Conversion
Price determined as hereinafter provided in effect on the Conversion Date, on
the following terms and conditions.
(a) MECHANICS OF CONVERSION. To convert Preferred Shares into Common
Shares, the holder shall give written notice ("Conversion Notice") to the
Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice
may be given by facsimile transmission) stating that such holder elects to
convert the same and shall state therein the number of shares to be converted
and the name or names in which such holder wishes the certificate or
certificates
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<PAGE>
for Common Shares to be issued (the date of such Conversion Notice
shall be referred to herein as the "Conversion Date"). Within one (1) trading
day after such conversion the holder shall deliver page 2 to Exhibit A hereto
indicating the computation of the number of Common Shares to be received and
shall surrender the certificate or certificates representing the shares being
converted, duly endorsed, at the office of the Corporation or of any transfer
agent for such shares, provided that the Corporation shall at all times maintain
an office or agency in New York City for such purposes. The Corporation shall,
immediately upon receipt of such Conversion Notice, issue and deliver to or upon
the order of such holder, against delivery of the certificates representing the
shares which have been converted, a certificate or certificates for the number
of Common Shares to which such holder shall be entitled (with the number of and
denomination of such certificates designated by such holder), and the
Corporation shall immediately issue and deliver to such holder a certificate or
certificates for the number of Preferred Shares which such holder has not yet
elected to convert hereunder but which are evidenced in part by the
certificate(s) delivered to the Corporation in connection with such Conversion
Notice; the Corporation shall effect such issuance within three (3) trading days
(as defined in Section 4(b)(iv) below) of the Conversion Date and shall transmit
the certificates by messenger or overnight delivery service to reach the address
designated by such holder within three (3) trading days after the receipt of
such Conversion Notice ("T+3"). In the alternative to physical delivery of
certificates for Common Shares, if delivery of the Common Shares pursuant to any
conversion hereunder may be effectuated by electronic book-entry through
Depository Trust Company ("DTC"), then delivery of Common Shares pursuant to
such conversion shall be closed and settled on T+3 by book-entry transfer
through DTC, and the Common Shares in connection with such conversion shall be
deemed delivered by such book-entry transfer. The parties agree to coordinate
with DTC to accomplish this objective. The conversion pursuant to this Section
4 shall be deemed to have been made immediately prior to the close of business
on the Conversion Date. The person or persons entitled to receive the Common
Shares issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares at the close of business on the
Conversion Date.
(b) DETERMINATION OF CONVERSION PRICE.
(i) At any date up to and including the date which is the
last day of the thirteenth fiscal month following the Closing Date, the
Conversion Price shall be equal to:
[1 - Applicable Percentage (as set forth below)] x Agreed Value (as
defined below).
The Agreed Value shall equal: (x) if the holder giving a Conversion Notice
shall have sold Common Shares, the weighted-average (based upon the number of
shares sold) of the actual selling prices at which such holder shall have sold
Common Shares (but not less than the lowest trading price on the date of such
trade as reported by the principal market on which the Common Stock is traded or
on Instinet), net of normal and customary commissions and underwriting or dealer
spreads; or (y) if the holder giving a Conversion Notice shall not have sold
Common Shares, the average of the daily means between the low trading price of
the Common Stock and the Closing Price of the Common Stock for the three (3)
consecutive trading days immediately preceding the Conversion Date.
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(ii) The Applicable Percentage shall be as follows:
14.375% during the 7th fiscal month following the Closing
Date
18.125% during the 8th fiscal month following the Closing
Date
19.875% during the 9th fiscal month following the Closing
Date
21.625% during the 10th fiscal month following the Closing
Date
23.250% during the 11th fiscal month following the Closing
Date
24.875% during the 12th fiscal month following the Closing
Date
25.000% during the 13th fiscal month following the Closing
Date
(iii) After the date which is the last day of the
thirteenth fiscal month following the Closing Date, the Conversion Price
shall be the lesser of: (x) 72.125% of the average of the daily means
between the low trading price of the Common Stock and the Closing Price of
the Common Stock for all the trading days during the 13th fiscal month
following the Closing Date; or (y) (1) if the holder giving a Conversion
Notice shall have sold Common Shares, 72.125% of the weighted-average
(based upon the number of shares sold) of the actual selling prices at
which the holder giving a Conversion Notice shall have sold Common Shares
(but not less than the lowest trading price on the date of such trade as
reported by the principal market on which the Common Stock is traded or on
Instinet), net of normal and customary commissions and underwriting or
dealer spreads, or (2) if the holder giving a Conversion Notice shall not
have sold Common Shares, 72.125% of the average of the daily means between
the low trading price of the Common Stock and the Closing Price of the
Common Stock during the three (3) consecutive trading days immediately
preceding the Conversion Date.
(iv) The "low trading price" and the "Closing Price",
respectively, of the Common Stock on any day, as indicated in the next
day's Wall Street Journal if so reported in the Wall Street Journal, shall
be (A) the lowest reported sale price and the reported Closing Price (last
sale price) of the Common Stock on the New York Stock Exchange or the
American Stock Exchange, or (B) if the Common Stock is not listed on the
New York Stock Exchange or the American Stock Exchange, the lowest reported
sale price and the reported Closing Price of the Common Stock on the
principal automated securities price quotation system on which sale prices
of the Common Stock are reported, or (C) if the Common Stock is not listed
on such stock exchanges and sale prices of the Common Stock are not
reported on an automated quotation system, the lowest bid price and the
mean of the final bid and asked prices for the Common Stock as reported by
National Quotation Bureau Incorporated if at least two securities dealers
have inserted both bid and asked quotations for the Common Stock on at
least five of the ten preceding trading days. If none of the foregoing
provisions are applicable, the "mean of the low trading price and the
Closing Price" of the Common Stock on a day will be the fair market value
of the Common Stock on that day as determined by a member firm of the New
York Stock Exchange, Inc., selected in good faith by the Board of Directors
of the Corporation and reasonably acceptable to the holders of Preferred
Shares. The term "trading day" means (x) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, a day on which
there is trading on such stock exchange, (y) if the Common Stock is not
listed on either of such stock exchanges but sale prices of the Common
Stock are reported on an automated quotation system, a day on which
-5-
<PAGE>
trading is reported on the principal automated quotation system on which
sales of the Common Stock are reported, or (z) if the foregoing provisions
are inapplicable, a day on which quotations are reported by National
Quotation Bureau Incorporated. Any "fiscal month following the Closing
Date" shall mean the period commencing on the same numerical date as the
Closing Date in the applicable month following the Closing Date and ending
on the date in the following calendar month which is one day prior to the
numerical date of the Closing Date. If the Closing Date occurs on a
numerical date of 29, 30 or 31, and any calendar month following the
Closing Date does not have a corresponding numerical date, then the ending
date for such fiscal month shall be the last day of such calendar month.
If the Closing Date occurs on the first day of a calendar month, then each
fiscal month shall be a calendar month.
(v) In the event that during any period of consecutive
trading days provided for above, the Corporation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in rights to
acquire Common Stock, or shall effect a stock split or reverse stock split,
or a combination, consolidation or reclassification of the Common Stock,
then the Conversion Price shall be proportionately decreased or increased,
as appropriate, to give effect to such event.
(c) DISTRIBUTIONS. In the event the Corporation shall at any time or
from time to time make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation or any of its direct or indirect
subsidiaries other than additional Common Shares, then in each such event, in
addition to the number of shares of Common Stock receivable upon conversion,
provision shall be made so that the holders of Preferred Shares shall receive,
upon the conversion thereof, the securities of the Corporation or such
subsidiary which they would have received had they been the owners on the date
of such event of the number of Common Shares issuable to them upon conversion.
The Corporation shall, upon the written request at any time of any holder of
Preferred Shares, furnish or cause to be furnished to such holder a certificate
prepared by the Corporation setting forth the number of other securities and the
amount, if any, of other property which at the time would be received upon the
conversion of Preferred Shares with respect to each share of Common Stock
received upon such conversion.
(d) NOTICE OF RECORD DATE. In the event of any taking by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Shares at least 10 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution, security
or right and the amount and character of such dividend, distribution, security
or right.
(e) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of Common Shares on conversion of
Preferred Shares pursuant hereto; provided,
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<PAGE>
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of its Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Preferred Shares, and if
at any time the number of authorized but unissued Common Shares shall not be
sufficient to effect the conversion of all the then outstanding Preferred
Shares, the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued Common
Shares to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, so long as any
Preferred Shares remain outstanding the Corporation agrees to reserve and at all
times keep available solely for purposes of conversion of Preferred Shares such
number of authorized but unissued Common Shares that is the greater of (A)
20,000,000 or (B) 1.5 times the number as shall from time to time be sufficient
to effect conversion of all outstanding Preferred Shares at the Conversion Price
as provided in Section 4(b) above, which 20,000,000 figure may be reduced by the
number of Common Shares actually delivered pursuant to conversion of Preferred
Shares hereunder and shall be appropriately and equitably adjusted for any stock
split, reverse split, stock dividend or reclassification of the Common Stock.
(g) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the Conversion Date
(as determined in good faith by the Board of Directors of the Corporation).
(h) REORGANIZATION OR MERGER. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person, then, as part of such reorganization, consolidation, merger or sale, if
the holders of Common Shares receive any publicly traded securities as part or
all of the consideration for such reorganization, consolidation, merger or sale,
then provision shall be made such that each Preferred Share shall thereafter be
convertible into such new securities at a conversion price which places the
holders of Preferred Shares in an economically equivalent position as they would
have been if not for such event. In addition to the foregoing, if the holders
of Common Shares receive any non-publicly traded securities or other property or
cash as part or all of the consideration for such reorganization, consolidation,
merger or sale, then such distribution shall be treated as a distribution under
Section 4(c) above and such Section shall govern such distribution. So long as
any Preferred Shares are outstanding, the Corporation agrees that there shall be
no such reorganization, consolidation, merger or sale unless an appropriate
adjustment of the conversion price and other provisions contained herein
-6-
<PAGE>
is agreed to in writing in advance by the Board of Directors of the Corporation
and a majority in interest of the holders of outstanding Preferred Shares (which
agreement will not be unreasonably withheld), provided that such consent shall
not be required if (i) such reorganization, consolidation, merger or sale places
such holders in the equivalent position as they would have been if not for such
event and (ii) the surviving entity and the entity into whose securities the
Preferred Shares are then convertible in connection with such reorganization,
consolidation, merger or sale are in compliance with all the material provisions
of this Designation, the Registration Rights Agreement and the Investment
Agreement as if such agreements and documents were applicable to such entities
and their securities (including without limitation that the applicable
securities into which the Preferred Shares are convertible are authorized and
available for conversion, registered, and listed and traded on the applicable
exchanges and/or markets).
(i) CHANGE IN CONTROL. If at any time (a) there occurs any
consolidation or merger of the Corporation with or into any other corporation or
other entity or person (whether or not the Corporation is the surviving
corporation), or any other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Corporation's voting power
is transferred through a merger, consolidation, tender offer or similar
transaction, (b) in excess of 50% of the Corporation's Board of Directors
consists of directors not nominated by the prior Board of Directors of the
Corporation, or (c) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Corporation's
voting power (the events in the foregoing clauses (a), (b) and (c) collectively
referred to as a "Change in Control Transaction"), then notwithstanding the date
restriction contained in the first paragraph of this Section 4, each holder of
Preferred Shares shall have the right to convert any or all of its Preferred
Shares for Common Shares at any time prior to the Conversion Commencement Date
in accordance with the terms hereof at an Applicable Percentage equal to 14.375%
(which right shall be in addition to such holder's right to convert Preferred
Shares at any time on or after the Conversion Commencement Date in accordance
with the terms hereof). The Corporation shall provide all holders of Preferred
Shares with 30 days' prior notice of any such transaction. The Corporation
further agrees that it shall not agree or consent to or enter into any
transaction or series of transactions as a result of which the Common Shares
would cease to be publicly traded unless agreed to in writing in advance by the
Board of Directors of the Corporation and a majority in interest of the holders
of Preferred Shares.
(j) FORCED CONVERSION. Subject to the following sentence, each
holder of Preferred Shares shall convert any Preferred Shares held by such
holder on the date which is the third (3rd) anniversary of the Closing Date
("Forced Conversion Date"), provided that such Forced Conversion Date shall be
deferred for such number of days as is equal to 1.5 times the number of days
there is not Effective Registration or there is not a sufficient amount of
Common Shares available for conversion of all outstanding Preferred Shares at
any time on and after the Conversion Commencement Date. Notwithstanding the
preceding sentence, no holder of Preferred Shares shall be obligated to convert
any Preferred Shares held by such holder on the Forced Conversion Date unless
and until each of the following conditions has been satisfied or exists, each of
which shall be a condition precedent to any such forced conversion:
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<PAGE>
(1) no material default or breach exists, and no event shall
have occurred which constitutes (or would constitute with notice or the
passage of time or both) a material default or breach of the Investment
Agreement, the Registration Rights Agreement or this Certificate of
Designations;
(2) none of the events described in clauses (i) through (iv) of
Section 2(b) of the Registration Rights Agreement shall have occurred and
be continuing;
(3) Effective Registration (as defined in the Investment
Agreement) has occurred and is continuing and has continuously existed for
the prior 30 consecutive trading days;
(4) the Corporation and its direct and indirect subsidiaries on
a consolidated basis has assets with a net realizable fair market value
exceeding its liabilities and is able to pay all its debts as they become
due in the ordinary course of business, and the Corporation is not and has
not been subject to any liquidation, dissolution or winding up of its
affairs; and
(5) each holder of Preferred Shares shall have received a
certificate from an appropriate executive officer of the Corporation
certifying that each of the foregoing conditions precedent exist or have
been satisfied.
Such forced conversion shall be subject to and governed by all the provisions
relating to voluntary exchange of the Preferred Shares contained herein, except
that the Conversion Amount for any forced conversion shall include accrued and
unpaid dividends on the Preferred Shares on a per diem basis through the date of
such forced conversion even if such date is not a Dividend Payment Date.
(k) LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(i) Notwithstanding anything to the contrary contained
herein, no Preferred Share may be converted by a holder to the extent that,
after giving effect to Common Shares to be issued pursuant to a Conversion
Notice, the total number of Common Shares deemed beneficially owned by such
holder, together with all Common Shares deemed beneficially owned by the
holder's "affiliates" as defined in Rule 144 of the Act, would exceed 4.9%
of the total issued and outstanding shares of the Corporation's Common
Stock, provided that each holder shall have the right to waive this
restriction, in whole or in part, immediately in the case of a pending
Change in Control Transaction and in any other case upon 61 days prior
notice to the Corporation. The delivery of a Conversion Notice by any
holder shall be deemed a representation by such holder that it is in
compliance with this paragraph. A transferee of the Preferred Shares shall
not be bound by this provision unless it expressly agrees to be so bound.
The term "deemed beneficially owned" as used in this Certificate of
Designations shall exclude shares that might otherwise be deemed
beneficially owned by reason of the convertibility of the Preferred Shares.
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<PAGE>
(l) CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The Corporation
shall, upon the written request at any time of any holder of Preferred Shares,
furnish or cause to be furnished to such holder a certificate prepared by the
Corporation setting forth any adjustments or readjustments of the Conversion
Price pursuant to this Section 4.
(m) SPECIFIC ENFORCEMENT. The Corporation agrees that irreparable
damage would occur in the event that any of the provisions of this Certificate
of Designations were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the holders of Preferred
Shares shall be entitled to specific performance, injunctive relief or other
equitable remedies to prevent or cure breaches of the provisions of this
Certificate of Designations and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which any of them may be
entitled under agreement, at law or in equity.
5. VOTING RIGHTS.
(a) In addition to the voting rights provided in Section 5(b) below,
the holders of Preferred Shares shall have the right, together with the holders
of Common Stock, to vote in the election of directors and upon each other matter
coming before any meeting of the holders of Common Stock on the basis of one
vote for each Preferred Share held, and the holders of Preferred Shares and the
holders of Common Stock shall vote together as if they were one class on such
matters.
(b) The affirmative vote of seventy-five percent (75%) of the
Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment of this Certificate of Designations, (ii) any amendment to the
Certificate of Incorporation or by-laws of the Corporation that may amend or
change any of the rights, preferences, or privileges of the Preferred Shares,
(iii) any waiver of a default in payment of dividends on the Preferred Shares,
and (iv) any reorganization or reclassification of the capital stock of the
Corporation, any consolidation or merger of the Corporation with or into any
other corporation or corporations, or any sale of all or substantially all of
the assets of the Corporation, that would have an adverse effect on any of the
rights, preferences, or privileges of the Preferred Shares, provided, however,
that holders of Preferred Shares who are affiliates of the Corporation (and the
Corporation itself) shall not participate in such vote and the Preferred Shares
of such holders shall be disregarded and deemed not to be outstanding for
purposes of such vote.
6. NOTICES. The Corporation shall distribute to the holders of
Preferred Shares copies of all notices, materials, annual and quarterly reports,
proxy statements, information statements and any other documents distributed
generally to the holders of shares of Common Stock of the Corporation, at such
times and by such method as such documents are distributed to such holders of
such Common Stock.
7. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Preferred Shares held by any holder of Preferred Shares may be exchanged by such
holder at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Preferred Shares, as
reasonably requested by such holder, upon surrendering the same. No service
charge will be made for such registration or transfer or exchange.
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<PAGE>
8. ATTORNEYS' FEES. Any holder of Preferred Shares shall be
entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with enforcement by such holder
of any obligation of the Corporation hereunder.
Signed on December 27, 1996
/s/James Dao
----------------------------------
James Dao, Chief Executive Officer
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<PAGE>
EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of 5% Cumulative Convertible
Preferred Stock ("Preferred Shares") of Communication Intelligence Corporation
(the "Corporation"), hereby irrevocably elects to convert _____________
Preferred Shares for shares ("Common Shares") of common stock, par value $0.01
per share (the "Common Stock"), of the Corporation according to the terms and
conditions of the Certificate of Designations for the Preferred Shares as of the
date written below. The undersigned hereby requests that share certificates for
the Common Stock to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. No fee will be charged to the holder of Preferred
Shares for any conversion. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Certificate of
Designations.
Conversion Date:
---------------------------
Conversion Information: NAME OF HOLDER:
----------------------------------
By:
---------------------------------------------------
Print Name:
Print Title:
Print Address of Holder:
------------------------------------------------------
------------------------------------------------------
Issue Common Stock to:
--------------------------------
at:
-------------------------------------------------
------------------------------------------------------
IF COMMON STOCK IS TO BE ISSUED TO A PERSON OTHER THAN HOLDER,
HOLDER'S SIGNATURE MUST BE GUARANTEED BELOW:
SIGNATURE GUARANTEED BY:
- ------------------------------------------------------------------------------
<PAGE>
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON THE
ATTACHED PAGE.
PAGE 1 OF CONVERSION NOTICE
PAGE 2 TO CONVERSION NOTICE DATED FOR:
--------------- -----------------
(CONVERSION DATE) (NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: shares
-----------------
A. Number of Preferred Shares
converted x $25 $
---------
B. Number of Preferred Shares
converted x accrued and unpaid
dividends up to the most recent
Dividend Payment Date $
---------
C. Default payments due Holder $
---------
TOTAL DOLLAR AMOUNT CONVERTED
(TOTAL OF A + B + C) $
---------
Amount of Commissions $
---------
CONVERSION PRICE (with the
Agreed Value determined pursuant
to clause ____ of Section 4(b)(i) or
clause ____ of Section 4(b)(iii)
of the Certificate of Designations) $
---------
Number of Common Shares = $
---------
Total dollar amount converted = $
---------
Conversion Price = $
---------
NUMBER OF COMMON SHARES = $
---------
If the conversion is not being settled by DTC, please issue and deliver
certificate(s) for Common Shares in the following amount(s):
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver certificate(s) for Preferred Shares
in the following amounts: -----
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE>
Exhibit 4
COMMUNICATION INTELLIGENCE CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
December 31, 1996, is made by and between Communication Intelligence
Corporation, a Delaware corporation (the "Company") and Libra Investments, Inc.
(the "Advisor").
R E C I T A L S
WHEREAS, the Advisor is acting as placement agent for a private
placement of 450,000 shares (the "Shares") of 5% Cumulative Convertible
Preferred Stock of the Company (the "Preferred Shares") (the "Private
Placement"); and
WHEREAS, in partial consideration for the Advisor acting as
placement agent for the Preferred Shares, the Company is issuing Warrants to
purchase common stock, par value $0.01 per share (the "Common Stock") of the
Company to the Advisor (the "Designee"); and
WHEREAS, as further inducement for the Advisor to act as placement
agent for the Preferred Shares, the Company desires to undertake to register the
Warrant Shares (as hereinafter defined) under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act"), in
accordance with, and subject to, the terms hereof.
NOW, THEREFORE, the Advisor and the Company covenant and agree,
upon the terms and subject to the conditions set forth herein, as follows:
1. DEFINITIONS. For the purposes of this Agreement, the
following capitalized terms shall have the following meanings:
(a) "Holder" means, initially, the Designee, and
thereafter, any person or entity (a "person") who at a given time is the
holder of record of any Registrable Securities or Warrants, so long as such
transfers or assignments were made in compliance with Section 8 hereof or,
with respect to the Warrants, in compliance with the terms thereof.
(b) "Register," "registered" and "registration" refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act.
(c) "Registration Statement" means any registration
statement or comparable document of the Company under the Securities Act
through which a public sale or disposition of the Company's securities may be
registered (except a form used exclusively
<PAGE>
for the sale or distribution of securities in connection with an employee stock
option plan or in connection with a business combination), the prospectus
contained therein and all amendments and supplements to such Registration
Statement, including post-effective amendments, and all material incorporated by
reference in such Registration Statement.
(d) "Registrable Securities" means (i) the Warrant Shares (as
defined below); and (ii) any other security of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of
the Warrant Shares, excluding in all cases, however, any Registrable Securities
disposed of by a Holder in a transaction in which its registration rights under
this Agreement are not assigned pursuant to Section 8 of this Agreement.
(e) "SEC" means the United States Securities and Exchange
Commission or any similar agency then having the authority to enforce the
Securities Act.
(f) "Warrant Shares" means the shares of Common Stock
issuable upon exercise of the Warrants pursuant to the terms of the Warrants.
(g) "Warrants" means the 337,500 Warrants of the Company
being issued by the Company to the Designees on the date hereof.
2. ADVISOR'S REGISTRATION.
(a) PIGGYBACK REGISTRATION. If at any time during the
five year period from the date hereof the Company proposes to register any of
its securities under the Securities Act, either for its own account or for
the account of others, in connection with the public offering of such
securities solely for cash, pursuant to a Registration Statement that would
also permit the registration of the Registrable Securities, the Company
shall, in each such time, promptly give the Holder written notice of such
proposal and the Holder may, within fifteen days after the Company provides
such notice, request the inclusion of Registrable Securities in such
Registration Statement; provided, however, that it shall be a condition
precedent to the Company's obligations under this Section 2(a) that the
underwriter(s) of such offering, if any, consent to the inclusion of the
Holder's Registrable Securities in any such offering. In such event the
Company shall include the Registrable Securities in such registration;
provided that the Holder (i) agrees to sell the Registrable Securities on the
basis provided in any underwriting agreements relating to such offering, and
otherwise complies with the provisions of Section 4 hereof, (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up agreements and other documents required
under the terms of such underwriting arrangements, and (iii) agrees to pay
the Holder's pro rata portion of all underwriting discounts and commissions.
(b) DEMAND REGISTRATION. Subject to Section 2(c) hereof,
at any one time during the period commencing ninety (90) days from the
closing date of the Private
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Placement (the "Closing Date") and terminating five years from the Closing Date,
the Holder may deliver to the Company a written request that the Company
register the Registrable Securities (but no less than all of the Registrable
Securities) under the Securities Act and, upon receipt of such request, the
Company shall prepare and file a Registration Statement with the SEC covering
the Registrable Securities provided that if at the time of such written request,
(i) the Company has filed an application to list its Common Stock on the NASDAQ
SmallCap Market, (ii) the Company has met all of the NASDAQ SmallCap Market
listing requirements, and (iii) the Company has no reason to believe that the
Common Stock will not be so listed, the Company may extend the filing date of
the Registration Statement for not more than 90 days after the date of the
Holder's written request. The Company shall use its best efforts to keep such
Registration Statement continually effective for the earlier to occur of the
following: (i) all of the Registrable Securities covered by such Registration
Statement have been sold, and (ii) nine months from the effective date of any
such Registration Statement. The Holder shall notify the Company in writing
within five (5) days after the sale of all of the Registrable Securities to
enable the Company to determine when its obligation to continue effectiveness of
such Registration Statement terminates.
(c) Notwithstanding anything contained in Section 2(b) to the
contrary, the Holder shall have no rights under Section 2(b), and Section 2(b)
shall be deemed null and void, if the Holder elects to exercise the Warrants
pursuant to and in accordance with Section 2.6 of the Warrant Certificate
evidencing the Warrants.
(d) SUSPENSION OF SALES BY HOLDERS. If at any time when a
Registration Statement is effective with respect to Registrable Securities
pursuant to Section 2(b) hereof, the Company intends to file a registration
statement for an underwritten public offering of securities to be issued by the
Company (a "Company Registration Statement"), the Company shall promptly give
written notice thereof to the Holder, which notice shall include the anticipated
filing date of the Company Registration Statement, and the Holder shall suspend
offers and sales of its Registrable Securities covered by such Registration
Statement for a period commencing fourteen days prior to the anticipated filing
date of the Company Registration Statement and terminating not later than
150 days from the effective date of the Company Registration Statement (a
"Suspension Period"); provided, however, that the Holder shall only be required
to suspend such offers and sales of its Registrable Securities (i) if so
requested by the underwriter of any such offering, and (ii) if and to the extent
that any other securityholders of the Company whose securities have been
registered by the Company pursuant to registration rights also agree to
suspension of their sales. The Holder agrees that, during any such Suspension
Period, the Holder shall not sell, make any short sale of, pledge, grant any
option for the purchase of or otherwise dispose of any Registrable Securities
without the prior written consent of such underwriter(s), and shall enter into
such agreements with such underwriter(s) with respect to the foregoing as is
reasonably requested by such underwriter(s).
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<PAGE>
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities pursuant to Section 2 of this
Agreement, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to all Registrable Securities included therein, and use its best
efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing, and to keep the Registration Statement
effective for the period specified in Section 2 hereof, which Registration
Statement shall not contain during such period any untrue statement of a
material fact or omit to state during such period a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective for the period specified
in Section 2 hereof and as may be required by the Securities Act, and during
such periods to comply with the provisions of the Securities Act with respect to
the Registration Statement.
(c) Furnish promptly to each Holder whose Registrable
Securities are included in the Registration Statement such number of copies
of a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Holder may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by such Holder.
(d) Use its best efforts to register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders and prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements and to take
such other actions as may be necessary to maintain such registration and
qualification in effect at all times during which it has agreed to use its
best efforts to keep a Registration Statement effective under the Securities
Act pursuant to the terms of this Agreement, and to take all other actions
necessary or advisable to enable the disposition of such securities in such
jurisdictions, PROVIDED that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, to file a
general consent to service of process, to subject itself to general taxation
in any such states or jurisdictions or to make any change in its charter or
bylaws which the Board of Directors determines to be contrary to the best
interest of the Company and its shareholders.
(e) Notify the Holders who hold Registrable Securities being
sold of the happening of any event as a result of which the prospectus included
in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
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misleading. The Company shall promptly amend or supplement the Registration
Statement to correct any such untrue statement or omission.
(f) Notify the Holders who hold Registrable Securities being
sold of the issuance by the SEC or any state securities commission or agency of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Company will use its best
efforts to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time.
(g) Permit a single firm of counsel to review the
Registration Statement and all amendments and supplements thereto within a
reasonable period of time prior to each filing, and shall not file any
document in a form to which such counsel reasonably objects.
(h) Furnish to the Holders on the effective date of the
Registration Statement, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given in such an offering, addressed to the Company;
and (ii) a "cold comfort" letter, dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to securityholders
in such an offering, so addressed.
(i) Make available for inspection by representatives of the
Holders and any counsel, accountants or other agents retained by any thereof,
all pertinent financial and other records, corporate documents and properties of
the Company, and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such party in connection with the
Registration Statement.
(j) Use its best efforts to cause the Registrable Securities
being sold to be listed on the NASDAQ SmallCap Market.
(k) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be sold pursuant to the
Registration Statement and to enable such certificates to be in such
denominations and registered in such names as the Holders of the Registrable
Securities being sold.
(l) Take all other actions reasonably necessary to
expedite and facilitate disposition by the Holders of the Registrable
Securities being sold pursuant to the Registration Statement.
4. OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities, the Holders shall have the
following obligations:
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(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement with respect to
each Holder that such Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended
methods of disposition of such securities as shall be reasonably required to
effect the registration of the Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least ten days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Holder of the
information the Company requires from each such Holder if it elects to have
any of his Registrable Securities included in the Registration Statement.
(b) Each Holder agrees to cooperate with the Company in
connection with the preparation and filing of any Registration Statement
hereunder.
(c) No Holder may participate in any underwritten
registration hereunder unless such Holder (i) agrees to enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations; (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements; (iii)
agrees to pay such Holder's pro rata portion of all underwriting discounts
and commissions; and (iv) agrees to take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the
Registrable Securities being sold.
(d) Each Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 2(c) or Section 3(e), such Holder will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Holder's receipt of (i)
confirmation from the Company that such sales may resume under the terms of
Section 2(c) or (ii) the copies of the supplemented or amended prospectus
contemplated by Section 3(e) and, if so requested in writing by the Company,
such Holder shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of such destruction) all
copies, other than the permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities at the
time of receipt of such notice.
5. EXPENSES OF REGISTRATION. All expenses incurred in
connection with registration, filings or qualifications pursuant to Section
2, including, without limitation, all registration, listing, filing and
qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company and the reasonable fees and disbursements of one
firm of counsel for the Holders, shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
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(a) To the fullest extent permitted by law, the Company will
indemnify and hold each Holder, it partners and their respective directors,
officers, employees and representatives, and each person who controls any such
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934 (the "1934 Act") (each such person being
referred to as an "Indemnified Person") harmless from and against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
a Registration Statement, or in any amendment or supplement thereto, or arising
out of or based upon 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 in light of the circumstances under which they were made,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or allegation thereof
based upon information furnished in writing to the Company by such Indemnified
Person expressly for use therein. Notwithstanding the foregoing, the Company
shall not be obligated to so indemnify any such Holder, officer, director or
controlling person with respect to any loss, claim, damage, liability or expense
arising out of the failure by such person to comply with the prospectus delivery
requirements under the Securities Act and the rules and regulations thereunder.
(b) If any action or proceeding (including any governmental
investigation) shall be brought, threatened or asserted against any Indemnified
Person in respect of which indemnity may be sought from the Company, such
Indemnified Person shall promptly notify the Company in writing, and the Company
shall assume the defense thereof, including employment of counsel and the
payment of all expenses related thereto. Any such Indemnified Person shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Company has agreed to pay
such fees and expenses; or (ii) the Company shall have failed to assume the
defense of such action or proceeding and employ counsel in such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there may be one or more legal defenses available to such Indemnified Person
which are different from or additional to those available to the Company (in
which case, if such Indemnified Person notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
will not have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Person); provided, however, that the Company will
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time for
all such Indemnified Persons, which firm shall be designated in writing by a
majority in interest of such Indemnified Persons. The Company shall not be
liable for any default judgment caused by any Indemnified Person or settlement
of any such action or proceeding or confession of judgment without its prior
written consent, but if settled with its written consent (which consent shall
not be unreasonably
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withheld), or if there be a final judgment (other than such default judgment)
for the plaintiff in any such action or proceeding, the Company agrees to
indemnify and hold harmless such Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Subject to the following
sentence, if the Company agrees to a settlement of an action or proceeding
against an Indemnified Person which does not involve any finding or admission of
liability or wrongdoing on the part of the Indemnified Person and stands ready,
willing and able to pay such settlement and the Indemnified Person refuses to
settle, then the Indemnified Person shall continue the defense at its own
expense and the Company shall be responsible to indemnify only the lesser of the
amount of the settlement accepted by the Company or the cost of the final
disposition of the claim. The Company will not, without the prior written
consent of any Indemnified Person, settle or compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or threatened
action, claim, suit or proceeding in respect to which indemnification or
contribution may be sought hereunder unless such settlement, compromise, consent
or termination includes an express unconditional release of all Indemnified
Persons from all liability arising out of such action, claim, suit or
proceeding.
(c) Each Holder, severally and not jointly, agrees to
indemnify and hold harmless the Company, its directors and officers, and each
person, if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the 1934 Act, to the same extent as
the indemnity from the Company to each Indemnified Person set forth in
Section 6(a), but only (i) with respect to untrue statements, alleged untrue
statements, omissions or alleged omissions relating to such Holder or an
Indemnified Person who is such by reason of such person's relationship to
such Holder, furnished in writing by such Holder or such person to the
Company expressly for use in the Registration Statement or the Prospectus, or
any amendment or supplement thereto; and (ii) with respect to any failure by
such Holder to comply with the prospectus delivery requirements under the
Securities Act and the rules and regulations thereunder. In case any action
or proceeding shall be brought against the Company or its officers or
directors or any such controlling person in respect of which indemnity may be
sought against a Holder under the provisions of this Section 6(c), such
Holder shall have the rights and duties given to the Company and each of the
Company or its directors or its officers or its controlling persons shall
have the rights and duties given to each Holder and other Indemnified
Persons, under the terms of Section 6(b) above. Notwithstanding anything
contained herein, no Holder shall be liable for an amount which is greater
than the proceeds received by such Holder from the sale of Registrable
Securities.
(d) If the indemnification provided for under Section 6(a) or
Section 6(c) hereof is unavailable to an indemnified party thereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of the applicable Holders on the other in
connection with the statements or
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omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the applicable Holders 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 to state a material
fact relates to information supplied by the Company or information supplied by
the applicable Holder in writing for use in the Registration Statement and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Subsection 11(f) of the Securities Act)
or of gross negligence, willful misconduct or bad faith shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation, gross negligence, willful, misconduct or bad faith.
Notwithstanding anything contained herein, no Holder shall be liable for an
amount which is greater than the proceeds received by such Holder from the sale
of Registrable Securities.
7. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of SEC Rule 144
promulgated under the Securities Act and any other rule or regulation of the
SEC that may at any time permit the Holders to sell securities of the Company
to the public without registration, the Company agrees to file with the SEC
all reports and documents required to be filed by it under the Securities Act
and the 1934 Act and the rules and regulations promulgated thereunder, and to
furnish to each Holder, so long as such Holder owns any Registrable
Securities, a copy of the most recent annual or quarterly report of the
Company, such other reports and documents filed by the Company with the SEC,
and such other information as may be reasonably requested in availing the
Holders of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
8. ASSIGNMENTS OF REGISTRATION RIGHTS. The rights of a
Holder under this Agreement may be assigned by a Holder to permitted
transferees or assignees of Registrable Securities or Warrants provided that
(i) the Company is furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (ii) the transfer or assignment of
such Registrable Securities or Warrants has been made in compliance with the
Securities Act and applicable state securities law and, immediately following
such transfer or assignment the further disposition of such Registrable
Securities or Warrants is restricted under the Securities Act; and (iii) the
notice provided in this Section 8 contains a written agreement by the
transferee or assignee to be bound by the terms and provisions of this
Agreement.
9. MISCELLANEOUS.
(a) Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered or sent by registered mail, return receipt requested,
addressed (i) if to the Company, at 275 Shoreline Drive, Redwood Shores,
California 94065, with a copy to Donald J. Bezahler, Esq., Baer Marks & Upham
LLP, 805 Third Avenue, New York, New York 10022; (ii) if to the
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Advisor, at 11766 Wilshire Boulevard, Suite 870, Los Angeles, CA 90025; or at
such other address as any such party furnishes by notice given in accordance
with this Section 9.
(b) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, will not operate as a waiver thereof.
(c) This Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New
York, without giving effect to principles of conflicts of law applied in such
State. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other
provision hereof.
(d) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. Any
provision of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only by a writing executed by the Company and each of the
Holders. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon the Holders and the Company.
(e) Any person or entity is deemed to be a Holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall be entitled to act upon the
basis of instructions, notice or election received from the registered owner
of such Registrable Securities.
(f) This Agreement may be executed in counterparts, each of
which shall be an original, but all of which shall constitute one instrument.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf as of the date first set forth above.
COMMUNICATION INTELLIGENCE
CORPORATION
By: /s/James Dao
--------------------------------
Name: James Dao
Title: Chief Executive Officer
LIBRA INVESTMENTS, INC.
By:
--------------------------------
Name:
Title:
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Exhibit 5
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THIS
WARRANT MAY ONLY BE EXERCISED AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY IF SO REGISTERED
UNDER SAID ACT OR IF THE HOLDER HAS DELIVERED TO THE COMPANY AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
CERTIFICATE FOR WARRANTS
EXERCISABLE ON OR AFTER THE DATE OF ISSUANCE UNTIL 5:00 P.M., NEW YORK CITY
TIME, ON DECEMBER 31, 2001
COMMUNICATION INTELLIGENCE CORPORATION
COMMON STOCK PURCHASE WARRANT CERTIFICATE
337,500 Warrants
THIS CERTIFIES that: LIBRA INVESTMENTS, INC.
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which, subject to the provisions of
Section 1.1 of Article hereof, represents the right to purchase one fully paid
and nonassessable share (the "Shares") of Common Stock, par value $.01 per share
("Common Stock") of Communication Intelligence Corporation, a corporation formed
under the laws of the state of Delaware (the "Company"), at the initial exercise
price equal to the lesser of (i) $2.50 per Share, or (ii) the closing price of
the Common Stock as reported on the NASDAQ SmallCap Market on the date hereof
(the "Initial Exercise Price"), at any time prior to the Exercise Deadline
hereinafter referred to, by surrendering this Warrant Certificate, with the form
of election to purchase set forth hereon duly executed, at the office of the
Company, 275 Shoreline Drive, Redwood Shores, CA 94065, or such other address as
to which the Company shall have given written notice to the Registered Holder.
Payment of the exercise price shall be made in United States currency, by
certified check or money order payable to the order of the Company. This
Warrant Certificate is being issued in connection with the issuance of 337,500
Warrants (the "Warrants").
<PAGE>
ARTICLE 1
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
1.1 EXERCISE PRICE; NUMBER OF SHARES. This Warrant Certificate shall,
when executed by the Company, entitle the Registered Holder hereof to purchase
from the Company one Share for each Warrant evidenced hereby, at the Initial
Exercise Price, or such adjusted number of Shares at such adjusted purchase
price as may be established from time to time pursuant to the provisions of
Articles 1 and 2 hereof, payable in full at the time of exercise of this
Warrant. The term "Exercise Price" as used in this Agreement shall mean the
purchase price of one Share upon the exercise of this Warrant, reflecting all
appropriate adjustments made in accordance with the provisions hereof.
1.2 EXERCISABILITY OF WARRANTS. Each Warrant may be exercised at any time
on or after the date of its issuance until 5:00 P.M., New York City time, on
December 31, 2001 (the "Exercise Deadline").
1.3 PROCEDURE FOR EXERCISE. Prior to the Exercise Deadline, Warrants may
be exercised by surrendering this Warrant Certificate to the Company at the
address specified above, accompanied by payment in full of the Exercise Price as
provided in Section 1.1 in effect at the time of such exercise, together with
such taxes as are specified in Section 4.1 hereof, for each Share with respect
to which such Warrants are being exercised. Such Exercise Price and taxes shall
be paid in full by certified check, money order or wire transfer, payable in
United States currency to the order of the Company. The date on which Warrants
are exercised in accordance with this Section 1.3 is sometimes referred to
herein as the Date of Exercise.
1.4 ISSUANCE OF SHARES. As soon as practicable after the Date of Exercise
of any Warrants, the Company shall issue, or cause the transfer agent for the
Common Stock, if any, to issue a certificate or certificates for the number of
full Shares to which the holder is entitled, registered in accordance with the
instructions set forth in the Form of Election to Purchase. All Shares shall be
validly authorized and issued, fully paid and nonassessable and free from all
liens and charges created by the Company in respect of the issue thereof. Each
person in whose name any such certificate for Shares is issued shall for all
purposes be deemed to have become the holder of record of the Shares represented
thereby on the Date of Exercise of the Warrants resulting in the issuance of
such shares, irrespective of the date of issuance or delivery of such
certificate for the Shares.
1.5 CERTIFICATES FOR UNEXERCISED WARRANTS. In the event that less than
all of the Warrants represented by a Warrant Certificate are exercised, the
Company shall execute and mail, by first class mail, as soon as practicable but,
in any event, not later than 30 days after the Date of Exercise, to the
Registered Holder of such Warrant Certificate, or such other person as shall be
designated in the election to purchase, a new Warrant Certificate representing
the number of full Warrants not exercised. In no event shall a fraction of a
Warrant be exercised, and the Company shall distribute no Warrant Certificates
representing fractions of Warrants under this or any other section of this
Agreement. Fractions of Shares shall be treated as
provided in Section 2.9.
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1.6 RESERVATION OF SHARES. The Company shall at all times reserve and
keep available for issuance upon the exercise of Warrants that number of its
authorized but unissued shares of Common Stock sufficient to permit the exercise
in full of all outstanding Warrants.
ARTICLE 2
ADJUSTMENTS AND NOTICE PROVISIONS
2.1 ADJUSTMENT OF EXERCISE PRICE. Subject to the provisions of this
Article 2, the Exercise Price in effect from time to time shall be subject to
adjustment, as follows:
(a) In case the Company shall at any time after the date hereof (i)
declare a dividend on the outstanding Common Stock payable in shares of its
capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price in effect, and the number of Shares issuable upon exercise of the Warrants
outstanding, at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, shall be
proportionately adjusted so that the holders of the Warrants after such time
shall be entitled to receive the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such holders
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of shares of
Common Stock (including any such distribution made to the shareholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation but excluding the transaction referred to in Section
2.1(a)) evidences of its indebtedness, cash (other than cash dividends) or
assets (other than distributions and dividends payable in Common Stock), then,
in each case, the Registered Holder, upon the exercise hereof, shall be entitled
to receive the amount of evidence of indebtedness, cash or assets which such
Registered Holder would have been entitled to receive had such Registered Holder
exercised the Warrants immediately prior to the record date for such
distribution.
(c) In case the Company shall sell any shares of Common Stock (other
than in a transaction referred to in Section 2.1(a)-(b)) for a consideration per
share less than the Exercise Price per Share, THEN, in each case, the Exercise
Price in effect immediately prior to such sale shall be adjusted to a price
determined by multiplying the Exercise Price in effect immediately prior to such
sale by a fraction, the numerator of which shall be the sum of (i) the total
number of Shares outstanding immediately prior to such sale, and (ii) the
aggregate consideration, if any, received by the Company upon such sale divided
by the Exercise Price immediately prior to such sale, and the denominator of
which shall be the total number of Shares outstanding immediately after such
sale.
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(d) For the purposes of any adjustment to be made in accordance with
Section 2.1(c) the following provisions shall be applicable:
(i) In case of the sale of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash portion
of the consideration therefor deemed to have been received by the Company shall
be without deduction for any expenses (including, without limitation, any
underwriting discount, selling concession or other compensation paid in
connection with such sale) incurred by the Company in connection with such
transaction. In case of the sale of Common Stock for consideration part or all
of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error.
(ii) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(iii) Except as hereinafter provided, in case the
Company shall at any time after the date hereof issue options, rights or
warrants to subscribe for Common Stock, or issue any securities convertible into
or exchangeable for Common Stock, for a consideration (determined as provided in
this Section 2.1(d)) less than the Exercise Price in effect immediately prior
to the earlier of the issuance of such options, rights or warrants, or such
convertible or exchangeable securities or the record date therefor, or without
consideration (including the issuance of any such securities by way of dividend
or other distribution), the Exercise Price for the Warrants in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities or the record date therefor, as the case
may be, shall be reduced to a price determined by making the computation in
accordance with the provisions of Section 2.1(c) hereof, provided that:
a. The aggregate maximum number of shares of Common
Stock issuable or that may become issuable under such options, rights or
warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration equal
to the minimum purchase or exercise price per share provided for in such
options, rights or warrants at the time of issuance, plus the consideration, if
any, received by the Company upon the issuance of such options, rights or
warrants (without deduction for expenses incurred or amounts paid to any
underwriter by the Company in connection with such issuance); provided, however,
that upon the expiration or other termination of such options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this Section 2.1(d)
shall be reduced by the number of shares as to which options, warrants and/or
rights shall have expired, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
the adjustment been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not have
expired or terminated unexercised.
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b. The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company upon the
issuance of such securities (without deduction for expenses incurred or amounts
paid to any underwriter in connection with such issuance), plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection 2.1(d) shall be reduced by
the number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
c. If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in this
Section 2.1(d), or in the price per share or ratio at which the securities
referred to in this Section 2.1(d) are convertible or exchangeable (in either
case, other than changes in such prices or ratios arising pursuant to
antidilution adjustments in such options, rights, warrants, convertible or
exchangeable securities or the instruments pursuant to which they were issued),
such options, rights or warrants or convertible or exchangeable securities, as
the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares of Common Stock not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
2.2 NO ADJUSTMENTS TO EXERCISE PRICE. (a) No adjustment in the Exercise
Price shall be required if such adjustment is less than $.01; provided, however,
that any adjustments which by reason of this Article 2 are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article 2 shall be made to the nearest
cent or to the nearest one hundredth of a share, as the case may be.
(b) Notwithstanding any provision of this Warrant Certificate, no
adjustment of the Exercise Price or in the number of Shares shall be made as a
result of or in connection with the issuance or sale of shares of Common Stock
pursuant to options, warrants, stock purchase agreements, loan agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof.
2.3 ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of the Exercise
Price as a result of the calculations made in Section 2.1(b), (c) and (d)
hereof, the Warrants shall thereafter evidence the right to purchase, at the
adjusted Exercise Price, that number of shares (calculated
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to the nearest hundredth) obtained by dividing (A) the product obtained by
multiplying the number of shares purchasable upon exercise of the Warrants prior
to such adjustment by the Exercise Price in effect prior to adjustment of the
Exercise Price by (B) the Exercise Price in effect after such adjustment of the
Exercise Price.
2.4 REORGANIZATIONS. In case of (x) any capital reorganization (other
than in the transactions referred to in Section 2.1 hereof) or (y) the
consolidation or merger of the Company with or into another corporation (other
than a merger or consolidation in which the Company is the surviving or
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock or the conversion of such outstanding Common Stock into
shares of other stock or other securities or property), or in the case of any
sale, lease or conveyance to another corporation of the property and assets of
any nature of the Company as an entirety or substantially as an entirety (such
actions being hereinafter collectively referred to as "Reorganizations"), there
shall thereafter be deliverable upon exercise of any Warrant (in lieu of the
number of shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the number of shares which would
otherwise have been deliverable upon the exercise of such Warrant would have
been entitled upon such Reorganization if such Warrant had been exercised in
full immediately prior to such Reorganization on the record date therefor. In
case of any Reorganization, appropriate adjustment, as determined in good faith
by the board of directors of the Company, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of
Warrant holders so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares or other property
thereafter deliverable upon exercise of Warrants. Any such adjustment shall be
made by and set forth in a supplemental agreement of the Company, or any
successor thereto, and shall for all purposes hereof conclusively be deemed to
be an appropriate adjustment. The Company shall not effect any such
Reorganization unless upon or prior to the consummation thereof the successor
corporation, or if the Company shall be the surviving corporation in any such
Reorganization and is not the issuer of the shares of stock or other securities
or property to be delivered to holders of the Common Stock outstanding at the
effective time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Registered Holder of each Warrant Certificate such
shares of stock, securities, cash or other property as such holder shall be
entitled to purchase in accordance with the foregoing provisions. In the event
of sale, lease or conveyance or other transfer of all or substantially all of
the assets of the Company as part of a plan for liquidation of the Company, all
rights to exercise any Warrant shall terminate 30 days after the Company gives
written notice to each Registered Holder of each Warrant Certificate that such
sale or conveyance or other transfer has been consummated.
2.5 RECLASSIFICATIONS. In case of any reclassification or change of the
Shares issuable upon exercise of the Warrants (other than a change in par value
or from no par value to a specified par value, or as a result of a transaction
referred to in Section 2.1 or 2.4, but including any change in the shares into
two or more classes or series of shares), or in case of any consolidation or
merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
Common Stock (other than a change in par value, or from no par value to a
specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares),
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the holders of the Warrants shall have the right thereafter to receive upon
exercise of the Warrants solely, the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation or merger by a holder of the number
of Shares for which the Warrants might have been exercised immediately prior to
such reclassification, change, consolidation or merger on the record date
therefor. Thereafter, appropriate provision shall be made for adjustments which
shall be as nearly equivalent as practicable to the adjustments in Article 2.
The above provisions of this Section 2.5 shall similarly apply to successive
reclassifications and changes of the Shares.
2.6 CASHLESS EXERCISE. In lieu of exercising this Warrant by paying the
Exercise Price in cash as provided herein, the Registered Holder may exercise
this Warrant by surrender of this Warrant at the principal office of the Company
together with the notice of election to purchase and the payment for such taxes
as specified in Section 4.1 hereof, in which event the Company shall issue to
the Registered Holder upon such exercise a number of shares of the Company's
Common Stock computed using the following formula:
X = Y(A-B)
------
A
Where X = The number of shares of Common Stock to be issued to the
Registered Holder.
Y = The number of shares of Common Stock purchasable under this
Warrant.
A = The fair market value of one share of the Common Stock.
B = Exercise Price per share.
For purposes of this Warrant, fair market value of the Common Stock shall
be determined as follows: (i) if the Common Stock is publicly traded, the fair
market value shall be the average of the highest and lowest reported sales price
of the Common Stock on the NASDAQ SmallCap Market, the NASDAQ National Market
system or on any securities exchange (or, if the sales price of the Common Stock
is unavailable, the average of the highest bid and lowest asked price of the
Common Stock) for the twenty trading days prior to the date of determination of
fair market value, or (ii) if the Common Stock is not publicly traded, the fair
market value shall be determined by the Board of Directors, in their good faith
judgement.
2.7 VERIFICATION OF COMPUTATIONS. Whenever the Exercise Price is adjusted
as provided in this Article 2, the Company will promptly deliver to each
Registered Holder a certificate setting forth the Exercise Price as so adjusted
and a brief statement of the facts accounting for such adjustment, and will make
available a brief summary thereof to the holders of the Warrant, at their
addresses listed on the register maintained for that purpose by the Company.
2.8 NOTICE OF CERTAIN ACTIONS. In case at any time the Company shall
propose:
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends) to all holders of such shares; or
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<PAGE>
(b) to issue any rights, warrants or other securities to all holders
of shares entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, other securities or other property; or
(c) to effect any consolidation, merger, sale, lease, or conveyance
of property, described in Section 2.4, or any reclassification or change of
outstanding shares of Shares, described in Section 2.5; or
(d) to effect any liquidation, dissolution or winding-up of the
Company;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to each Registered Holder. Such notice shall specify the date on
which the books of the Company shall close, or a record shall be taken, for
determining holders of shares entitled to receive such stock dividend or other
distribution or such rights, warrants or property, or the date on which such
reclassification, change, consolidation, merger, sale, lease, other disposition,
liquidation, dissolution, winding up or exchange or other action shall take
place or commence, as the case may be, and the date as of which it is expected
that holders of record of shares shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been fixed.
Such notice shall be mailed, in the case of any action covered by Subsection
2.8(a) or 2.8(b) above, at least 15 days prior to the record date for
determining holders of shares for purposes of receiving such payment or offer;
in the case of any action covered by Subsection 2.8(c) or 2.8(d) above, at least
15 days prior to the earlier of the date upon which such action is to take place
or any record date to determine holders of shares entitled to receive such
securities or other property.
2.9 WARRANT CERTIFICATE AMENDMENTS. Irrespective of any adjustments
pursuant to this Article 2, Warrant Certificates theretofore or thereafter
issued need not be amended or replaced but certificates thereafter issued shall
bear an appropriate legend or other notice of any adjustments.
2.10 FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any Warrant to issue fractional Shares which may result from
adjustments in the Exercise Price or number of shares purchasable under each
Warrant. If more than one Warrant is exercised at one time by the same
Registered Holder, the number of full shares of Shares which shall be
deliverable shall be computed based on the number of shares deliverable in
exchange for the aggregate number of Warrants exercised. With respect to any
fraction of a share called for upon the exercise of any Warrant or Warrants, the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the then fair market value per share.
2.11 COMPLIANCE WITH SECURITIES ACT. The Registered Holder, by acceptance
hereof, agrees that this Warrant, and the shares of Common Stock to be issued
upon exercise hereof, are being acquired for investment and that such Registered
Holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Securities Act") or any applicable state securities laws. Upon exercise
of this Warrant, unless the shares of Common Stock being acquired are registered
under the Securities
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<PAGE>
Act and any applicable state securities laws, the Registered Holder hereof shall
confirm in writing that the shares of Common Stock so purchased are being
acquired for investment and not with a view toward distribution or resale in
violation of the Securities Act and shall confirm such other matters related
thereto as may be reasonably requested by the Company. This Warrant and all
shares of Common Stock issued upon exercise of this Warrant (unless registered
under the Securities Act and any applicable state securities laws) shall be
stamped or imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS.
ARTICLE 3
OTHER PROVISIONS RELATING TO RIGHTS
OF REGISTERED HOLDERS OF WARRANT CERTIFICATES
3.1 RIGHTS OF WARRANT HOLDERS. This Warrant Certificate shall not entitle
the Registered Holder thereof to any of the rights of a shareholder of the
Company, including, without limitation, the right to vote, to receive dividends
and other distributions, or to receive any notice of, or to attend, meetings of
shareholders or any other proceedings of the Company.
3.2 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT CERTIFICATES. If this
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Warrant Certificate, and of the ownership
thereof, and indemnity, if requested, all reasonably satisfactory to the
Company. Applicants for such substitute Warrant Certificates shall also comply
with such other reasonable regulations and pay such other reasonable charges
incidental thereto as the Company may prescribe.
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ARTICLE 4
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
AND CANCELLATION OF WARRANT CERTIFICATES
4.1 SPLIT UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANT CERTIFICATES.
Prior to the Exercise Deadline, this Warrant Certificate, subject to the
provisions of Section 4.2, may be split up, combined or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants. Any
holder desiring to split up, combine or exchange a Warrant Certificate or
Warrant Certificates shall make such request in writing delivered to the Company
at its principal office and shall surrender the Warrant Certificate or Warrant
Certificates so to be split up, combined or exchanged at said office. Upon any
such surrender for split up, combination or exchange, the Company shall execute
and deliver to the person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as so requested, provided that, the Company
has received an opinion of counsel reasonably satisfactory to the Company that
said split up is in accordance with the provisions of the Securities Act of
1933, as amended. The Company may require the holder to pay a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
split up, combination, exchange or transfer of Warrant Certificates prior to the
issuance of any new Warrant Certificate.
4.2 AGREEMENT OF WARRANT CERTIFICATE HOLDERS. Every holder of a Warrant
Certificate by accepting the same, consents and agrees with the Company and with
every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be registered on the
books of the Company maintained for that purpose by the Company only if
surrendered at the principal office of the Company, duly endorsed or accompanied
by a proper instrument of transfer and an opinion of counsel reasonably
satisfactory to the Company that such transfer is permitted under the Securities
Act of 1933, as amended; and
(b) prior to due presentment for registration of transfer, the
Company may deem and treat the person in whose name the Warrant Certificate is
registered as the absolute owner thereof and of the Warrants evidenced thereby
(notwithstanding any notations of ownership or writing on the Warrant
Certificates made by anyone other than the Company) for all purposes whatsoever,
and the Company shall not be affected by any notice to the contrary.
ARTICLE 5
MISCELLANEOUS
5.1 CHANGES TO AGREEMENT. The Company may, without the consent or
concurrence of any Registered Holder of a Warrant Certificate, by supplemental
agreement, make any changes or corrections in this Certificate that it has been
advised by counsel (i) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or
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<PAGE>
manifest error herein contained, (ii) add to the covenants and agreements of the
Company, (iii) reduce the Exercise Price or extend the Exercise Deadline or (iv)
result in the surrender of any right or power reserved to or conferred upon the
Company in this Certificate, which changes or corrections do not or will not
adversely affect, alter or change the rights, privileges or immunities of the
Registered Holders of Warrant Certificates. Other changes in this Agreement may
be made only with the prior written consent of a holder of a majority of the
Warrants affected thereby, provided that no such change shall increase the
Exercise Price or shorten the exercise period without the prior written consent
of each affected Registered Holder.
5.2 ASSIGNMENT. All the covenants and provisions of this Agreement by or
for the benefit of the Company shall bind and inure to the benefit of their
respective permitted successors and assigns.
5.3 NOTICES. Any notice or demand required by this Warrant Certificate to
be given or made by the Registered Holder of any Warrant Certificate to or on
the Company shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed to the Company's principal offices
specified above (until another address is given in writing to the Registered
Holder by the Company).
Any notice or demand required by this Warrant Certificate to be given or
made by the Company to or on the Registered Holder of any Warrant Certificate
shall be sufficiently given or made, whether or not such holder receives the
notice, if sent by first-class or registered mail, postage prepaid, addressed to
such registered holder at his last address as shown on the books of the Company.
Otherwise such notice or demand shall be deemed given when received by the party
entitled thereto.
5.4 DEFECTS IN NOTICE. Failure to file any certificate or notice or to
mail any notice, or any defect in any certificate or notice pursuant to this
Agreement, shall not affect in any way the rights of any Registered Holder of a
Warrant Certificate or the legality or validity of any adjustment made pursuant
to Article 2 hereof, or any transaction giving rise to any such adjustment, or
the legality or validity of any action taken or to be taken by the Company.
5.5 GOVERNING LAW. The laws of the State of New York shall govern this
Warrant Certificate.
5.6 STANDING. Nothing in this Agreement expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or corporation other than the Company, and
the Registered Holders of the Warrant Certificates any right, remedy or claim
under or by reason of this Warrant Certificate or of any covenant, condition,
stipulation, promise or agreement contained herein; and all covenants,
conditions, stipulations, promises and agreements contained in this Agreement
shall be for the sole and exclusive benefit of the Company and its successors
and assigns, and the Registered Holders of the Warrant Certificates.
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<PAGE>
5.7 HEADINGS. The descriptive headings of the articles and sections of
this Warrant Certificate are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
5.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which shall constitute one instrument.
5.9 REGISTERED BROKER/DEALER. The initial Holder hereby represents and
warrants to the Company that Libra Investments, Inc. is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
Dated: December 31, 1996
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/James Dao
------------------------------------
Name: James Dao
Title: Chief Executive Officer
AGREED AND ACCEPTED
LIBRA INVESTMENTS, INC.
By:
---------------------
Name:
Title:
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise _______________ of
the Warrants represented by this Warrant Certificate and to purchase the Shares
issuable upon the exercise of said Warrants, and requests that certificates for
such shares be issued and delivered as follows:
ISSUE TO:
-------------------------------------------------------------------
(NAME)
-------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
-------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
DELIVER TO:
-------------------------------------------------------------------
(NAME)
-------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$______________ by certified check or money order payable to the order of the
Company in United States currency.
Dated: ________________
- --------------------------- -----------------------------------
(Insert Social Security or (Signature of registered holder)
other identifying
number(s) of holder(s))
---------------------------------------------
(Signature of registered holder, if co-owned)
NOTE: Signature must conform in all respects
to name of holder as specifiedon the
face of the Warrant Certificate.
