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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): November 13, 1997
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 500, 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.
Financing. Effective as of November 26, 1997, Communication Intelligence
Corporation (the "Company") consummated a private placement of 240,000 shares
of Series B 5% cumulative convertible preferred stock (the "Series B
Preferred"), at a purchase price of $25 per share, and received in
consideration therefor $6,000,000 in gross cash proceeds.
Each share of Series B Preferred is convertible by the holder into shares
of the Company's common stock at any time prior to the Forced Conversion Date
(as defined below) 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 and any default payments with respect
thereto, by (ii) a conversion price which is equal to the lower of $1.59 per
share or the average of the daily closing prices of the Company's common
stock for the three consecutive trading days immediately prior to the
conversion date. In addition, all outstanding shares of Series B Preferred
must be converted by the holders into shares of common stock by November 24,
2000, or at the Company's option, no later than November 24, 2001 (the
"Forced Conversion Date"). Under the terms of the Series B Preferred, 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
quarterly, when payable (whether or not declared), payable every three months
commencing March 1, 1998. Such dividends are payable in additional shares of
Series B Preferred or, at the Company's option, in cash. The Series B
Preferred is pari passu in respect to dividend and liquidation rights with
the previously established series of 5% cumulative convertible preferred
stock (the "Series A Preferred"), issued by the Company in December 1996.
Holders of the Series B Preferred have the right to vote with the holders
of the Company's common stock and Series A Preferred, combined as one class,
for the election of directors and such other matters voted by the holders of
the Company's common stock. Each share of Series B Preferred has one vote
per share on such matters. In addition, the affirmative vote of holders of
51% of the then outstanding shares of Series B Preferred 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 Series B Preferred. In the event
of the Company's liquidation, dissolution or winding up, the holders of the
Series B Preferred 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 ranking junior to the Series B Preferred and on a pari passu basis
with the Series A Preferred, $25 per share plus any accrued but unpaid
dividends. For a more complete description of the terms of the Series B
Preferred, see the Certificate of Designations of the Company filed as
Exhibit 10.2 hereto, which is incorporated by reference herein.
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In connection with and pursuant to the terms of the Company's private
placement, Mr. Philip S. Sassower, the Chairman of the Executive and Finance
Committees of the Company's Board of Directors and the Co-Chief Executive
Officer of the Company, together with a trust pursuant to which he is a
trustee, purchased an aggregate of 40,070 shares of Series B Preferred (or
approximately 15% of the shares of Series B Preferred sold by the Company)
for an aggregate purchase price of $1,001,750. Immediately prior to the
consummation of the private placement, as of November 25, 1997, Mr. Sassower
beneficially owned approximately 22.03% of the Company's common stock, giving
effect to the shares of Common Stock beneficially owned by a limited
partnership in which Mr. Sassower is the sole general partner and also a
limited partner.
In connection with the private placement, the Company entered into a
registration rights agreement with the holders of the Series B Preferred
which provides that the Company will file a registration statement with the
Securities and Exchange Commission relating to the sale of the shares of
common stock issuable upon conversion of the Series B Preferred no later than
January 9, 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
entered into by the Company and filed as Exhibit 10.3 hereto, which is
incorporated by reference herein.
Appointment of President. The Company hereby incorporates by reference
herein the matters announced with respect to the Company's press release
dated November 13, 1997 (such press release is filed as Exhibit 99.1 hereto).
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following documents are being filed herewith by
the Company as exhibits to this Current Report on Form 8-K.
10.1 Form of Subscription Agreement, dated as of November 25, 1997,
between the Company and each subscriber of Series B Preferred.
10.2 Certificate of Designations of the Company with respect to the
Series B 5% Cumulative Convertible Preferred Stock.
10.3 Form of Registration Rights Agreement, dated as of November 25,
1997, by and among the Company and the signatories thereto.
99.1 Press release of the Company dated November 13, 1997.
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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: December 3, 1997
By: /s/ Francis V. Dane
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Name: Francis V. Dane
Title: Vice President and Secretary
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EXHIBIT INDEX
Exhibit No. Exhibits Page No.
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10.1 Form of Subscription Agreement, dated as of
November 25, 1997, between the Company and
each subscriber of the Series B Preferred.
10.2 Certificate of Designations of the Company with
respect to the Series B 5% Cumulative Convertible
Preferred Stock.
10.3 Form of Registration Rights Agreement, dated as of
November 25, 1997, by and among the Company and the
signatories thereto.
99.1 Press release of the Company, dated November 13, 1997.
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EXHIBIT 10.1
FORM OF SUBSCRIPTION AGREEMENT
Communication Intelligence Corporation
275 Shoreline Drive
Redwood Shores, CA 94065
Gentlemen:
1. Subscription; Purchase Price. (a) Subject to the terms and
conditions hereto, the undersigned ( the "Subscriber") hereby agrees to
purchase from Communication Intelligence Corporation, a Delaware corporation
(the "Company"), that number of shares of Series B 5% Cumulative Convertible
Preferred Stock, par value $0.01 per share, of the Company (the "Preferred
Shares") set forth beneath the Subscriber's name on the signature page hereto
(the "Shares"), at the purchase price of $25.00 per Share (the aggregate
purchase price for the Shares being purchased by the Subscriber being the
"Purchase Price"), subject to the terms and conditions hereto.
(b) The Preferred Shares shall have such rights, designations and
preferences as set forth in the Company's Certificate of Designations with
respect thereto (the "Designation"), substantially in the form attached hereto
as Exhibit A.
(c) The Preferred Shares will be convertible into shares ("Common
Shares") of common stock, par value $0.01, of the Company ("Common Stock"),
pursuant to the terms of the Designation, and the Subscribers will have the
registration rights with respect to such Common Shares as set forth in that
certain Registration Rights Agreement to be entered into between the Company and
the Subscribers on the Closing Date, substantially in the form of Exhibit B
attached hereto ("Registration Rights Agreement").
(d) Subscriber hereby acknowledges (i) that this subscription
agreement (this "Agreement") shall not be deemed to have been accepted by the
Company until the Company indicates its acceptance by returning to Subscriber a
copy of this Agreement executed by the Company, and (ii) that acceptance by the
Company of this Agreement is conditioned upon the information and
representations and warranties of Subscriber being complete, true and correct as
of the date of Subscriber's execution and as of the date of the Closing (as
hereinafter defined).
2. Closing. (a) The closing of the purchase of the Preferred Shares
(the "Closing") shall be held at the offices of Baer Marks & Upham LLP, 805
Third Avenue, New York, New York 10022, at 10:00 A.M., New York time, on such
date as shall be designated by the Company after it has received and accepted
subscriptions, funds and other documentation necessary for the Closing of the
purchase from Subscribers of no less than 200,000 Preferred
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Shares pursuant to the terms hereof (the "Closing Date"). Notwithstanding
the foregoing, the Closing Date shall not be later than December 15, 1997
(the "Termination Date")
(b) On the Closing Date, against receipt of the Purchase Price from
Subscriber, the Company shall deliver to the Subscriber, a share certificate
registered in the Subscriber's name and representing the number of Preferred
Shares purchased by Subscriber pursuant hereto, which certificate shall bear the
legend set forth in Section 5(h)(iv) hereof, together with any legends required
under applicable state laws.
(c) Prior to the Closing, the Subscriber shall pay the Purchase Price
by means of a bank wire transfer of immediately available funds to the following
account at Chase Manhattan Bank, N.A., 1211 6th Avenue, New York, NY 10036:
Baer Marks & Upham LLP, ABA# 021000021, Account Number 967-111188, Attention:
Ms. Andrea Paul or Ms. Gloria Robinson.
3. Acceptance of Subscription. The Subscriber understands and agrees
that the Company in its sole discretion reserves the right to accept or reject
Subscriber's subscription in whole or in part at any time prior to the Closing
Date. If the subscription is rejected by the Company, this Agreement shall
thereafter be of no further force or effect.
4. Representations, Warranties and Agreements of Subscriber. The
Subscriber hereby acknowledges, represents and warrants to, and agrees with, the
Company, on the date hereof and on the Closing Date, as follows:
(a) The Subscriber understands that the offering and sale of the
Preferred Shares is intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Act") by virtue of Section 4(2) of the Act and the
provisions of Regulation D promulgated thereunder, and in accordance therewith
and in furtherance thereof, the Subscriber represents and warrants and agrees as
follows:
(i) The Subscriber and/or the Subscriber's adviser(s) has/have
received and carefully reviewed the Company's (A) Annual Report on Form 10-K for
the year ended December 31, 1996 and (B) Quarterly Reports on Form 10-Q for the
periods ended March 31, 1997, June 30, 1997 and September 30, 1997, respectively
(collectively, the "Company Reports"), and understands the information contained
therein. Subscriber acknowledges and understands that the Company Reports show
that the Company has incurred substantial operating losses since its formation,
including the periods covered by such reports, and that it has insufficient
working capital to continue its planned operations.
(ii) The Subscriber acknowledges that the Subscriber, or the
Subscriber's attorney, accountant, or adviser(s), has/have had a reasonable
opportunity to inspect
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all documents and records pertaining to this investment (including, without
limitation, the Company Reports).
(iii) The Subscriber and/or the Subscriber's adviser(s) has/have
had a reasonable opportunity to ask questions and receive answers from a person
or persons acting on behalf of the Company concerning the offering of the
Preferred Shares and all such questions have been answered to the full
satisfaction of the Subscriber.
(iv) In making a decision to invest in the Preferred Shares, the
Subscriber has not relied on any information other than information contained in
the Company Reports and in this Agreement.
(v) The Subscriber is not subscribing for the Preferred Shares
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting, or
any solicitation of a subscription by a person other than a representative of
the Company.
(vi) If the Subscriber is a natural person, the Subscriber has
reached the age of majority in the jurisdiction in which the Subscriber resides;
the Subscriber has adequate means of providing for the Subscriber's current
financial needs and contingencies, is able to bear the substantial economic
risks of an investment in the Preferred Shares for an indefinite period of time,
has no need for liquidity in such investment, and, at the present time, could
afford a complete loss of such investment.
(vii) The Subscriber has such knowledge and experience in
financial, tax and business matters so as to enable the Subscriber to utilize
the information made available to the Subscriber in connection with the offering
of the Preferred Shares to evaluate the merits and risks of an investment in the
Preferred Shares, and to make an informed investment decision with respect
thereto.
(viii) The Subscriber is not relying on the Company or any agent of
the Company with respect to any legal, tax or economic advice related to an
investment in the Preferred Shares.
(ix) The Subscriber will not sell or otherwise transfer the
Preferred Shares or the Common Shares without registration under the Act and
applicable state securities laws, or pursuant to an exemption therefrom. The
Preferred Shares and the Common Shares have not been registered under the Act or
under the securities laws of any state and, other than as provided in the
Registration Rights Agreement, the Company will be under no obligation to so
register the Common Shares or Preferred Shares. The Subscriber represents that
the Subscriber is purchasing the Preferred Shares for the Subscriber's own
account, for investment and not with a view to resale or distribution except in
compliance with the Act and applicable state securities laws.
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(x) The Subscriber recognizes that investment in the Preferred
Shares involves substantial risks, including the risk of loss of the entire
amount of such investment, and has taken full cognizance of and understands all
of the risks related to the purchase of the Preferred Shares.
(xi) The Subscriber's overall commitment to investments which are
not readily marketable is reasonable in relation to the Subscriber's net worth.
(b) The Subscriber is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D under the Act inasmuch as the Subscriber
meets the requirements of one or more of the subparagraphs in Section 9(g)
hereof as of the date of this Agreement, and if there is any change in such
status prior to the Closing Date, the Subscriber will immediately notify the
Company in writing.
(c) The Subscriber 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 the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgements and understandings of the Subscriber set forth in
this Agreement in order to determine the applicability of such exemptions and
the suitability of the Subscriber to acquire the Preferred Shares.
(d) The Subscriber is purchasing the Preferred Shares for its own
account and not with a view to distribution in violation of any securities
laws. The Subscriber has no present intention to sell the Preferred Shares
and the Subscriber 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, the Subscriber
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.
(e) The Subscriber understands that there is no public trading market
for the Preferred Shares, that none is expected to develop, and that the
Preferred Shares and Common Shares must be held indefinitely unless such
Preferred Shares and Common Shares are registered under the Act or an exemption
from registration is available. The Subscriber has been advised or is aware of
the provisions of Rule 144 promulgated under the Act.
(f) The Subscriber hereby agrees to provide such information and to
execute and deliver such documents as the Company may deem reasonably
appropriate with regard to the Subscriber's suitability or otherwise in
connection with this Agreement.
(g) The execution, delivery and performance of this Agreement by the
Subscriber (i) will not constitute a default under or conflict with any
agreement or instrument to which the Subscriber is a party or by which it or its
assets are bound, (ii) will not conflict with or violate any order, judgment,
decree, statute, ordinance or regulation applicable to the
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Subscriber (including, without limitation, any applicable laws relating to
permissible legal investments) and (iii) does not require the consent of any
person or entity, other than those that will have been obtained prior to the
Closing Date. This Agreement has been duly authorized, executed and delivered
by the Subscriber and constitutes the valid and binding agreement of the
Subscriber enforceable against it in accordance with its terms.
(h) The Subscriber has not retained, or otherwise entered into any
agreement or understanding with, any broker or finder in connection with the
purchase of the Preferred Shares by the Subscriber, and the Company will not
incur any liability for any fee, commission or other compensation on account of
any such retention, agreement or understanding by the Subscriber.
(i) The Subscriber acknowledges that:
(i) In making an investment decision, the Subscriber has relied
on the Subscriber's own examination of the Company and the disclosure in the
Company Reports, including the merits and risks involved. The Preferred Shares
have not been recommended by any federal or state securities commission or
regulatory authority. Furthermore, the foregoing authorities have not confirmed
the accuracy or determined the adequacy of the Company Reports or this
Agreement.
(ii) The Subscriber, if executing this Agreement in a
representative or fiduciary capacity, has all requisite power and authority to
execute and deliver this Agreement in such capacity and on behalf of the
subscribing individual, ward, partnership, trust, estate, corporation, or other
entity for whom the Subscriber is executing this Agreement, and such individual,
ward, partnership, trust, estate, corporation, or other entity has all requisite
power and authority to enter into this Agreement and make an investment in the
Preferred Shares.
(iii) The representations, warranties, and agreements of the
Subscriber contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of such date and
shall survive the execution and delivery of this Agreement and the purchase of
the Preferred Shares.
(iv) For as long as is required by applicable laws, the
certificate representing the Preferred Shares and the Common Shares shall bear a
legend in substantially the following form, together with any legend required by
applicable state laws, and the Subscriber shall not transfer any or all of the
Preferred Shares, the Common Shares or any interests therein, except in
accordance with the terms of such legends:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act") or applicable state securities laws, and may be
offered, sold or otherwise transferred only if so registered
under the Act and applicable state securities laws or if the
holder has delivered to the
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Company an opinion of counsel, which counsel and opinion
shall be reasonably satisfactory to the Company, that an
exemption from such registration is available."
5. Representations and Warranties of the Company. The Company represents
and warrants to the Subscriber as follows:
(a) The Company has been duly organized, is validly existing as a
corporation and is in good standing under the laws of its jurisdiction of
organization. The Company is duly qualified and in good standing in each
jurisdiction in which the character or location of its properties or the nature
or conduct of its business makes such qualification necessary, except where the
failure to be so qualified or in good standing would not, in the aggregate, have
a material adverse effect on the financial condition of the Company. The
Company has all requisite power and authority, and all material consents,
approvals, authorizations, orders, registrations, qualifications, licenses and
permits of and from all applicable public, regulatory or governmental agencies
and bodies, to own, lease and operate its properties and conduct its business as
now being conducted.
(b) At September 30, 1997, the capital stock of the Company was as
follows: (i) 80,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock authorized, (ii) 45,664,427 shares of Common Stock issued and
outstanding and 420,000 shares of preferred stock issued and outstanding, and
(iii) 28,072,214 shares of Common Stock reserved for issuance upon conversion of
outstanding shares of preferred stock and exercise of 20,000,000 outstanding
options and warrants. Except as set forth above, there are no outstanding (i)
shares of capital stock of the Company, securities of the Company convertible
into or exchangeable for shares of capital stock or voting or other securities
of the Company, or (ii) options, warrants or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company, except as provided in the Designation. There
are no outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any securities of the Company. The Preferred Shares, when issued,
delivered and paid for in accordance with the terms hereof, will be duly and
validly issued, fully paid and non-assessable and shall be free and clear of all
liens, claims and encumbrances other than those which may be caused by the
Subscriber.
(c) The Company has full corporate power and authority to enter into
this Agreement and the Registration Rights Agreement and to issue and sell the
Preferred Shares on the terms and conditions set forth herein. The execution
and delivery of this Agreement and the Registration Rights Agreement by the
Company and the consummation of the transactions contemplated hereby (i) have
been duly and validly authorized and approved by all necessary corporate action
on the part of the Company; (ii) will not constitute a default under or conflict
with (A) the Company's charter or bylaws or (B) any material agreement or other
instrument to which the Company is a party or by which the Company is bound;
(iii) will not conflict with
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or violate any order, judgment, decree, statute, ordinance or regulation
applicable to the Company; and (iv) does not require the consent of any
person or entity, other than those that will have been obtained prior to the
Closing Date.
(d) This Agreement and the Registration Rights Agreement have been
duly authorized, and when executed and delivered by the Company, will constitute
valid and binding obligations of the Company enforceable against it in
accordance with their respective terms.
(e) The Common Shares issuable upon conversion of the Preferred
Shares pursuant to the Designation are duly authorized and reserved for
issuance. Upon such conversion of the Preferred Shares by the holder in
accordance with the Designation, the Common Shares will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, claims and
encumbrances. The outstanding Common Stock is currently listed on the NASDAQ
Small Cap Market.
(f) The Common Stock of the Company is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the Company has filed all reports and other documents required to be filed
by it with the Securities and Exchange Commission ("SEC") pursuant to the
reporting requirements of the Exchange Act.
(g) The Company has previously furnished the Subscriber with true and
complete copies of the Company Reports. As of their respective dates, the
Company Reports did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading. Subsequent to September 30, 1997, and
except as disclosed in the Company Reports, there has not occurred any material
adverse change in the condition (financial or otherwise), results of operations
or business of the Company, other than the continuation of previously reported
losses and the decrease in working capital. The financial statements of the
Company included in the Company Reports have been prepared in accordance with
generally accepted accounting principles (except that such financial statements
included in the Company's Quarterly Reports on Form 10-Q do not contain all of
the information and footnotes required by GAAP).
(h) There is no action, suit or proceeding before or by any court or
governmental agency now pending, or to the knowledge of the Company threatened,
against the Company that would cause a material adverse effect to the
condition (financial or otherwise), results of operations or business of the
Company or that would adversely affect the consummation of the transactions
contemplated by this Agreement.
(i) The Company has not retained, or otherwise entered into any
agreement or understanding with, any broker or finder in connection with the
purchase of Preferred Shares by the Subscriber, and the Subscriber will not
incur any liability for any fee, commission or other compensation on account of
any such retention, agreement or understanding by the Company.
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The representations, warranties and agreements of the Company
contained herein shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of such date and shall survive the
execution and delivery of this Agreement and the sale of the Preferred Shares.
6. Covenants.
(a) Until such time as no Preferred Shares are outstanding or, if
earlier, until the Forced Conversion Date, the Company will cause the Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material 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, the Company shall, to the extent permitted by the rules of
NASDAQ, continue the listing or trading of the Common Stock on the NASDAQ
SmallCap Market or any exchange or other market on which the Common Stock is
then traded and comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the applicable
exchange or market where the Common Stock is then traded. The Company shall
cause the Common Shares to be listed on the NASDAQ SmallCap Market or such other
market on which the Common Stock is then trading.
(b) The Company shall take all necessary action and proceedings as
may be reasonably required 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.
(c) The Company 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 Stock, contemporaneously with the delivery of such
notices or information to such Common Stock holders.
(d) The Company agrees that the proceeds received by the Company from
the sale of the Preferred Shares hereunder shall be used for working capital
purposes.
(e) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of 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 Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
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(f) Each Subscriber covenants and agrees that if such Subscriber
gives a Conversion Notice (as defined in the Designation) pursuant to Section
4(b)(i) under the Designation, then such Subscriber, during the three (3)
trading days prior to such Conversion Notice, shall not have sold long any
shares of Common Stock.
(g) Subscriber covenants and agrees that commencing ten (10) trading
days prior to providing the Company with a Conversion Notice (the "Covered
Period"), Subscriber will not engage in any short sales, loan any Common Shares
to another person, acquire a put option or grant a call option with respect to
any Common Shares owned by such Subscriber or its affiliates, or engage in any
other sales activity that could have any impact on the market price of the
Common Stock of the Company (a "Prohibited Transaction"); provided that any sale
of Common Shares by the Subscriber in a privately negotiated transaction made in
accordance with the terms of this Subscription Agreement shall not be deemed to
be a Prohibited Transaction, so long as the acquirer of the Common Shares in any
such transaction agrees in writing with the Company to be bound by the
provisions of this Subscription Agreement. In addition, Subscriber shall not
encourage or assist any other person to enter into a Prohibited Transaction with
respect to the Common Stock during the Covered Period.
7. Termination. This Agreement may be terminated by the Company or the
Subscriber, after 10 days' prior written notice to the other party, if the
Closing has not occurred by the Termination Date, provided that the failure to
so close was not the result of actions of the party seeking termination. In the
event of termination of this Agreement, the Purchase Price, together with any
accrued interest thereon, shall be returned to Subscriber within five business
days.
8. Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that the provisions of this Agreement were not
performed by the parties, and that money damages are an inadequate remedy for
breach of this Agreement because of the difficulty of ascertaining the amount of
damage that would be suffered by the non-breaching party. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which such party is
entitled at law or in equity or otherwise; provided, however, that such party
shall have complied with the provisions hereof.
9. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to principles of
conflicts of law.
(b) In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute, rule of law or regulation, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified
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to conform with such statute, rule of law or regulation. Any provision
hereof which may prove invalid or unenforceable shall not affect the validity
or enforceability of any other provision hereof.
(c) Each party shall indemnify each other party against any loss,
expense 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.
(d) This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one instrument.
(e) 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 the Subscriber.
(f) All capitalized terms which are used but not otherwise defined
herein shall have the meanings given to such terms in the Designation.
(g) Subscriber represents and warrants to the Company that it is an
"accredited investor" as defined in Regulation D of the Act since it satisfies
at least one of the following categories (please check all that apply):
_____ A natural person who had individual income of more than $200,000 in
each of the most recent two years, or joint income with that person's
spouse in excess of $300,000 in each of the most recent two years and
who reasonably expects to reach that same income level for the
current year. For this purpose, "individual income" means adjusted
gross income, as reported for federal income tax purposes, less any
income attributable to a spouse or to property owned by a spouse, (A)
increased by the individuals share (and not a spouse's share) of: (i)
the amount of any tax exempt interest income received, (ii) amounts
contributed to an IRA or Keogh retirement plan, (iii) alimony paid,
and (iv) the excluded portion of any long-term capital gains, and (B)
adjusted, plus or minus, for any non-cash loss or gain, respectively,
reported for federal income;
_____ A natural person whose individual net worth is in excess of
$1,000,000. For this purpose, "net worth" means the excess of
total assets at fair market value, including home and personal
property, over total liabilities, provided, however, for the
purpose of determining a person's net worth, the principal
residence owned by an individual shall be valued at cost,
including the cost of improvements, net of current encumbrances
upon the property or valued on the basis of a written appraisal
used by an institutional
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<PAGE>
lender making a loan secured by the property. For the purposes
of this provision, "institutional lender" means a bank, savings
and loan association, industrial loan company, credit union,
personal property broker or a company whose principal business
is as a lender upon loans secured by real property and which
has such loans receivable in the amount of $2,000,000 or more.
Any person relying on the appraisal value of a principal
residence must deliver to the Company, at or prior to the
date of execution hereof, a copy of such appraisal;
_____ A trust, with total assets in excess of $5,000,000, which is not
formed for the purpose of acquiring the Preferred Shares and
whose purchase is directed by a person who has such knowledge and
experience in financial business matters that such person is
capable of evaluating the risks and merits of an investment in
the Preferred Shares;
_____ An organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, a corporation, a partnership,
or a Massachusetts or similar business trust, not formed for the
specific purpose of acquiring the Preferred Shares, with total
assets in excess of $5,000,000;
_____ A bank as defined in Section 3(a)(2) of the Act or a savings and
loan association or other institution as defined in Section
3(a)(5)(A) of the Act, whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; an insurance
company as defined in Section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
the Investment Company Act of 1940; a small business investment
company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958; a plan established and maintained by a state, its political
subdivisions, or an agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; or an employee
benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of the Employee Retirement
Income Security Act of 1974, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess
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<PAGE>
of $5,000,000 or, if the employee benefit plan is a self-directed
plan, the investment decision is made solely by persons which are
accredited investors;
_____ A private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
_____ A director, executive officer or general partner of the Company; or
_____ An entity in which all of the equity owners meet the requirements
of at least one of the above subparagraphs for accredited
investors.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Subscriber and the Company have executed and dated
this Subscription Agreement as of the dates below.
COMMUNICATION INTELLIGENCE CORPORATION
By:
-----------------------------------
Philip S. Sassower
Chairman of the Executive Committee
INVESTOR:
INDIVIDUAL: ______________________________________
(please date below & Name:
complete Schedule I)
TRUST: Trust Name:
(please date below &
complete Schedule II)
By:___________________________________
Name & Title:
PARTNERSHIP: Partnership Name:
(please date below &
complete Schedule III)
By:______________________________________
Name & Title:
CORPORATION: Corporation Name:
(please date below &
complete Schedule IV)
By:___________________________________
Name & Title:
RETIREMENT PLAN Plan Name:
(please date below &
complete Schedule V)
By:___________________________________
Name & Title:
Dated: ____________________, 1997
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<PAGE>
Schedule I -- FOR INDIVIDUAL SUBSCRIBERS
Purchaser's Legal Residence:
________________________________________________________________________
________________________________________________________________________
Mailing Address (for purposes of notice, etc.):
________________________________________________________________________
________________________________________________________________________
Citizenship:
Subscriber is a citizen of the State of _______________________. Subscriber is
not a resident of any other jurisdiction.
Telephone Number:
____________________________________
Social Security Number:
____________________________________
Subscription Amount:
___________ Preferred Shares X $25.00 = $_____________________ total purchase
price
Subscriber acknowledges that the Company will rely on the information
provided by Subscriber hereto in order to register the Common Shares and
otherwise comply with all applicable state and federal securities laws. Such
information shall be deemed to be representations by the Subscriber for purposes
of this Agreement.
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<PAGE>
Schedule II -- FOR TRUST SUBSCRIBERS
Purchaser's Name:
________________________________________________________________________
Address:
________________________________________________________________________
________________________________________________________________________
Mailing Address (for purposes of notice, etc.):
________________________________________________________________________
________________________________________________________________________
Telephone Number: ______________________________
State of Formation: Date of Formation:
______________________________ ____________________________________
Taxpayer Identification Number: ____________________________________
Subscription Amount:
___________ Preferred Shares X $25.00 = $_____________ total purchase price
Subscriber acknowledges that the Company will rely on the information
provided by Subscriber hereto in order to register the Common Shares and
otherwise comply with all applicable state and federal securities laws. Such
information shall be deemed to be representations by the Subscriber for purposes
of this Agreement.
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<PAGE>
Schedule III -- FOR PARTNERSHIP SUBSCRIBERS
Purchaser's Name:
________________________________________________________________________
Purchaser's Principal Place of Business:
________________________________________________________________________
________________________________________________________________________
Mailing Address (for purposes of notice, etc.):
________________________________________________________________________
________________________________________________________________________
Telephone Number: ______________________________
State of Formation: Date of Formation:
______________________________ ____________________________________
Taxpayer Identification Number: ____________________________________
Number of Partners: ___________________
Subscription Amount:
___________ Preferred Shares X $25.00 = $_____________ total purchase price
Subscriber acknowledges that the Company will rely on the information
provided by Subscriber hereto in order to register the Common Shares and
otherwise comply with all applicable state and federal securities laws. Such
information shall be deemed to be representations by the Subscriber for purposes
of this Agreement.
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<PAGE>
Schedule IV -- FOR CORPORATION SUBSCRIBERS
Purchaser's Name:
________________________________________________________________________________
Purchaser's Principal Place of Business:
________________________________________________________________________________
________________________________________________________________________________
Executive Offices (if different):
________________________________________________________________________________
________________________________________________________________________________
Mailing Address (for purposes of notice, etc.):
________________________________________________________________________________
________________________________________________________________________________
Telephone Number: _______________________________________
State and Date of Incorporation: ______________________________
Number of Shareholders: ________________
Taxpayer Identification Number: ____________________________________
Subscription Amount:
___________ Preferred Shares X $25.00 = $_____________ total purchase price
Subscriber acknowledges that the Company will rely on the information
provided by Subscriber hereto in order to register the Common Shares and
otherwise comply with all applicable state and federal securities laws. Such
information shall be deemed to be representations by the Subscriber for purposes
of this Agreement.
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<PAGE>
Schedule V -- FOR RETIREMENT PLAN SUBSCRIBERS
Purchaser's Name:
________________________________________________________________________
Address:
________________________________________________________________________
________________________________________________________________________
Mailing Address (for purposes of notice, etc.):
________________________________________________________________________
________________________________________________________________________
Telephone Number: ____________________________________
State of Formation: ____________________________________
Date of Formation: ____________________________________
Taxpayer Identification Number: ____________________________________
Subscription Amount:
___________ Preferred Shares X $25.00 = $_____________ total purchase price
Subscriber acknowledges that the Company will rely on the information
provided by Subscriber hereto in order to register the Common Shares and
otherwise comply with all applicable state and federal securities laws. Such
information shall be deemed to be representations by the Subscriber for purposes
of this Agreement.
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<PAGE>
EXHIBIT 10.2
CERTIFICATE OF DESIGNATIONS
of
SERIES B 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 (the "Designation") and does hereby state and certify that pursuant
to the authority expressly vested in the Board of Directors of the Corporation
by the Corporation's Amended and Restated Certificate of Incorporation (the
"Certificate") 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, the Board of
Directors hereby authorizes the issuance of, and fixes the designation, powers,
preferences and rights, and qualifications, limitations and restrictions, of a
series of the Corporation's Preferred Stock consisting of 340,000 shares, par
value $0.01, to be designated as "Series B 5% Cumulative Convertible Preferred
Stock" (the "Preferred Shares").
RESOLVED, that the Preferred Shares shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, be pari passu with the
Corporation's series of preferred stock consisting of 600,000 shares, par value
$0.01, designated as 5% Cumulative Convertible Preferred Stock (the "Series A
Preferred Shares") pursuant to the Certificate of Designations of the
Corporation, filed with the Secretary of State of the State of Delaware on
December 27, 1996.
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 quarterly when
payable (whether or not declared), payable every three (3) months commencing
March 1, 1998 (each March 1, June 1, September 1, and
<PAGE>
December 1 thereafter and prior to conversion of all Preferred Shares, 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
ranking junior to the Preferred Shares. The Preferred Shares shall, with
respect to, among other things, dividend rights, be pari passu with the
Series A Preferred Shares. 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 proceeding 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 shares of Common Stock or any other
class or series of stock of the Corporation ranking junior to the Preferred
Shares.
(b) Cash or PIK. Any dividend payable on the outstanding Preferred
Shares may be paid either in cash or, at the option of the Corporation, in
additional Preferred Shares (with each 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
the distribution of any assets of the Corporation to the holders of any other
class or series of shares ranking junior to the Preferred Shares, and on a pari
passu basis with the Series A Preferred 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 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 the terms of Subscription Agreements ("Subscription
Agreements") to be entered into between the Corporation and the subscribers of
the Preferred Shares (the "Subscribers") and holders of the Preferred Shares
shall have the rights and benefits of the Registration Rights Agreement
("Registration Rights Agreement") to be entered into between the Corporation and
the Subscribers in connection with the Preferred Shares. The 100,000 Preferred
Shares authorized and designated hereunder which were not issued by the
Corporation pursuant to the Subscription Agreements may only be issued for the
purpose of paying stock dividends on the Preferred Shares hereunder.
4. Conversion. On and after the Closing Date (as defined in the
Subscription Agreements) each holder of the Preferred Shares shall have the
right at any time and from time
2
<PAGE>
to time prior to the Forced Conversion Date (as defined below), at the option
of such holder, to convert any or all Preferred Shares for such number of
fully paid, validly issued and nonassessable shares (the "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 $25.00 times the number of Preferred Shares being converted plus
accrued and unpaid dividends thereon up to and including the most recent
Dividend Payment Date, plus any default payments owing to such holder on the
Conversion Date (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
shall be given to the Corporation at its chief executive offices by hand, by
overnight courier, by first class mail, return receipt requested, or by
facsimile with confirmation) 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 for Common
Shares to be issued (the date such Conversion Notice is received by the
Corporation 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
Preferred Shares being converted, duly endorsed, at the chief executive offices
of the Corporation or at the offices of any transfer agent appointed by the
Corporation for such shares, provided that the Corporation shall at all times
maintain an office or agency in New York City for such purposes. Upon receipt
of such Conversion Notice, the Corporation shall issue and deliver to or upon
the order of such holder, against delivery of the certificates representing the
Preferred Shares which have been so 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) 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 at 5:00 p.m. (New York time) on the
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all
3
<PAGE>
purposes as the record holder or holders of such Common Shares at the close
of business on the Conversion Date. By delivering a Conversion Notice to the
Corporation pursuant hereto, each holder represents, warrants, covenants and
agrees that such holder has concurrently sold on the Conversion Date all of
the Common Shares issued with respect to such conversion. Any breach of this
provision shall cause such Conversion Notice to be null and void.
(b) Determination of Conversion Price.
(A) The Conversion Price shall be equal to the lower of: (i) the Agreed
Value (as defined below), net of normal and customary commissions and
underwriting or dealer spreads and (ii) the Market Price (as defined below), net
of normal and customary commissions and underwriting or dealer spreads.
(B) For purposes hereof, the following terms shall have the following
meanings:
(i) The term "Agreed Value" shall mean $1.59 per share of Common
Stock.
(ii) The term "Market Price" shall mean the average of the daily
Closing Price of the Common Stock for the three (3) consecutive trading days
immediately preceding the Conversion Date.
(iii) The term the "Closing Price" on any trading day shall
mean (A) the closing 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 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 exchange and sale prices of the Common Stock
are not reported on an automated quotation system, the mean of the final bid and
ask prices for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and ask
quotations for the Common Stock on at least five of the ten preceding trading
days. If none of the foregoing provisions are applicable, the "Market Price" of
the Common Stock on the Conversion Date will be the fair market value of the
Common Stock on that day as determined in good faith by the Board of Directors
of the Corporation.
(iv) 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 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.
4
<PAGE>
(C) In the event that during any period commencing on the Closing Date and
ending on the earlier of the Forced Conversion Date (as hereinbelow defined) or
the Conversion Date with respect to each outstanding Preferred Share, the
Corporation shall declare or pay any dividend with respect to 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 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 fixing 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 fixed 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
stamp 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, 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
5
<PAGE>
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.
(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 Market Price of such fraction on the applicable Conversion
Date.
(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 is
agreed to in writing in advance by the Board of Directors of the Corporation and
a majority in interest of the holders of the 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 Subscription
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
6
<PAGE>
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) each referred to as a "Change in Control Transaction"), then the
Corporation shall provide all holders of Preferred Shares with 30 days' prior
notice of such transaction. The Corporation further agrees that it shall not
agree, nor consent to, nor 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 the
then outstanding Preferred Shares.
(j) Forced Conversion. Subject to the following sentence, each
holder of Preferred Shares shall convert, on the third (3rd) anniversary of the
Closing Date ("Forced Conversion Date"), all Preferred Shares then held by such
holder. Notwithstanding the preceding sentence, no holder of Preferred Shares
shall be obligated to convert any Preferred Shares then held by such holder on
the Forced Conversion Date if the Corporation has provided such holder with 30
days prior written notice that the Forced Conversion Date has been extended, in
which event the Forced Conversion Date shall be that date set by the
Corporation, which shall be no later than the fourth (4th) anniversary of the
Closing 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
avoid 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 Designation shall exclude shares that might
otherwise be deemed beneficially owned by reason of the convertibility of the
Preferred Shares.
(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
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<PAGE>
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 Designation
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 the provisions of this
Designation 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 fifty-one percent (51%) of the then
outstanding Preferred Shares shall be necessary for (i) any amendment of this
Certificate of Designations, (ii) any amendment to the Corporation's Certificate
of Incorporation or by-laws 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.
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
by the Corporation to the holders of shares of Common Stock of the Corporation.
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
8
<PAGE>
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.
Dated as of: November 25, 1997
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/Philip S. Sassower
------------------------------
Name: Philip S. Sassower
Title: Chief Executive Officer
9
<PAGE>
EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of Series B 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
provisions of the Corporation's Certificate of Designations for the Preferred
Shares. The undersigned hereby requests that share certificates for the Common
Stock to be issued pursuant to this Conversion Notice be issued in the name of,
and delivered to, the Holder 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:
-----------------------------------
-----------------------------------
SIGNATURE GUARANTEED BY:
- ---------------------------------
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON THE
ATTACHED PAGE.
Page 1 of Conversion Notice
<PAGE>
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 Holders $
-----------
Total dollar amount converted (total of A + B + C) $
-----------
-----------
-----------
Conversion Price (determined
pursuant to Section 4(b)(i) of the Certificate
of Designations) $
-----------
Number of Common Shares = Total dollar amount converted = $
----------------------------- -----------
Conversion Price $-----------
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 10.3
COMMUNICATION INTELLIGENCE CORPORATION
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
November 25, 1997, is made by and among Communication Intelligence Corporation,
a Delaware corporation (the "Company"), and those parties listed on the
signature page hereto (the "Purchasers").
R E C I T A L S
WHEREAS, pursuant to the terms of Subscription Agreements between the
Company and the Purchasers (the "Subscription Agreements"), the Purchasers have
purchased from the Company on the date hereof 240,000 shares of Series B 5%
Cumulative Convertible Preferred Stock, par value $0.01 per share, of the
Company (the "Preferred Shares"); and
WHEREAS, the Preferred Shares are convertible into shares (the "Common
Shares") of the Company's common stock, par value $0.01, pursuant to the terms
and provisions set forth in the Certificate of Designations (the "Designation")
for such Preferred Shares; and
WHEREAS, as further inducement for the Purchasers to purchase the
Preferred Shares from the Company, the Company desires to undertake to register
the Common Shares, under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations thereunder, in accordance with, and subject
to, the terms hereof;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions herein the Purchasers and
the Company covenant and agree, upon the terms and subject to the conditions set
forth herein, as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Subscription
Agreement or the Designation. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Closing" and "Closing Date" shall have the meanings
ascribed to such terms in the Subscription Agreement.
<PAGE>
(b) "Holder" and "Holders" shall include a Purchaser or the
Purchasers, 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.
(c) "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 the Company issued as a
dividend or other distribution with respect to, in exchange for or in
replacement of Registrable Securities.
(d) 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.
(e) "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
2. Holders' Registration.
(a) Obligation For Registration. Within 45 days of the Closing
Date (as defined in the Subscription Agreements), the Company shall prepare and
file a Registration Statement on Form S-3 with the SEC to register the public
sale of the Registrable Securities by the Holders under the Securities Act. The
Company shall use its best efforts to (i) cause such Registration Statement to
become effective under the Securities Act within 180 days of the Closing Date;
and (ii) keep such Registration Statement continuously effective until the
earlier of the Forced Conversion Date or the date on which none of the Preferred
Shares are outstanding. Each Holder shall notify the Company in writing within
ten (10) days after the sale of the last of its Registrable Securities to enable
the Company to determine when its obligation to continue effectiveness of the
Registration Statement terminates.
(b) Notice of Registration. Within fifteen (15) days prior to
the proposed filing date of the Registration Statement referred to in
Section 2(a), the Company shall give written notice to the Holders of its
intention to file the Registration Statement, which notice shall state that the
Holders shall have five days from the receipt of such notice to notify the
Company of an election not to have such Holder's Registrable Securities included
in the Registration Statement. Within five days after the receipt of such
notice, each Holder shall notify the Company if it elects not to have its
Registrable Securities included in the Registration Statement. In such event,
the Company shall have no further obligations to such Holder under this
Agreement. The right of any Holder to have Registrable Securities included in
the Registration Statement pursuant to this Section 2 shall
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<PAGE>
be conditioned upon such Holder's compliance in all material respects with
all of the terms and provisions of this Agreement.
(c) Additional Registration. 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 the Company is unable under
the securities laws to add such securities to the then effective Registration
Statement, the Company shall promptly file, in accordance with the procedures
more particularly set forth in Section 2 hereof, an additional Registration
Statement with respect to any such new Registrable Securities. The Company
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 clause (ii) of Section 2(a).
(d) Default Payment. (i) In the event that such Registration
Statement described in Section 2(a) 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 two and one-half percent (2.5%) 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) All default payments required to be made in connection
with the above provision shall be paid by the tenth (10th) day of each calendar
month, in additional Preferred Shares (with each new Preferred Share valued at
$25 per share) or, at the Company's option, in cash.
(iii) The Company acknowledges that any failure, refusal or
inability by it to meet its obligations under this Section 2 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
provision for default payments in order to compensate the Holders for such
damages. The parties acknowledge and agree that the default payment provision
set forth above represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such default payment is
reasonable and will not constitute a penalty. The default payment provided for
above is 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 of the Designation, the
Subscription 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 the Company in connection with the registration
rights of the Holders hereunder.
-3-
<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 period to comply in all material respects 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 reasonable 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 misleading. The Company
shall promptly amend or supplement the Registration Statement to correct any
such untrue statement of a material fact or omission of a material fact.
-4-
<PAGE>
(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) Furnish to the Holders, on the effective date of the
Registration Statement, 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, on which the
Holders shall be permitted to rely (and a copy of which shall be delivered to
the Holders).
(h) Make available for inspection by the Holders (provided that
all of such persons agree to be bound by confidentiality agreements acceptable
to the Company), 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.
(i) Use its best efforts to cause the Registrable Securities
being sold to be listed on the NASDAQ SmallCap Market or any other market or
exchange on which the Company's Common Stock is then traded.
(j) Take all actions reasonably necessary to facilitate the
timely preparation and delivery of certificates 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.
(k) 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 covenant and agree to the following:
(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. 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.
-5-
<PAGE>
(b) Each Holder by his purchase of the Preferred Shares agrees
to cooperate with the Company in connection with the preparation and filing of
any Registration Statement hereunder, unless such Holder has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement.
(c) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in 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 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 required pursuant to Sections 2 and
3, including, without limitation, all registration, listing, filing and
qualification fees, printers and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. Notwithstanding the
foregoing, the Company shall not be liable for all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holders.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold each Holder, its 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, as amended (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 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.
-6-
<PAGE>
(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
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
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<PAGE>
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 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 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 timely 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 (upon request), 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
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<PAGE>
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
pursuant to this Agreement may be assigned by a Holder to transferees or
assignees of Registrable Securities 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 has
been made in compliance with the Securities Act and applicable state securities
laws and, immediately following such transfer or assignment, the further
disposition of such Registrable Securities 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 as if such transferee were a signatory hereto .
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, Suite 520, Redwood Shores,
California 94065, Attention: President, with a copy to Donald J. Bezahler,
Esq., Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022; or
(ii) if to a Holder, at the address set forth on the signature pages of the
Subscription Agreements, 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 a majority of the
Holders. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon the Holders and the Company.
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<PAGE>
(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.
(g) The parties hereto agree that irreparable harm would occur
to the Holders in the event that any of the provisions of this Agreement were
not performed by the Company, and that money damages are an inadequate remedy
for breach of this Agreement because of the difficulty of ascertaining the
amount of damage that would be suffered by the Holders in the event that this
Agreement is not performed in accordance with its terms or conditions or is
otherwise breached. It is accordingly agreed that the Holders shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement by the
Holders and to enforce specifically the terms and provisions hereof in any court
of the United States or any state having jurisdiction, this being in addition to
any other remedy to which the Holders are entitled at law or in equity or
otherwise.
[Remainder of page intentionally left blank]
-10-
<PAGE>
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:_______________________________________
Name: Philip S. Sassower
Title: Chairman of the Executive Committee
INVESTORS:
INDIVIDUAL: ______________________________________
Address:___________________ Name:
___________________________
TRUST: Trust Name:
Address:___________________
___________________________
By:___________________________________
Name & Title:
PARTNERSHIP: Partnership Name:
Address:___________________
___________________________
By:______________________________________
Name & Title:
CORPORATION: Corporation Name:
Address:___________________
___________________________
By:___________________________________
Name & Title:
RETIREMENT PLAN Plan Name:
Address:___________________
___________________________
By:___________________________________
Name & Title:
-11-
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
COMMUNICATION INTELLIGENCE CORPORATION
275 Shoreline Drive, Suite 500 Contact:
Redwood Shores, CA 94065 Maurice Boucher
Telephone: 650-802-7888 Director, Investor Relations
Fax: 650-802-7777 650-631-7888
http//www.cic.com. [email protected]
COMMUNICATION INTELLIGENCE CORPORATION
APPOINTS NEW PRESIDENT AND C.O.O.
AND FORMS THE OFFICE OF CHIEF EXECUTIVE
REDWOOD SHORES, CA, November 13, 1997 (Nasdaq: CICI) Communication
Intelligence Corporation (CIC) announced today that Mr. Guido DiGregorio has
been appointed as President and Chief Operating Officer (COO) of the Company
and the Office of Chief Executive has been formed. Mr. DiGregorio has also
been appointed a member of CIC's Board of Directors and to the Executive
Committee of that Board.
Mr. DiGregorio brings to CIC a record of success in achieving profitability
consistent with positioning organizations for growth. After fifteen years at
General Electric, where he rose to the position of General Manager
- -Industrial Automation, representing a $125 million annual business, he
served as President of several high technology companies in a variety of
industries, including wireless data communications and software.
In addition, CIC has formed the Office of Chief Executive (OCE). The OCE
will have primary responsibility in managing long-term corporate policy and
strategic initiatives. It will be comprised of Mr. James Dao and Mr. Philip
Sassower. Mr. Dao will continue his role as Chairman of the Board of CIC in
addition to his primary focus of expanding the Company's activities in China.
"CIC is pleased to have attracted such a talented and successful person as
our new President," said Mr. James Dao, Chairman of CIC. He added, "As the
markets for our products and technology become more established and grow, it
is important to continuously strengthen and expand our management team. We
look forward to Mr. DiGregorio's valuable contribution to CIC's development."
Mr. Philip Sassower, Chairman of the Executive and Finance Committees of
CIC's Board of Directors, said, "Mr. DiGregorio has the ideal skill set to
enable CIC to focus on specific market opportunities with the goal of
achieving near-term profitability."
The Company
<PAGE>
Communication Intelligence Corporation develops, markets, and licenses
natural input computer technology - products that use pen and image for
input. Founded in 1981, CIC is a leading supplier of pen computing software
products to hardware manufacturers throughout the world. The Company's
products include Handwriter-Registered Trademark- Recognition System and
Jot-TM- handwriting recognition solutions. In addition, CIC developed the
SigCheck-TM- dynamic signature verification software which facilitates
reliable user authentication over computer networks. CIC also markets the
Handwriter-Registered Trademark- family of peripheral input devices, enabling
users to have pen computing capabilities on their desktop and laptop personal
computers.
CIC is headquartered in Redwood Shores, California, and has subsidiaries in
Japan and China. CIC's stock is publicly traded on Nasdaq, symbol CICI. More
information about CIC and its products can be obtained on the Internet:
http://www.cic.com
Note: All company and product names used herein are trademarks or registered
trademarks of their respective owners.
PR#220
