<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
COMMUNICATION INTELLIGENCE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2790442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CA 94065
(650) 802-7888
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
GUIDO DIGREGORIO
PRESIDENT
COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CA 94065
(650) 802-7888
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS
SENT TO AGENT FOR SERVICE, SHOULD BE SENT TO:
Donald J. Bezahler, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
(212) 702-5700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE(3) OFFERING PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value............... 4,687,500 $1.325 $6,210,938 $1,833
</TABLE>
(1) Includes the registration of all of the shares of the Company's Common Stock
issuable upon conversion of, or otherwise in respect to, the 240,000 shares
of the Company's Series B 5% Cumulative Convertible Preferred Stock (the
"Series B Preferred") issued in a private placement in November 1997.
Estimated solely for purposes of calculating the registration fee and
assumes that all of the 240,000 shares of Series B Preferred have been
converted into shares of Common Stock on January 5, 1998 based on a
conversion price of $1.28 per share. On January 2, 1998, the closing sale
price of the Common Stock on the Nasdaq SmallCap Market was $1.31 per share.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, such
number of shares of Common Stock registered hereby shall include an
indeterminate number of additional shares of Common Stock which may be
issued upon the occurrence of certain events in accordance with the
applicable terms and provisions relating to the Series B Preferred,
including stock splits, stock dividends and similar transactions and
anti-dilution adjustments.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average of the high and low sale price of the Common Stock on the
Nasdaq SmallCap Market on January 2, 1998.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 7, 1998
[LOGO]
4,687,500 SHARES OF COMMON STOCK
COMMUNICATION INTELLIGENCE CORPORATION
This prospectus (the "Prospectus") relates to the offer and sale (the
"Offering") by the selling securityholders listed herein (the "Selling
Securityholders") of shares* (collectively, the "Shares") of common stock, $0.01
par value per share (the "Common Stock"), of Communication Intelligence
Corporation, a Delaware corporation (the "Company"), all of which are issuable
upon the conversion of, or otherwise in respect to, the 240,000 shares of the
Company's Series B 5% cumulative convertible preferred stock (the "Series B
Preferred") issued by the Company in a private placement in November 1997. See
"Selling Securityholders," "Plan of Distribution" and "Description of Capital
Stock."
*The Shares offered hereby include an indeterminate number of shares of
Common Stock issuable upon conversion of, or otherwise in respect to, the
240,000 shares of the Series B Preferred. The number of shares of Common Stock
indicated to be issuable in connection with the 240,000 shares of Series B
Preferred (and offered for sale hereby) is an estimate based upon the conversion
price of $1.28 applicable as of January 5, 1998, is subject to adjustment and
could be materially less or more than such estimated amount depending upon
factors which cannot be predicted by the Company at this time, including, among
others, the future market price of the Common Stock. This presentation is not
intended to constitute a prediction as to the future market price of the Common
Stock. See "Risk Factors--Effect of Conversion of Series A and Series B
Preferred; Potential Adjustments; Dilution" and "Description of Capital Stock."
The Company will not receive any proceeds from the sale of the Shares
offered hereby. In addition, the Company will bear expenses from this Offering,
which the Company estimates to be approximately $115,000 in the aggregate. The
Company is required to effectuate this Offering pursuant to agreements between
the Company and the Selling Securityholders. See "Description of Capital Stock"
and "Selling Securityholders."
The Common Stock is listed on The Nasdaq SmallCap Market under the symbol
"CICI." On January 2, 1998, the closing sale price of the Common Stock as
reported on The Nasdaq SmallCap Market was $1.31 per share.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Selling Securityholders and any other person participating in the
distribution of the Shares offered hereby will be subject to applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder, including Rules 101
through 104, and such provisions may limit the timing of purchases and sales of
the Common Stock. The Shares offered hereby may be offered and sold from time to
time pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"), by the Selling Securityholders in one or more transactions on
The Nasdaq SmallCap Market, in negotiated transactions, or a combination of such
transactions. The Shares may be sold at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Securityholders may effect such transactions by selling the
Shares directly to purchasers or through underwriters or broker-dealers who may
effect such transactions by selling the shares directly to purchasers or through
underwriters or broker-dealers who may act as agents or principals. Underwriters
or broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Selling Securityholders or the purchasers of the Shares
for whom the underwriters or broker-dealers may act as agent or to whom they
sell as principal or both.
The date of this Prospectus is January , 1998
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PRIOR TO MAKING AN
INVESTMENT DECISION, PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED ELSEWHERE
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS RELATING TO THE COMPANY AND THIS
OFFERING.
HISTORY OF LOSSES; SIGNIFICANT ACCUMULATED DEFICIT; PRIOR BANKRUPTCY PROCEEDING
In each year since its inception, the Company has incurred losses which at
certain periods were significant. For the five-year period ended December 31,
1996, these losses aggregated approximately $36.4 million, and at December 31,
1996 and September 30, 1997 the Company's accumulated deficit was approximately
$54.3 million and $61.5 million, respectively. For the nine-month period ended
September 30, 1997, the Company's net loss applicable to common stockholders was
approximately $12 million, including approximately $4.9 million relating to the
accounting treatment of the discount and dividends relating to the Series A
Preferred, as compared to $4.4 million for the same nine-month period in 1996.
In July 1994, the Company filed a voluntary petition for reorganization and
protection under Chapter 11 of the United States Bankruptcy Code in order to
restructure its debt. In November 1994, the Company emerged from bankruptcy.
Revenues from product sales or licensing have not been significant to date. The
Company is likely to incur additional losses in the future, and these losses
could be substantial. The Company develops, markets and licenses natural input,
computer interface, handwriting recognition and data security technologies and
products for various markets, including personal computing and electronic
commerce and communications. In view of the emerging nature of the markets for
pen-based computing and the uncertainties concerning the Company's ability to
sufficiently commercialize its products and technology and obtain and retain
market share, there can be no assurance that the Company will be able to achieve
or sustain significant revenues or any level of profitability.
UNCERTAINTY OF MARKET ACCEPTANCE
The markets for pen-based computing are relatively new. Since its inception,
the Company has been primarily engaged in research and development of its core
technologies for handwriting recognition and related products in order to create
products for the emerging personal computer and electronic hand-held device
markets. More recently, the Company has been seeking to establish marketing,
distribution, licensing, product development and other strategic relationships
with third parties, and has had limited success to date. There can be no
assurance that the Company's technologies and products will ever achieve
significant market acceptance.
NEED FOR ADDITIONAL FINANCING; RESTRICTIVE COVENANTS OF SERIES A PREFERRED AND
SERIES B PREFERRED
The Company's working capital at December 31, 1996 was approximately $8.3
million, and at September 30, 1997 was approximately $1.2 million. In November
1997, the Company consummated a private placement of 240,000 shares of a series
of 5% cumulative convertible preferred stock (the Series B Preferred) and
received approximately $6.0 million in gross cash proceeds. As a result, the
Company believes it has adequate capital to fund current operations for at least
the next twelve months. However, the Company may be required to obtain
additional financing earlier in order to, among other things, continue its
operations or maintain its Common Stock listing on The Nasdaq SmallCap Market.
There can be no assurance that additional funds will be available when needed,
or if available, will be on favorable terms or in the amounts required by the
Company. If adequate funds are not available to the Company when needed, it may
be required to delay, scale back or eliminate some or all of its marketing and
development efforts or other operations, which will have a material adverse
effect on the Company's business, results of operations and prospects. Future
issuances of the Company's securities will cause dilution to the Company's then
existing stockholders, which in certain circumstances could be substantial.
In December 1996, the Company consummated a private placement of 450,000
shares of 5% cumulative convertible preferred stock (the "Series A Preferred")
for approximately $11.2 million. In
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connection with the private placement, the Company entered into an investor
agreement with the purchasers of the Series A Preferred (the "Investor
Agreement"). Subject to certain exceptions, until the Restrictive Covenant
Termination Date (as defined below), the Investor Agreement prohibits or
restricts the Company from, among other things, declaring or paying dividends or
making distributions to holders of the Common Stock, purchasing any Common Stock
or other equity junior or on parity with the Series A Preferred, authorizing or
issuing other equity securities senior to the Series A Preferred, and incurring
indebtedness other than for trade payables or a working capital facility not
exceeding $10 million. In addition, until the Restrictive Covenant Termination
Date, the Company is prohibited from offering or selling debt, shares of Common
Stock or other equity securities (including convertible securities), other than
in a bona-fide underwritten public offering, and from obtaining any financing
from a third party, unless such transaction has been first offered to the
holders of the Series A Preferred. The Company first offered the Series B
Preferred financing to the holders of the then outstanding Series A Preferred,
however, no holder accepted the offer. The term "Restrictive Covenant
Termination Date" means, generally, the date which is the earlier of (a) January
31, 1998 or (b) the date on which all of the Series A Preferred has been
converted.
In connection with the private placements of each of the Series A and Series
B Preferred, the Company agreed that if at any time dividends on the outstanding
Series A or Series B Preferred have not 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 Company ranking junior to the Series A or Series B
Preferred.
TECHNOLOGICAL CHANGES; OBSOLESCENCE AND COMPETITION
The markets in which the Company competes are subject to rapid and
significant technological changes, frequent introductions of new products and
product enhancements and the development of new technologies. Because the
markets for the Company's products are emerging and changing, the Company
believes that its products and underlying technologies will be subject to such
changes. There can be no assurance that the Company will be able to develop new
products or technologies or enhance existing products or technologies in a
timely manner in order to respond to market demands or that such technological
changes will not have a material adverse effect on the Company.
The personal computer and electronic handheld device markets are intensely
competitive and have attracted a number of major companies already established
in the personal computer and software industries. Certain competitors of the
Company have substantially greater financial and other resources than that of
the Company. The Company faces competition at a number of different levels.
Certain competitors have developed or are developing complete pen-based hardware
and software systems, while others have focused on different elements of such
systems, such as character recognition technology, pen-based operating systems
and environments, and pen-based applications. For example, IBM Corporation and
3COM Corporation currently offer pen-based portable computers incorporating
handwriting recognition technology at various levels of sophistication, and
Microsoft Corporation offers a handwriting recognition system and a pen-based
operating environment. There can be no assurance that competitors will not
succeed in developing products or technologies that are more effective, easier
to use or less expensive than the Company's products or technologies or that
would render the Company's products or technologies obsolete or non-competitive.
Competitors of the Company include certain of the Company's current and
potential strategic partners and customers who are developing or acquiring
alternative products and technologies to those offered by the Company. There can
be no assurance that companies with which the Company has established or will
establish distribution, license, product development or other strategic
relationships will not choose to market competitive technologies or products
developed internally or acquired from third parties. For example, Apple Computer
Inc. and IBM Corporation are developing internally or have licensed from third
parties a number of technologies related to pen-based
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<PAGE>
computing, NCR Corp./AT&T Corporation has developed its own pen-based operating
environment, and NEC Corporation has developed its own character recognition
technology and pen-based operating system. The Company's strategic partners also
have had access to proprietary information of the Company, and there can be no
assurance that the Company's confidentiality agreements with its strategic
partners will adequately protect it against the improper use of such proprietary
information. See "--Uncertainty of Protection of Intellectual Property and
Proprietary Rights."
The Company believes that the principal competitive factors in the markets
for pen-based computer products are the quality and reliability of character
recognition technology, multilingual capabilities of character-based recognition
technology, compatibility with a broad range of computer systems, name
recognition, effective distribution systems, ease of use, software efficiency
and the ability to sell to leading computer companies who may be predisposed to
develop their own technology instead of licensing third party technology. The
markets for pen-based products are still emerging, and the Company is unable to
determine which of these factors are the most important. The Company believes
that it competes favorably with respect to these factors, although it is at a
competitive disadvantage with respect to name recognition and distribution
capability. There can be no assurance that the Company will be able to be
competitive as the pen-based markets evolve, market demands change and the
Company's competitors apply substantial resources toward the development of new
products and technologies.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Company is highly dependent on the services of its management, key
personnel and other individuals. The loss of the services of one or more of the
Company's executive officers or other key persons, including Mr. James Dao, the
Company's founder, Chairman and Co-Chief Executive, Mr. Guido DiGregorio, the
Company's President and Chief Operating Officer and Mr. Philip S. Sassower, the
Company's Co-Chief Executive, could have a material adverse effect on the
Company. None of the Company's executive officers or key personnel has an
employment agreement with the Company and any such person may resign at any
time. There can be no assurance that any of the Company's employees will remain
with the Company or that, in the future, any former employee will not organize
or provide services to a competitive business. The Company's success will also
depend on its ability to attract and retain additional highly skilled personnel
in all areas of its business. The competition for qualified personnel in the
computer industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel.
DEPENDENCE ON DISTRIBUTORS AND STRATEGIC RELATIONSHIPS
The Company's strategy to commercialize its products and achieve significant
market acceptance depends in large part on its ability to develop distribution,
licensing, marketing and other strategic relationships with leading computer
companies, computer manufacturers, operating system software vendors,
independent software vendors, computer retailers and others. Through these
relationships, the Company seeks to establish recognition of its products and
related technologies, generate revenues and achieve significant market
acceptance. The Company's strategic partners generally do not have contractual
commitments to the Company. In the event one or more of the Company's strategic
partners should terminate their relationship with the Company, or the Company is
unable to establish strategic relationships with additional companies, there is
a significant risk that the Company's business and operating results will be
materially adversely affected. Moreover, certain of the companies with which the
Company has established or may seek to establish a strategic relationship are
concurrently engaged in the development or marketing of competing products and
technologies which they have developed internally or acquired from third
parties.
UNCERTAINTY OF PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, copyrights and trademarks,
trade secrets and contractual provisions to protect its proprietary rights in
its products and technologies. There can be no
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assurance that these protections will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's products or technologies. In addition,
the laws of certain countries in which the Company's products or technologies
are licensed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Because of the rapid
evolution of technology and uncertainties in intellectual property law in the
United States and internationally, there can be no assurance that the Company's
current or future products or technologies will not be subject to claims of
infringement. A substantial portion of the Company's technology and know-how are
trade secrets, and, as such, are not protected by patent, trademark or copyright
laws. The Company has a policy of requiring its employees and contractors to
respect its proprietary information through written agreements. The Company also
has a policy of requiring prospective business partners to enter into
non-disclosure agreements before any of the Company's proprietary information is
revealed to them. The Company's licensees and distributors also have access to
proprietary information of the Company. There can be no assurance that the
measures taken by the Company to protect its technology, products and other
proprietary rights will adequately protect it against improper use.
The original character recognition technology processes employed in the
Company's products were developed and patented by SRI International ("SRI"), and
SRI assigned those patents to the Company (the "SRI Patents"). The SRI Patents
have expired. Other major elements of the Company's products and technologies
are patented in the United States and overseas. The Company does not believe
that the expiration of the SRI Patents has had or will have a significant impact
on its operations since it has made significant improvements to the original
technology and additional patents relating to such technological improvements
have been applied for or issued. Certain of the Company's existing patents
covering these improvements expire between 1998 and 2005. The Company is unable
to predict at this time the impact to its operations from such expirations.
CIC-Registered Trademark- and its logo, Handwriter-Registered Trademark-,
MacHandwriter-Registered Trademark-, PenDOS-Registered Trademark-,
PenMAC-Registered Trademark-, INKshrINK-Registered Trademark-, Creativity
Tool-Registered Trademark- and YPad-Registered Trademark- are registered
trademarks of the Company. Handwriter Manta-TM-, JOT-TM-, SigCheck-TM-,
SIGN-IT-TM-, InkSentry-TM-, INKTOOLS-TM- and SIGVIEW-TM- are trademarks of the
Company. Applications for the registration of various trademarks are pending in
the United States, France, Germany, Italy, Japan, Spain and the United Kingdom.
The Company intends to register its trademarks generally in those jurisdictions
where its products are or will be marketed in the future.
The Company may be required to take various forms of legal action from time
to time to protect its proprietary rights. Any litigation regarding claims
against the Company or claims made by the Company against others could result in
significant expense to the Company, divert the efforts of its technical and
management personnel and have a material adverse effect on the Company, whether
or not such litigation is ultimately resolved in favor of the Company. In the
event of an adverse result in any such litigation, the Company may be required
to expend significant resources to develop non-infringing technology or obtain
licenses from third parties. There can be no assurance that the Company would be
successful in such development or that any such licenses would be available on
commercially reasonable terms, if at all.
JOINT VENTURE IN THE PEOPLE'S REPUBLIC OF CHINA
The Company currently owns 90% of a joint venture (the "Joint Venture") with
The Ministry of Electronic Industries of the Jiangsu Province, a provincial
agency of The People's Republic of China (the "Agency"). Under the provisions of
a Joint Venture agreement, the Company may be required to contribute up to an
aggregate of $5.4 million in cash to the Joint Venture and is required to
provide it with nonexclusive licenses to technologies and certain distribution
rights. The Agency is required to contribute certain land use rights and provide
other services to the Joint Venture. As of September 30, 1997, the Company had
contributed an aggregate of $1.8 million in cash to the Joint Venture and
provided it with nonexclusive licenses to technology and certain distribution
rights and the Agency had contributed certain land use rights. The Company
believes that any future cash contributions required to be made to the Joint
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Venture will be paid from its working capital or proceeds received from
additional financings, if any. There can be no assurance that the Company will
be able to fund the balance of any required cash contributions to the Joint
Venture, that the Joint Venture will be successful in developing or selling
integrated computer systems or other products to the Asian market or that the
Company will realize any significant benefits from its contributions to the
Joint Venture. The Joint Venture is subject to annual licensing requirements of
the Chinese government, and there can be no assurance that its license will be
renewed beyond March 1998 (the expiration date of the current license). The
Joint Venture has applied for a renewal of its current license. The failure of
the Joint Venture to receive a renewal of its license may adversely affect the
Company's ownership interests in the Joint Venture. In addition, because of the
legal and political system in China, there can be no assurance that the Agency's
obligations to the Joint Venture can be enforced. Finally, the Company's
investment in the Joint Venture is subject to risks of doing business abroad,
including fluctuations in the value of currencies, export duties, import
controls and trade barriers (including quotas), restrictions on the transfer of
funds, longer payment cycles, greater difficulty in accounts receivable
collections, burdens of complying with foreign laws and political and economic
instability. In the event the Company becomes adversely affected by any of these
risks or other risks arising out of doing business outside the United States, it
may have a material adverse effect on the Company. To date, the Company has not
encountered any significant difficulties with respect to the transfer of funds
from the Joint Venture to the Company. However, there can be no assurance that
it will not encounter significant difficulties in the future or that the Joint
Venture will not be significantly restricted or prohibited from doing business
in the future.
DEPENDENCE ON SUPPLIERS
The digitizer tablets and electronic pens used in connection with the
Company's Handwriter-Registered Trademark- for Windows-Registered Trademark- are
manufactured by one supplier (according to the Company's specifications). In
addition, the digitizer tablets and electronic pens used in connection with the
Company's Handwriter-Registered Trademark- Manta-TM- are manufactured by two
suppliers. Other subcontractors manufacture templates, duplicate software, print
documentation and prepare packaging for the Company's products. The digitizer
tablets, pens and other components are packaged by a turnkey software service
and are shipped to customers upon the Company's instructions. If any of the
Company's suppliers were unable to meet product volume requirements, the
Company's operations would be adversely affected. The Company is currently
evaluating whether to use additional suppliers but has not yet entered into any
definitive supply arrangements with any other suppliers. Any interruption or
other delay would likely have an adverse impact on the Company's business and
results of operations, at least in the short-term.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, two customers accounted for
approximately 11% and 10%, respectively, of the Company's revenues, and for the
years ended December 31, 1995 and 1994, one customer accounted for approximately
25% and 21%, respectively, of the Company's revenues. The loss of any
significant customer or other revenue source (including grants) would have a
material adverse effect on the Company.
CONTROL BY EXISTING STOCKHOLDERS; VOTING RIGHTS OF PREFERRED STOCKHOLDERS
At January 2, 1998, the Company's executive officers, directors and
principal stockholders may be deemed to beneficially own approximately 32% of
the Company's outstanding Common Stock, assuming (a) holders of the Common
Stock, Series A Preferred and Series B Preferred are voting together as one
class, and (b) all outstanding options, warrants and other securities held by
such persons which may be exercised or converted into, or exchanged for, shares
of Common Stock within 60 days of the date of this Prospectus are exercised or
converted in full (including the Series B Preferred). As a result, if such
individuals were to act collectively as stockholders, they would have the
ability to substantially influence matters requiring stockholder approval,
including the election of directors and other matters to be voted on by the
Company's stockholders with respect to the business and affairs of the Company.
In addition, the
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affirmative vote of 75% of the outstanding shares of Series A Preferred and 51%
of the outstanding shares of Series B Preferred, voting separately as a class,
is required for the consummation of certain business combinations and other
extraordinary transactions to the extent such holders rights are adversely
effected. Accordingly, the outstanding shares of Series A and Series B Preferred
could have the effect of delaying, deferring or preventing a transaction which a
stockholder might consider to be in its best interest. See "Description of
Capital Stock."
EFFECT OF CONVERSION OF SERIES A AND SERIES B PREFERRED; POTENTIAL ADJUSTMENTS;
DILUTION
In December 1996, the Company consummated a private placement of 450,000
shares of Series A Preferred and in November 1997, the Company consummated a
private placement of 240,000 shares of Series B Preferred. The Series A
Preferred is currently convertible by the holders into shares of Common Stock
pursuant to a conversion formula that discounts the average market price of the
Common Stock at the time of conversion. The Series B Preferred is convertible by
the holders into shares of Common Stock at any time pursuant to a conversion
formula based upon (a) $1.59 per share or (b) the average market price of the
Common Stock, whichever is lower at the time of conversion. In addition, all
outstanding shares of Series A Preferred will automatically convert into shares
of Common Stock on December 31, 1999, subject to the satisfaction of certain
conditions and events, or later under certain circumstances, and all outstanding
shares of Series B Preferred will automatically convert into shares of Common
Stock on November 25, 2000, or up to one year later under certain circumstances.
There are no limitations as to the number of shares of Common Stock the Company
may be required to issue in connection with the conversion of the Series A and
Series B Preferred. The conversion of the Series A and Series B Preferred and
the exercise of all outstanding options, warrants, and similar securities will
have, and the issuance of any other securities or interests which are
exercisable for or convertible into shares of Common Stock will have, a dilutive
effect, which could be substantial, on the currently and then outstanding shares
of Common Stock, respectively. See "Description of Capital Stock."
The exact number of shares of Common Stock issuable upon conversion of, or
otherwise with respect to, the Series A and Series B Preferred cannot currently
be determined but, generally, such number of shares of Common Stock will vary
inversely with the market price of the Common Stock. The existing holders of
Common Stock may be materially diluted by the conversion of the Series A and
Series B Preferred which dilution will depend on the future market price of the
Common Stock. If the average market price of $1.28 on January 5, 1998 was used
to determine the number of shares of Common Stock issuable as of the date
hereof, the Company would be obligated to issue a total of 8,881,934 shares of
Common Stock with respect to the Series A Preferred, assuming all of the 324,825
shares of Series A Preferred currently outstanding were converted, and a total
of 4,687,500 shares of Common Stock with respect to the Series B Preferred,
assuming all of the 240,000 shares of Series B Preferred were converted. To the
extent the market price per share of the Common Stock is lower or higher than
$1.28 per share as of any date on which shares of Series A or Series B Preferred
are converted, the Company would be obligated to issue more or less shares of
Common Stock than reflected in this estimate, and the difference could be
material. The number of shares of Common Stock issuable in connection with the
Series A and Series B Preferred will increase at an increasing rate as the
market price decreases (and decrease at a decreasing rate as the price
increases) relative to a given assumed market price. This presentation is not
intended to constitute a prediction as to the future market price of the Common
Stock or the number of shares of Common Stock issuable upon the conversion of
the Series A or Series B Preferred. The ultimate number of shares of Common
Stock to be issued and the dilution attributable thereto cannot be determined
until all of the shares of Series A and Series B Preferred have been converted.
On January 2, 1998, the last reported sale price of the Common Stock on the
Nasdaq SmallCap Market was $1.31 per share.
POSSIBLE STOCK PRICE VOLATILITY
The Company's Common Stock is listed on the Nasdaq SmallCap Market. Stock
prices of technology companies in recent years have experienced significant
volatility, including at times price fluctuations unrelated to the operating
performance of these companies. The market price of the Company's Common
7
<PAGE>
Stock has been and could be subject to significant fluctuations as a result of
variations in its operating results, announcements of technological innovations
or new products by the Company or its competitors, announcements of new
strategic relationships by the Company or its competitors, general conditions in
the computer industry or market conditions unrelated to the Company's business
and operating results. Any volatility that is coincident in time with
conversions of the Series A and Series B Preferred may directly effect the
number of shares of Common Stock issuable upon conversion of the Series A and
Series B Preferred.
FUTURE SALES OF COMMON STOCK; EXISTING REGISTRATION STATEMENTS; REGISTRATION
RIGHTS; POTENTIAL DEFAULT PAYMENTS
As of January 2, 1998, the Company had approximately 47,430,206 shares of
Common Stock outstanding, substantially all of which are available for sale
pursuant to Rule 144 under the Securities Act, subject in certain cases to
volume and other limitations, or pursuant to existing registration statements.
Approximately 6.1 million of such shares of Common Stock have been registered
for sale by selling securityholders pursuant to a final prospectus dated January
3, 1997 and an indeterminate number of such shares of Common Stock (estimated to
be 6.5 million shares in April 1997) have been registered for sale by selling
securityholders pursuant to a final prospectus dated April 11, 1997.
Pursuant to a registration rights agreement entered into by the Company in
connection with the sale of the Series A Preferred (the "Series A Registration
Rights Agreement"), the Company was required to register for offer and sale with
the Securities and Exchange Commision shares of Common Stock issuable upon
conversion of, or otherwise in respect to, the Series A Preferred (the "1997
Registration Statement"). Pursuant to the Series A Registration Rights
Agreement, the Company is required to pay to each holder a default payment in an
amount equal to 3% of the liquidation preference for the Series A Preferred
(which is $25 per share) held for any part of each 30-day period in which (i)
the Company fails, refuses or is unable to cause the registrable securities
covered by the 1997 Registration Statement to be listed on the exchange on which
the Common Stock is traded, (ii) any holder's ability to sell the securities
covered by the 1997 Registration Statement is suspended for more than sixty days
in the aggregate, or at any time during the months of December 1997 or January
1998, or (iii) the Company does not have a sufficient number of shares of Common
Stock available to effect conversion of the Series A Preferred.
In November 1997, the Company entered into a registration rights agreement
with the holders of the Series B Preferred (the "Series B Registration Rights
Agreement") which required the Company to file a registration statement (of
which this Prospectus is a part) (the "1998 Registration Statement") with the
Securities and Exchange Commission relating to the offer and sale by the Selling
Securityholders of shares of Common Stock issuable upon conversion of, or
otherwise in respect to, the Series B Preferred no later than January 1998 and
to use its best efforts to cause the 1998 Registration Statement to become
effective under the Securities Act no later than May 1998. Pursuant to the
Series B Registration Rights Agreement, in the event that the 1998 Registration
Statement is not declared effective on or about May 26, 1998, the Company will
be required to pay to each holder a default payment in an amount equal to 2 1/2%
of the liquidation preference of the Series B Preferred (which is $25 per share)
held for any part of each 30-day period subsequent to May 26, 1998 until the
1998 Registration Statement has been declared effective. Any default payment may
be paid by issuing additional shares of preferred stock or in cash, at the
Company's option. Any default payment which the Company is required to make may
have a material adverse effect on the Company and, if such payment is made by
the issuance of additional shares, such issuance may further dilute the
ownership interests of the holders of Common Stock.
In addition, the Company has granted demand and piggyback registration
rights to Mr. Philip Sassower (Chairman of the Company's Executive and Finance
Committees and the Company's Co-Chief Executive) and CIC Standby Ventures, L.P.
("Standby Ventures"), of which Mr. Sassower is the sole general partner. The
registration rights cover approximately 10.8 million shares of Common Stock
(including securities exercisable for shares of Common Stock) beneficially owned
by Mr. Sassower. In connection with the private placement of the Series A
Preferred, Standby Ventures, Mr. Sassower (the Company's Co-Chief Executive
8
<PAGE>
and a principal stockholder) and Mr. James Dao (the Company's founder, Chairman
and Co-Chief Executive) agreed not to sell more than 10% of each of their
respective holdings of Common Stock, without the approval of a majority in
interest of the holders of the outstanding Series A Preferred, until the earlier
of January 31, 1998 or the date on which all of the shares of the Series A
Preferred have been converted.
STATE REGISTRATION REQUIRED FOR SALES OF SHARES
Under the securities laws of certain states, the Shares may not be sold
unless they are qualified for sale or are exempt from registration under the
state securities laws of the state in which the prospective purchaser resides.
The Company is contractually obligated to use its best efforts to register and
qualify the Shares under applicable state securities laws in such jurisdictions
as may be reasonably requested by the Selling Securityholders.
NO ANTICIPATED DIVIDENDS ON THE COMMON STOCK; REQUIRED DIVIDENDS PAYABLE FOR
PREFERRED STOCK
The Company does not anticipate paying cash dividends on shares of its
Common Stock in the foreseeable future. The holders of the Series A Preferred
and Series B Preferred are entitled to receive cumulative dividends on each
share at the rate of $1.25 per share per annum, compounded semi-annually or
quarterly, respectively, when payable, whether or not declared. Dividends may be
paid at the Company's option in cash or additional shares of preferred stock
(with each additional share valued at $25 per share). Dividends must be paid in
respect of the Series A Preferred and Series B Preferred prior to any dividends
being paid in respect of any other class of stock ranking junior thereto. The
Company has agreed with the holders of the Series A Preferred that it will not
declare dividends or make any distributions to holders of the Common Stock prior
to the earlier of February 1998 (or later under certain circumstances) or the
date on which all outstanding shares of Series A Preferred have been converted
into shares of Common Stock. See "Description of Capital Stock--Preferred
Stock." The declaration and payment of any cash dividends in the future will be
determined at the discretion of the Company's Board of Directors in light of
conditions then existing, including the Company's earnings, if any, financial
condition, cash requirements and any contractual restrictions or prohibitions
with respect to the payment of dividends.
DELISTING OF COMMON STOCK FROM NASDAQ
In July 1994 (during the Company's Chapter 11 reorganization proceedings),
the Company's Common Stock was delisted from the Nasdaq National Market for
failure to meet Nasdaq's continued listing requirements. The Common Stock was
relisted on The Nasdaq SmallCap Market in July 1996. The Company is required to
satisfy continued listing requirements pursuant to Nasdaq SmallCap Market rules
in order for the Common Stock (including the Shares offered hereby) to remain
eligible for such quotation. As of the date of this Prospectus, the Company
believes it meets these requirements. There can be no assurance, however, that
the Company will satisfy Nasdaq's continued listing requirements in the future.
If the Company fails to meet any of Nasdaq's continued listing requirements,
the Common Stock may be delisted from The Nasdaq SmallCap Market. In such event,
there can be no assurance that trading in the Common Stock will continue
(through the OTC Bulletin Board or otherwise). Any delisting of the Common Stock
may adversely affect a holder's ability to dispose of, or to obtain accurate
quotations as to the market value of, the Common Stock. In addition, any
delisting may cause the Common Stock to be subject to "penny stock" regulations
promulgated by the Securities and Exchange Commission. Under such regulations,
broker-dealers are required to, among other things, comply with disclosure and
special suitability determinations prior to the sale of the Common Stock. If the
Common Stock becomes subject to these regulations, the market price of the
Common Stock and the liquidity thereof could be adversely affected.
9
<PAGE>
THE COMPANY
The Company develops, markets and licenses natural input, computer
interface, handwriting recognition and data security technologies and products
for various markets (including personal computing and electronic commerce and
communications). The Company's products include the multi-lingual
Handwriter-Registered Trademark-Recognition System and SigCheck-TM- (signature
verification software). The Company also markets software tools such as
InkTools-TM- and Sign-it-TM-, which allow signature capture and verification
within computer applications, Handwriter-Registered Trademark- for
Windows-Registered Trademark-, a peripheral input device product enabling users
to have pen computing capabilities on their desktop personal computers, and
Handwriter-Registered Trademark- Manta-TM-, an input device which provides pen
computing capabilities to laptop computer users.
The Company's current strategy is to commercialize its products for pen
computing applications internationally through the establishment of a network of
strategic business alliances. To achieve this objective, the Company has sought
and is seeking to form a series of strategic business alliances with
corporations and other entities. The Company believes that this strategy will
offer the benefits of pen computing to computer users worldwide while creating
opportunities both for itself and its strategic partners. There can be no
assurance that the Company will be able to establish strategic business
alliances or, if established, that such alliances will be favorable or
profitable for the Company. See "Risk Factors."
The Company has implemented a three-pronged revenue generation strategy. The
Company (i) licenses its products to original equipment manufacturers and
independent software vendors who reproduce and market them in conjunction with
their own products, (ii) sells its end-user products, such as the
Handwriter-Registered Trademark- for Windows-Registered Trademark-,
Handwriter-Registered Trademark- and Manta-TM-, through independent sales
representatives, distributors, strategic relationships and its corporate sales
force, and (iii) provides system integration services and markets its pen-based
business computer systems in China through its 90%-owned Joint Venture in the
People's Republic of China.
USE OF PROCEEDS
The Selling Securityholders will receive all of the proceeds from the sale
of the Shares offered hereby. The Company will not receive any proceeds from the
sale of the Shares.
SELLING SECURITYHOLDERS
The following Selling Securityholders beneficially own as of January 5, 1998
and may offer hereby the number of shares of Common Stock set forth opposite
their respective names (assuming the conversion or exercise of all of the shares
of Series B Preferred held by such holders into shares of Common Stock as of the
date of this Prospectus and based on the assumptions and estimates described
herein, including those set forth in footnote (1) to the table set forth below).
The Shares offered pursuant to this Prospectus may be offered from time to time
by the Selling Securityholders named below or their nominees. The Selling
Securityholders are under no obligation to sell all or any portion of the Shares
pursuant to this Prospectus. In addition, because the Selling Securityholders
are not obligated to sell all or a portion of their Shares pursuant to this
Prospectus, the Company is unable to ascertain the number of shares of Common
Stock that will be beneficially owned by each Selling Securityholder following
the termination of the Offering.
The Company will incur expenses in respect of this Offering in an amount
estimated to be $115,000 in the aggregate. Except as otherwise provided in this
Prospectus (including the footnotes to the table below), no Selling
Securityholder has held any position or office or had any other material
relationship with the Company within the past three years. The Selling
Securityholders will receive all of the proceeds from the sale of the Shares
offered hereby. The Company will not receive any proceeds from the sale of such
Shares. See "Use of Proceeds" and "Plan of Distribution."
The information in the table below concerning the Selling Securityholders is
based on information provided to, or known by, the Company, except for the
assumed conversion of shares of Series B Preferred
10
<PAGE>
into Common Stock, which is based solely on the assumptions discussed or
referenced in footnote (1) to the table below. Information concerning the
Selling Securityholders may change from time to time after the date of this
Prospectus. See "Risk Factors," "Plan of Distribution" and "Description of
Capital Stock."
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK OFFERED
STOCK OWNED PRIOR PURSUANT TO
NAME OF SELLING SECURITYHOLDER TO OFFERING(1) OFFERING(1)
- ----------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
103rd & Halsted Currency Exchange, Inc................................. 78,125 78,125
Comfort Etablissement(2)............................................... 445,312 195,312
Fairchild Holding Corp................................................. 781,250 781,250
Trust F/B/O Martin Gruss dated 4/25/88................................. 156,250 156,250
JAM Investment Associates.............................................. 31,250 31,250
Benjamin J. Jesselson 12/18/80 Trust................................... 156,250 156,250
Michael G. Jesselson 12/18/80 Trust.................................... 300,000 300,000
October 1983 Trust FBO Jesselson Grandchildren......................... 390,625 390,625
Carole Krumland........................................................ 14,062 14,062
Ted and Carole Krumland................................................ 1,171 1,171
Bernard Levenberg...................................................... 39,062 39,062
Levenberg Family Ltd. Partnership...................................... 19,531 19,531
Gerald Levenberg....................................................... 39,062 39,062
Milton Levenberg....................................................... 39,062 39,062
Victor Levinson........................................................ 19,531 19,531
Fraydun Manocherian.................................................... 58,593 58,593
Donald Moskovitz....................................................... 39,062 39,062
Douglas R. Rubens...................................................... 19,531 19,531
Sachs Investing Co..................................................... 390,625 390,625
Jonathan Sack.......................................................... 195,312 195,312
Steven M. Sack......................................................... 78,125 78,125
SAMCO Partners L.P..................................................... 292,968 292,968
Sanbros International Ltd.............................................. 156,250 156,250
Philip S. Sassower(4).................................................. 10,829,552(3) 470,117
Philip S. Sassower 1996 Charitable Remainder Annuity Trust(5).......... 312,500 312,500
Edward Oppenheimer Sassower(6)......................................... 19,541 19,541
Gavin Steinberg........................................................ 35,156 35,156
James Steinberg........................................................ 3,515 3,515
James Steinberg/Michael Steinberg/Carole Krumland...................... 1,171 1,171
Justin Steinberg....................................................... 19,531 19,531
Michael A. Steinberg Profit Sharing Trust FBO Armena Joan Steinberg.... 11,718 11,718
Michael A. Steinberg Profit Sharing Trust FBO Michael A. Steinberg..... 175,781 175,781
Barbara Anderson Terry................................................. 21,679 21,679
Triangle Administrative Services, Inc.................................. 78,125 78,125
Weiskopf Silver & Co................................................... 78,125 78,125
Weiss, Peck & Greer Trustee for Victor Levinson IRA Rollover........... 19,531 19,531
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
11
<PAGE>
- ------------------------
(1) The beneficial ownership and shares offered data contained herein includes
an estimate of the number of shares of Common Stock issuable upon the
conversion of, or otherwise in respect to, all of the shares of Series B
Preferred beneficially owned by these persons, using the conversion price of
$1.28 per share in determining the number of shares of Common Stock issuable
as of January 5, 1998. On January 2, 1998, the closing sale price of the
Common Stock on the Nasdaq SmallCap Market was $1.31 per share. The actual
number of shares of Common Stock offered hereby is subject to adjustment and
could be materially less or more than the estimated amount indicated
depending upon factors which cannot be predicted by the Company at this
time, including, among others, application of the conversion provisions
based on market prices prevailing at the actual date of conversion and
whether or to what extent dividends are paid in shares of Series B
Preferred. This presentation is not intended to constitute a prediction as
to the future market price of the Common Stock. The shares of Series B
Preferred were issued in a private placement in November 1997. See "Risk
Factors- Effect of Conversion of Series A and Series B Preferred Stock;
Potential Adjustments; Dilution" and "Description of Capital Stock."
(2) In November 1995, Comfort Etablissement purchased 250,000 shares of Common
Stock in a private placement for an aggregate purchase price of $500,000.
Comfort Etablissement is listed as a selling securityholder in one of the
Company's existing registration statements. See "Description of Capital
Stock."
(3) Includes the following: (a) 9,808,935 shares of Common Stock held by Standby
Ventures, of which Mr. Sassower is the sole general partner; (b) 175,000
shares of Common Stock issuable upon the exercise of stock options granted
to Mr. Sassower; (c) 63,000 shares of Common Stock held by Mr. Sassower as a
trustee of the Susan O. Sassower Trust; (d) 470,117 shares of Common Stock
issuable upon the conversion of 24,070 shares of Series B Preferred held by
Mr. Sassower, individually; and (e) 312,500 shares of Common Stock issuable
upon the conversion of 16,000 shares of Series B Preferred held by the
Sassower Trust (as defined below).
(4) Since 1994, Mr. Philip S. Sassower has been a member of the Board of
Directors of the Company, and since 1997 he has served as the Chairman of
the Executive Committee of the Board of Directors. In 1997, he was also
appointed to the Office of Chief Executive of the Company, and shares such
office with Mr. James Dao, the Company's founder and Chairman of the Board.
In addition, Mr. Sassower is the sole general partner of Standby Ventures.
As of January 5, 1998, Standby Ventures beneficially owned approximately 21%
of the Common Stock.
In January 1996, the Company retained Mr. Sassower, a member of the Board of
Directors, as a financial consultant in the areas of financing and investor
relations. The consulting arrangement provided payments to Mr. Sassower
totalling $100,000 during 1996. In 1997, Mr. Sassower became Chairman of the
Company's Executive Committee and increased his time commitment to the
Company. To compensate Mr. Sassower for his additional time commitment and
to reimburse him for office expenses, the Company increased the consulting
fee to be paid to Mr. Sassower to $150,000 in 1997. In addition, in 1995 the
Company paid Mr. Sassower an aggregate of $100,000 for services in
connection with a private placement.
In January 1997, Standby Ventures exercised in full (i) warrants to purchase
2,000,000 shares of Common Stock with an exercise price of $0.50 per share
(the "Note Warrants"), and (ii) warrants to purchase 1,563,500 shares of
Common Stock with an exercise price of $1.00 per share (the "Bridge
Warrants"). The Note Warrants and the Bridge Warrants were issued by the
Company in 1994 and 1995, respectively, pursuant to prior financings
provided to the Company by Standby Ventures and its sole general partner
(Mr. Sassower). Pursuant to the warrant exercises, Standby Ventures received
an aggregate of 2,759,000 shares of Common Stock as a result of cashless
exercise provisions contained in the warrants.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
12
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
In November 1997, Mr. Sassower and the Philip S. Sassower 1996 Charitable
Remainder Annuity Trust (the "Sassower Trust") purchased an aggregate of
20,070 and 16,000 shares of Series B Preferred, respectively, pursuant to
the Company's private placement for an aggregate purchase price of $601,750
and $400,000, respectively. As of January 5, 1998, Mr. Sassower may be
deemed to beneficially own approximately 10,829,552 shares of Common Stock
(representing approximately 22% of the Common Stock), including the shares
owned by Standby Ventures and the Sassower Trust.
(5) The trustees of the Sassower Trust are Mr. Sassower and Susan O. Sassower,
Mr. Sassower's wife. The Sassower Trust is an irrevocable trust. Does not
include the shares of Common Stock beneficially owned by Mr. Philip
Sassower.
(6) Mr. Edward Oppenheimer Sassower is the son of Mr. Philip Sassower. Mr.
Philip Sassower disclaims the beneficial ownership of any shares of Common
Stock held by his son Edward Sassower.
13
<PAGE>
PLAN OF DISTRIBUTION
All of the Shares offered hereby are being offered on behalf of the Selling
Securityholders. The Shares include such presently indeterminate number of
shares of Common Stock issuable upon conversion of, or otherwise in respect to,
the 240,000 shares of Series B Preferred issued in a private placement in
November 1997. The number of shares of Common Stock indicated to be issuable in
connection with the conversion of the Series B Preferred and offered for sale
hereby is an estimate based upon the conversion price of $1.28 per share on
January 5, 1998, is subject to adjustment and could be materially less or more
than such estimated amount depending upon factors which cannot be predicted by
the Company at this time, including, among others, the future market price of
the Common Stock. If, however, the conversion price of $1.28 per share was used
in determining the number of shares issuable, the Company would be obligated to
issue a total of 4,687,500 shares of Common Stock assuming all 240,000 shares of
Series B Preferred outstanding were converted. See "Risk Factors--Effect of
Conversion of Series A and Series B Preferred; Potential Adjustments; Dilution"
and "Description of Capital Stock."
The sale of the Shares may be effected directly to purchasers by the Selling
Securityholders as principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more transactions (which may
involve block transactions). Any sales of the Shares may be effected through the
Nasdaq SmallCap Market, in private transactions or otherwise. The Shares may be
sold at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. If the Selling Securityholders
effect sales through underwriters, brokers, dealers or agents, such firms may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders or the purchasers of the Shares for whom they may
act as agent, principal or both. Those persons who act as broker-dealers or
underwriters in connection with the sale of the Shares will be selected by the
Selling Securityholders and may have other business relationships with, and
perform services for, the Company. Any Selling Securityholder, underwriter or
broker-dealer who participates in the sale of the Shares may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act. Any
commissions received by any underwriter or broker-dealer and any profit on any
sale of the Shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 under the Exchange
Act may apply to purchases and sales of shares of Common Stock by the Selling
Securityholders. In addition, there are restrictions on market-making activities
by persons engaged in the distribution of the Common Stock.
Under the securities laws of certain states, the Shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the Shares may not be able to be sold unless the Common Stock has
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
The Company is required to pay expenses incident to the registration,
offering and sale of the Shares pursuant to this Offering. In determining the
then applicable conversion price of the Series B Preferred, the agreed value
($1.59) or average market price of the Common Stock, whichever is lower, will be
net of normal and customary commissions and underwriting or dealer spreads. The
Company has also agreed to indemnify the Selling Securityholders, their
partners, officers, directors and each of their controlling persons, if any,
against certain liabilities, including liabilities under the Securities Act. The
Company estimates that its expenses in connection with the Offering will be
approximately $115,000 in the aggregate.
The Company has advised the Selling Securityholders that if a particular
offer of Shares is to be made on terms constituting a material change from the
information set forth above, then to the extent required, a Prospectus
Supplement must be distributed setting forth such terms and related information
must be used.
14
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 80.0 million shares of Common Stock and 10.0 million shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), including
600,000 shares of Series A Preferred and 340,000 shares of Series B Preferred.
As of January 2, 1998, approximately 47,430,206 shares of Common Stock were
issued and outstanding, 324,825 shares of Series A Preferred were issued and
outstanding, and 240,000 shares of Series B Preferred were issued and
outstanding. In addition, approximately 8,014,256 shares of Common Stock
(subject to adjustments) were issuable upon exercise of outstanding options and
warrants, approximately 8,881,934 shares of Common Stock may be issuable upon
the assumed conversion on January 5, 1998 of all of the 324,825 shares of Series
A Preferred currently outstanding, based on a conversion price of $0.96 per
share, and approximately 4,687,500 shares of Common Stock may be issuable upon
the assumed conversion on January 5, 1998 of all of the 240,000 shares of Series
B Preferred, based on a conversion price of $1.28 per share. See "Selling
Securityholders," "Plan of Distribution," "Preferred Stock," and "Incorporation
of Certain Information by Reference." As of January 2, 1998, there were
approximately 651 stockholders of record with respect to the Company's
outstanding shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock do not have any cumulative voting rights. Certain rights, privileges and
preferences of the Common Stock are subordinate to the rights of holders of the
Series A Preferred, the Series B Preferred and any shares of Preferred Stock
that may be issued by the Company in the future. The holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors from time to time out of funds legally available therefor,
subject to, among other things, the rights of the Series A and Series B
Preferred, including those factors described under the heading "Risk Factors."
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of Common Stock are entitled to receive pro
rata all assets available for distribution to its stockholders after payment or
provision for payment of debts and other liabilities of the Company and
payments, if any, due to the holders of the outstanding Series A Preferred and
Series B Preferred. As of the date hereof, there are no preemptive or other
subscription rights or redemption or sinking fund provisions with respect to the
Common Stock. See "Risk Factors--Effect of Conversion of Series A and Series B
Preferred; Potential Adjustments; Dilution."
PREFERRED STOCK
GENERAL. The Preferred Stock may be issued in one or more series, and
shares of each series will have the rights and preferences as determined by the
Board of Directors in authorizing the issuance of that particular series. In
designating any series of Preferred Stock, the Board of Directors may, without
further action by the holders of Common Stock, determine the number of shares
constituting that series, the dividend rights or rates, conversion rights,
voting rights (which may be greater or lesser than the voting rights of the
holders of the Common Stock), rights and terms of redemption (including any
sinking fund provisions) and liquidation preferences of such series. Holders of
any series of Preferred Stock may have priority claims to dividends and to any
distributions upon liquidation of the Company, and other preferences over the
holders of the Common Stock.
OUTSTANDING CONVERTIBLE PREFERRED. At January 2, 1998, there were approximately
324,825 shares of Series A Preferred Stock and 240,000 shares of Series B
Preferred Stock issued and outstanding.
OPTIONAL AND AUTOMATIC CONVERSION. Each share of Series A and Series B
Preferred is convertible by the holders into shares of Common Stock at any time.
In addition, all outstanding shares of Series A
15
<PAGE>
Preferred will be automatically converted into shares of Common Stock on
December 31, 1999, subject to the satisfaction of certain conditions and events
by the Company, or later under certain circumstances. All outstanding shares of
Series B Preferred will be automatically converted into shares of Common Stock
on November 25, 2000, or at the Company's option, up to one year later.
Generally, the number of shares of Common Stock to be issued upon conversion
of the Series A Preferred is determined by dividing (i) the sum of $25
multiplied by the number of shares being converted, plus accrued and unpaid
dividends thereon and any unpaid default payments, by (ii) a conversion price
(as determined in the certificate of designation for such shares) which ranges
from approximately 72% to 85% of the then market price of the Common Stock,
depending upon the date of conversion. The then applicable market price
generally will be determined as follows: (i) if the holder giving the conversion
notice has sold the shares of Common Stock issuable upon conversion, the market
price will be the weighted average of the actual selling price at which the
holder converting has sold the shares of Common Stock (which may not be less
than the lowest trading price on the date of such trade as reported by the
Nasdaq SmallCap Market), net of normal and customary commissions and
underwriting or dealer spreads or (ii) if the holder giving the conversion
notice has not sold such shares of Common Stock issuable upon conversion, the
market price will be the average of the daily means between the low trading
price and the closing price of the Common Stock for the three consecutive
trading days prior to the conversion date. The conversion price is also subject
to adjustment for customary anti-dilution events such as stock splits, stock
dividends, reorganizations and certain mergers.
Generally, the number of shares of Common Stock to be issued upon conversion
of the Series B Preferred is determined by dividing (i) the sum of $25
multiplied by the number of shares being converted, plus accrued and unpaid
dividends thereon and any unpaid default payments, by (ii) a conversion price
(as determined in the certificate of designation for such shares) equal to the
lower of (a) the average market price of the Common Stock or (b) $1.59 per
share. The average market price generally will be the average of the daily
closing prices of the Common Stock for the three consecutive trading days prior
to the conversion date. The conversion price is also subject to adjustment for
customary anti-dilution events such as stock splits, stock dividends,
reorganizations and certain mergers.
The number of shares of Common Stock issuable upon conversion of, or
otherwise in respect to, the shares of Series A Preferred and Series B Preferred
is subject to adjustment and will likely be more or less than the estimated
amount depending upon factors which the Company is unable to predict at this
time, including the future market price of the Common Stock. If the average
market price of the Common Stock on January 5, 1998 of $1.28 per share was used
to determine the number of shares issuable upon conversion of all of the
currently outstanding shares of Series A Preferred and Series B Preferred, the
Company would be obligated to issue an aggregate of 13,569,434 shares of Common
Stock. There is no limitation on the number of shares of Common Stock that the
Company may be required to issue in connection with the conversion of the Series
A and Series B Preferred. See "Risk Factors."
The Company is required to reserve for issuance a sufficient number of
shares of Common Stock to be issued upon conversion of the Series A Preferred
and Series B Preferred so that all of such shares of preferred stock may be
converted.
VOTING. Holders of the Series A Preferred and the Series B Preferred have
the right to vote with the holders of the Common Stock, combined as one class,
in the election of directors and on such other matters to be voted on by the
stockholders. Each share of Series A Preferred and Series B Preferred has one
vote on each matter. In addition, the affirmative vote of 75% of the outstanding
shares of Series A Preferred voting separately as a class 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 have an
adverse effect on the rights of the holders of the Series A Preferred. The
affirmative vote of 51% of the outstanding shares of Series B Preferred voting
separately as a class is required for the consummation of certain business
16
<PAGE>
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 have an adverse effect on the rights of the
holders of the Series B Preferred.
DIVIDENDS. Each holder of outstanding shares of the Series A Preferred and
the Series B Preferred is entitled to receive, out of funds legally available
therefor, cumulative dividends on each share at the rate of $1.25 per share per
annum, compounded semi-annually and quarterly, respectively, when payable
(whether or not declared). The dividends may be paid in cash or additional
shares of preferred stock (with each additional share valued at $25.00 per
share), at the Company's option. Dividends must be paid in respect of the Series
A Preferred and Series B Preferred prior to any dividends being paid in respect
of any other class of stock ranking junior thereto. The Company has agreed with
the holders of the Series A Preferred that it will not declare dividends or make
any distributions to holders of the Common Stock prior to the earlier of
February 1998 (or later under certain circumstances) or the date on which all
outstanding shares of Series A Preferred have been converted into shares of
Common Stock. Finally, if any cash dividend is declared and paid in cash to the
holders of the Series B Preferred, then the Company must give notice to the
holders of the Series A Preferred of such fact, and the holders of the Series A
Preferred will have the right to elect to receive their next dividend payment in
cash.
LIQUIDATION. In the event of the Company's liquidation, dissolution or
winding up (voluntary or otherwise), the holders of the Series A Preferred and
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, on a PARI PASSU basis among the holders of the Series A and Series B
Preferred, the amount of $25 per share plus any accrued and unpaid dividends.
REGISTRATION RIGHTS. Approximately 6.1 million shares of Common Stock have
been registered with the Securities and Exchange Commission for sale by selling
securityholders pursuant to a final prospectus dated January 3, 1997 and an
indeterminate number of shares of Common Stock (estimated to be 6.5 million
shares in April 1997) have been registered with the Securities and Exchange
Commission for sale by selling securityholders pursuant to a final prospectus
dated April 11, 1997.
In December 1996, the Company entered into a registration rights agreement
with the holders of the Series A Preferred which required the Company to file a
registration statement with the Securities and Exchange Commission relating to
the offer and sale of shares of Common Stock issuable upon conversion of the
Series A Preferred by March 31, 1997 and to use its best efforts to cause the
registration statement to become effective under the Securities Act by June 29,
1997. That registration statement (the 1997 Registration Statement) was declared
effective by the Securities and Exchange Commission on April 11, 1997.
In November 1997, the Company entered into a registration rights agreement
with the holders of the Series B Preferred which required the Company to file a
registration statement (of which this Prospectus is a part) with the Securities
and Exchange Commission relating to the offer and sale by the Selling
Securityholders of shares of Common Stock issuable upon conversion of, or
otherwise in respect to, the Series B Preferred by January 1998 and to use its
best efforts to cause the Registration Statement to become effective under the
Securities Act by May 1998.
In addition, the Company has also granted demand and piggyback registration
rights to Mr. Philip Sassower (the Chairman of the Executive and Finance
Committees of the Board of Directors and the Company's Co-Chief Executive) and
CIC Standby Ventures, L.P. ("Standby Ventures"), of which Mr. Sassower is
general partner. The registration rights cover approximately 10.8 million shares
of Common Stock (including securities exercisable for shares of Common Stock)
beneficially owned by Mr. Sassower. In connection with the Company's private
placement of Series A Preferred, Standby Ventures, Mr. Sassower and Mr. James
Dao (the Company's Chairman and Co-Chief Executive and a principal stockholder)
agreed not to sell more than 10% of each of their respective holdings of Common
Stock until
17
<PAGE>
the earlier of January 31, 1998 or the date on which all of the shares of the
Series A Preferred have been converted, without the approval of a majority in
interest of the holders of the outstanding Series A Preferred.
DEFAULT PAYMENTS. Pursuant to the Series A Registration Rights Agreement
entered into in connection with the sale of the Series A Preferred, the Company
is required to pay to each holder a default payment in an amount equal to 3% of
the liquidation preference for the Series A Preferred held for any part of each
30-day period in which (i) the Company fails, refuses or is unable to cause the
registrable securities covered by the 1997 Registration Statement to be listed
on the exchange on which the Common Stock is traded, (ii) any holder's ability
to sell the securities covered by the 1997 Registration Statement is suspended
for more than sixty days in the aggregate, or at any time during the months of
December 1997 or January 1998, or (iii) the Company does not have a sufficient
number of shares of Common Stock available to effect conversion of the Series A
Preferred. Any default payment which the Company is required to make may have a
material adverse effect on the Company and, if such payment is made by the
issuance of additional shares, such issuance may further dilute the ownership
interests of the holders of the Common Stock. See "Risk Factors."
Pursuant to the Series B Registration Rights Agreement entered into in
connection with the sale of the Series B Preferred, in the event that the 1998
Registration Statement is not declared effective by May 26, 1998, the Company
will be required to pay to each holder of the Series B Preferred a default
payment in cash in an amount equal to 2 1/2% of the liquidation preference for
the Series B Preferred held for any part of each 30-day period subsequent to May
26, 1998 until the 1998 Registration Statement has been declared effective. The
Company must pay the default payment each month until the condition or event
causing the payment to be made no longer exists. The default payments may be
paid in additional shares of the preferred stock (valued at $25 per share) or in
cash, at the Company's option. See "Risk Factors."
EXISTING REGISTRATION STATEMENTS
In December 1996, the Company consummated a private placement of 450,000
shares of Series A Preferred and in November 1997, the Company consummated a
private placement of 240,000 shares of Series B Preferred. The Series A
Preferred is convertible by the holders into shares of Common Stock pursuant to
a conversion formula that discounts the effective market price of the Common
Stock at the time of conversion. The Series B Preferred is convertible by the
holders into shares of Common Stock at any time, pursuant to a conversion
formula based upon (a) $1.59 per share or (b) the average market price of the
Common Stock, whichever is lower at the time of conversion. In addition, all
outstanding shares of Series A Preferred will automatically convert into shares
of Common Stock on December 31, 1999, subject to the satisfaction of certain
conditions and events, or later under certain circumstances, and all outstanding
shares of Series B Preferred will automatically convert on November 25, 2000, or
later under certain circumstances. There are no limitations as to the number of
shares of Common Stock the Company may be required to issue in connection with
the conversion of the Series A and Series B Preferred.
The exact number of shares of Common Stock issuable upon the conversion of,
or otherwise with respect to, the Series A and Series B Preferred cannot
currently be determined but, generally, such number of shares of Common Stock
will vary inversely with the market price of the Common Stock. If the average
market price of $1.28 on January 5, 1998 was used to determine the number of
shares of Common Stock issuable, the Company would be obligated to issue a total
of 8,881,934 shares of Common Stock with respect to the Series A Preferred
assuming all of the 324,825 Series A Preferred outstanding were converted and
4,687,500 shares of Common Stock with respect to the Series B Preferred assuming
all of the 240,000 shares of Series B Preferred were converted. See "Risk
Factors," "Selling Securityholders" and "Plan of Distribution."
18
<PAGE>
In December 1996, the Company's registration statement for the sale by
selling securityholders of 6,173,411 shares of Common Stock was declared
effective by the Securities and Exchange Commission. In April 1997, the
Company's 1997 Registration Statement for the sale by selling securityholders of
an indeterminate number of shares of Common Stock (estimated to be 7,477,597 in
April 1997) issuable upon conversion of the Series A Preferred was declared
effective by the Securities and Exchange Commission. Certain of the Selling
Securityholders in this Offering may also be selling securityholders in one of
the Company's previous registration statements. See "Risk Factors," "Selling
Securityholders" and "Plan of Distribution."
MARKET INFORMATION
The Company's Common Stock was listed on The Nasdaq SmallCap Market on
September 19, 1991 and thereafter on the Nasdaq National Market until 1994.
During the Company's 1994 Chapter 11 reorganization proceedings, the Company was
unable to meet Nasdaq's requirements for continued listing and, as a result, the
Common Stock was delisted from the Nasdaq National Market. From 1994 to June
1996, the Common Stock was quoted on the OTC Bulletin Board. The Common Stock
was re-listed on The Nasdaq SmallCap Market on July 1, 1996 under the symbol
"CICI." See "Risk Factors."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation, as amended, includes provisions
to eliminate the personal liability of the Company's directors to the fullest
extent permitted by Delaware law. Under current law, such exculpation generally
extends to breaches of fiduciary duty, except for (i) breaches of such person's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct, (iii) those instances where an improper personal benefit
was received and (iv) the declaration of dividends in violation of applicable
law.
The Company's By-Laws provide that the Company shall indemnify any person
who is or is threatened to be made a party to any action or proceeding by reason
of his or her being or having been a director or officer of the Company to the
fullest extent permitted by Delaware law.
It is the position of the Securities and Exchange Commission that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted for any director or officer of the Company pursuant to the foregoing
provisions as a means of indemnifying any of them against such liabilities, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
19
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission pursuant to the Exchange Act are incorporated by reference
into this Prospectus and made a part hereof as of their respective dates:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996, filed with the Securities and Exchange Commission on March 31,
1997.
2. The Company's Current Report on Form 8-K dated December 31, 1996,
filed with the Securities and Exchange Commission on January 7, 1997.
3. The Company's Current Report on Form 8-K dated January 14, 1997,
filed with the Securities and Exchange Commission on January 22, 1997.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Securities and Exchange Commission on May 15,
1997.
5. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, filed with the Securities and Exchange Commission on August
14, 1997.
6. The Company's Current Report on Form 8-K dated September 11, 1997,
filed with the Securities and Exchange Commission on September 22, 1997.
7. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, filed with the Securities and Exchange Commission on
November 14, 1997.
8. The Company's Current Report on Form 8-K dated November 13, 1997,
filed with the Securities and Exchange Commission on December 8, 1997.
9. The Company's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1997, filed with the Securities and Exchange Commission on January
7, 1998.
10. The Company's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1997, filed with the Securities and Exchange Commission on January
7, 1998.
11. The Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1997, filed with the Securities and Exchange Commission on
January 7, 1998.
12. The description of Common Stock contained in the Company's
Registration Statement on Form 8-A, filed with the Securities and Exchange
Commission on October 17, 1991 (File No. 0-19301), as amended by Amendment
No. 1 filed on October 31, 1991.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the respective
filing dates of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document, which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated by reference herein
(excluding the exhibits to such documents). Requests for copies should be
directed to Communication Intelligence Corporation, 275 Shoreline Drive, Suite
500, Redwood Shores, CA 94065, Attention: Secretary.
20
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Baer Marks & Upham LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for the years then ended incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of Communication Intelligence Corporation for the
year ended December 31, 1996 have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements and schedule of Communication
Intelligence Corporation for the year ended December 31, 1994 appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission under the
Securities Act a Registration Statement on Form S-3 (the "Registration
Statement"), of which this Prospectus is a part, with respect to the Shares
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules as
permitted by the rules and regulations of the Securities and Exchange
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the Registration Statement or in a filing incorporated by reference
herein, reference is made to the exhibit for a more complete description of the
matters involved, and each statement shall be deemed qualified in its entirety
by this reference.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files certain periodic reports, proxy statements
and other information with the Securities and Exchange Commission. Reports and
other information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at its
principal offices located at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Securities
and Exchange Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Copies of such material may be obtained by mail from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Securities and
Exchange Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
Material filed by the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
21
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Risk Factors................................... 2
The Company.................................... 10
Use of Proceeds................................ 10
Selling Securityholders........................ 10
Plan of Distribution........................... 14
Description of Capital Stock................... 15
Incorporation of Certain Information by
Reference.................................... 20
Legal Matters.................................. 21
Experts........................................ 21
Available Information.......................... 21
</TABLE>
4,687,500 SHARES*
COMMON STOCK
COMMUNICATION
INTELLIGENCE
CORPORATION
---------------------
PROSPECTUS
---------------------
[LOGO]
JANUARY , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred and borne by the
Company in connection with the sale of the Shares offered hereby. All amounts
shown are estimates, except for the Securities and Exchange Commission and
Nasdaq filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 1,833
Nasdaq SmallCap Market additional share listing fee............... $ 7,500
Legal fees and expenses........................................... $ 40,000
Accounting fees and expenses...................................... $ 15,000
Blue Sky fees and expenses........................................ $ 2,000
Printing and engraving expenses................................... $ 30,000
Miscellaneous..................................................... $ 16,667
---------
Total fees and expenses......................................... $ 115,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with the claims made against them as a result of their being an
officer or director. The Company's By-Laws provide that the Company shall
indemnify any person who is or was a director or officer of the Company and is a
party or is threatened to be made a party to any action or proceeding to the
fullest extent permitted by Delaware law.
Article V, Section 1 of the Company's By-laws provides, in part, as follows:
The Corporation shall indemnify to the full extent permitted by, and in the
manner permissible under, the laws of the State of Delaware any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that such person
or such person's testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or served any other
enterprise as a director or officer at the request of the Corporation or any
predecessor of the Corporation.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following is a list of Exhibits filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
2.1 Second Amended Plan of Reorganization of the Company (incorporated herein by reference to the
Exhibits included in the Company's Current Report on Form 8-K, filed on October 24, 1994).
4.1 Form of Common Stock Certificate.
5.1 Opinion of Baer Marks & Upham LLP (regarding the validity of the shares of Common Stock).
23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
23.3 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included on page II-3).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes the following:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Company's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood Shores, State of California, on January 6,
1998.
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/ GUIDO DIGREGORIO
---------------------------------------
Guido DiGregorio
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints James Dao, Philip S. Sassower,
and Guido DiGregorio or any of them, as his true and lawful attorneys-in-fact
and agents, with full powers of substitution and resubstitution, for him and in
his name, place and stead, to sign in any and all capacities any and all
amendments (including post-effective amendments) to this Registration Statement
on Form S-3 and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Operating
/s/ GUIDO DIGREGORIO Officer and Director
- ------------------------------ (Principal Executive January 6, 1998
Guido DiGregorio Officer)
Vice President, Secretary
/s/ FRANCIS V. DANE and Treasurer (Principal
- ------------------------------ Financial and Accounting January 6, 1998
Francis V. Dane Officer)
/s/ JAMES DAO Chairman of the Board and
- ------------------------------ Co-Chief Executive January 6, 1998
James Dao
/s/ PHILIP S. SASSOWER Director and Co-Chief
- ------------------------------ Executive January 6, 1998
Philip S. Sassower
/s/ DONALD R. SCHEUCH Director
- ------------------------------ January 6, 1998
Donald R. Scheuch
/s/ CHIEN-BOR SUNG Director
- ------------------------------ January 6, 1998
Chien-Bor Sung
II-3
<PAGE>
INDEX TO EXHIBITS FILED WITH
FORM S-3 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
2.1 Second Amended Plan of Reorganization of the Company (incorporated herein by reference to the
Exhibits included in the Company's Current Report on Form 8-K, filed on October 24, 1994).
4.1 Form of Common Stock Certificate.
5.1 Opinion of Baer Marks & Upham LLP (regarding the validity of the shares of Common Stock).
23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
23.3 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included on page II-3).
</TABLE>
<PAGE>
EXHIBIT 4.1
<TABLE>
<S> <C>
[LOGO]
CIC. COMMUNICATION INTELLIGENCE CORPORATION
SHARES
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 20338K 10 6
</TABLE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE AT THE MAIN
OFFICES OF THE R-M TRUST COMPANY, VANCOUVER, B.C., CALGARY, ALBERTA OR MELLON
SECURITIES TRUST COMPANY, NEW JERSEY, U.S.A.
THIS
CERTIFIES
THAT
IS THE REGISTERED
HOLDER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, U.S. $.01 PAR VALUE PER SHARE, OF
COMMUNICATION INTELLIGENCE CORPORATION
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate and
the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation and the Bylaws of the
Corporation, as restated or amended, or as same may be restated or amended
hereafter (a copy of which are on file with the Transfer Agent), to all of
which the holder hereof by acceptance hereof agrees and assents. This
certificate is not valid until countersigned and registered by the Transfer
Agent and the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C>
[COMMUNICATION INTELLIGENCE CORPORATION]
COUNTERSIGNED AND REGISTERED: [CORPORATE] /s/ James Dao
THE R-M TRUST COMPANY VANCOUVER [SEAL] PRESIDENT
TRANSFER AGENT AND REGISTRAR CALGARY 1986
[DELAWARE]
MELLON SECURITIES TRUST COMPANY NEW JERSEY
TRANSFER AGENT AND REGISTRAR /s/ F V Dane
SECRETARY
</TABLE>
BY
-------------------------------------
AUTHORIZED OFFICER
<PAGE>
COMMUNICATION INTELLIGENCE CORPORATION
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ........Custodian.........
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of
survivorship and not as tenants Act........................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------
| |
| |
- ---------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
_________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of Communication Intelligence
Corporation with full power of substitution in the premises.
Dated_____________________
_____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
<PAGE>
EXHIBIT 5.1
January 7, 1998
Communication Intelligence Corporation
275 Shoreline Drive, Suite 5200
Redwood Shores, California 94065
Re: REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
We have acted as your special counsel in connection with the offering by
certain selling shareholders of a presently indeterminate number of shares of
Common Stock, par value $.01 per share (the "SHARES"), of Communication
Intelligence Corporation (the "COMPANY") issuable upon conversion of, or
otherwise in respect to, the 240,000 shares of the Company's Series B 5%
cumulative convertible preferred stock (the "SERIES B PREFERRED") issued in a
private placement in November 1997. The Shares are being offered pursuant to
the Company's registration statement on Form S-3 filed with the Securities and
Exchange Commission (the "COMMISSION") on January 7, 1998.
In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of all such corporate records and of all such agreements,
certificates and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed, including the following documents:
(a) the Company's Certificate of Incorporation, as amended; (b) the Company's
Bylaws; (c) the Unanimous Written Consent of the Board of Directors of the
Company dated November 21, 1997; and (d) the Certificate of Designations of the
Series B Preferred (the "CERTIFICATE OF DESIGNATIONS").
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies. As to
any facts material to such opinion, we have relied on certificates of public
officials and certificates of officers or other representatives of the Company.
Based upon the foregoing, and subject to the qualifications and limitations
contained herein, we are of the opinion that the Shares when issued and
delivered
<PAGE>
pursuant to the Certificate of Designations will be duly authorized, validly
issued and outstanding, fully paid and non-assessable.
We are members of the Bar of the State of New York and are not licensed or
admitted to practice law in any other jurisdiction. Accordingly, we express no
opinion with respect to the laws of any jurisdiction other than the State of New
York.
Our opinion and the matters expressed herein are as of the date hereof and
we assume no obligation to advise you of any change in any matter set forth
herein after the date hereof. This opinion may not be relied upon by any other
person for any purpose without our prior written consent.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not thereby concede that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "ACT"), or the rules and regulations thereunder, or that we are
"experts" within the meaning of the Act or such rules and regulations.
Very truly yours,
/s/ Baer Marks & Upham LLP
JJR/LJL/SAM
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 20, 1997, except as to Note 11, which is as of March 28, 1997,
appearing on page F-2 of Communication Intelligence Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996. We also consent to the
application of such report to the Financial Statement Schedule for the years
ended December 31, 1996 and 1995 listed under Item 14(a) of Communication
Intelligence Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996 when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
include this schedule. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Jose,California
January 7, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (on Form S-3) and related Prospectus of Communication
Intelligence Corporation for the registration of shares of its common stock
issuable upon conversion of, or otherwise in respect to, the shares of the
Company's Series B Preferred Stock and to the incorporation by reference therein
of our report dated February 28, 1995, with respect to the consolidated
financial statements and schedule of Communication Intelligence Corporation (for
the year ended December 31, 1994) included in its Annual Report on Form 10-K for
the year ended December 31, 1996, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Palo Alto, California
January 7, 1998
