COMMUNICATION INTELLIGENCE CORP, DEFR14A, 1998-04-28

COMMUNICATION INTELLIGENCE CORP
DEFR14A, 1998-04-28
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE>
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

COMMUNICATION INTELLIGENCE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

NOT APPLICABLE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated
and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CALIFORNIA 94065

[LOGO]
------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------

JUNE 1, 1998
------------------------

To the Stockholders of Communication Intelligence Corporation:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Communication Intelligence Corporation, a Delaware corporation (the
"Company"), will be held at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood
Shores, California 94065, on June 1, 1998, at 1:00 p.m. Pacific Time, for the
following purposes, all as more fully described in the attached Proxy Statement:

1. To elect seven directors to serve until their respective successors are duly
elected and qualified.

2. To approve an amendment to the Company's Certificate of Designations
relating to its first series of 5% Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") to cause the dividend and liquidation
rights with respect thereto to be PARI PASSU with the Company's Series B 5%
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock").

3. To approve an amendment to the Company's Amended and Restated Certificate of
Incorporation increasing the number of authorized shares of the Company's
common stock from 80,000,000 to 100,000,000.

4. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31, 1998.

5. To transact such other business as may properly come before the Annual
Meeting.

The Board of Directors has fixed the close of business on April 8, 1998 as
the record date for the determination of stockholders entitled to notice of, and
to vote on the matters proposed at, the Annual Meeting and any adjournments
thereof.

YOUR VOTE IS IMPORTANT

EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE,
SIGN, DATE AND RETURN EACH APPLICABLE PROXY IN THE ENVELOPE PROVIDED SO THAT
YOUR SHARES MAY BE VOTED AT THE ANNUAL MEETING. IF YOU OWN SHARES IN MORE THAN
ONE CLASS OF THE COMPANY'S STOCK, PLEASE COMPLETE A PROXY FOR EACH SUCH CLASS.
IF YOU EXECUTE A PROXY, YOU STILL MAY ATTEND THE ANNUAL MEETING AND VOTE IN
PERSON.

<TABLE>
<S> <C>
Redwood Shores, California By Order of the Board of Directors

April 29, 1998 /s/ Guido DiGregorio
Guido DiGregorio
President
</TABLE>
<PAGE>
COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CALIFORNIA 94065

----------------------------

PROXY STATEMENT

----------------------------

ANNUAL MEETING OF STOCKHOLDERS

----------------------------

INTRODUCTION

This Proxy Statement and the accompanying proxies are being furnished to
stockholders of Communication Intelligence Corporation, a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors for the Company's Annual Meeting of Stockholders to be held at the
Hotel Sofitel, 223 Twin Dolphin Drive, Redwood Shores, California 94065, on June
1, 1998, at 1:00 p.m. Pacific Time, and any and all adjournments thereof (the
"Annual Meeting").

At the Annual Meeting, stockholders of the Company as of the close of
business on April 8, 1998 (the "Record Date") will be asked to consider and vote
upon the following: (i) the election of seven directors to serve until their
respective successors are duly elected and qualified (Proposal 1); (ii) an
amendment to the Company's Certificate of Designations relating to its first
series of 5% Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") to cause the dividend and liquidation rights with respect thereto to be
PARI PASSU with the Company's Series B 5% Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock") (Proposal 2); (iii) an amendment to the
Company's Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of the Company's common stock (Proposal 3); and (iv)
the ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31, 1998 (Proposal 4). This
Proxy Statement and the accompanying proxies, together with a copy of the
Company's Annual Report to Stockholders, are first being mailed or delivered to
stockholders of the Company on or about April 29, 1998.

Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting and will be given the opportunity to address the stockholders if
they so desire and will be available to respond to appropriate questions.

WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS IMPORTANT.
ACCORDINGLY, YOU ARE ASKED TO SIGN AND RETURN EACH APPLICABLE PROXY, REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. IF YOU OWN MORE THAN ONE CLASS OF STOCK, PLEASE
COMPLETE A PROXY FOR EACH SUCH CLASS. SHARES CAN BE VOTED AT THE ANNUAL MEETING
ONLY IF THE HOLDER IS REPRESENTED BY PROXY OR IS PRESENT.

VOTING SECURITIES

As of April 8, 1998 (the "Record Date"), the Company had outstanding
48,722,630 shares of common stock, par value $.01 per share (the "Common
Stock"), 292,825 shares of Series A Preferred Stock and 240,000 shares of Series
B Preferred Stock. Each holder of outstanding shares of Common Stock, Series A
Preferred Stock or Series B Preferred Stock as of the Record Date is entitled to
one vote per share on all matters to come before the Annual Meeting. Holders of
outstanding shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock as of the Record Date (collectively, the "Shares") will vote as
one class on the proposals presented at the Annual Meeting. In addition, holders
of outstanding shares of Common Stock will vote separately as a class on
Proposal 3. Only stockholders of record at the close of business on the Record
Date are entitled to notice of, and to vote at, the Annual Meeting.
<PAGE>
Approval of Proposal 1 to elect seven directors requires the affirmative
vote of a plurality of the Shares represented in person or by proxy at the
Annual Meeting. Approval of Proposal 2 to amend the Company's Certificate of
Designations and Proposal 3 to amend the Company's Amended and Restated
Certificate of Incorporation requires, in each case, the affirmative vote of
holders of a majority of the outstanding Shares. In addition, approval of
Proposal 2 to amend the Company's Certificate of Designations required the
affirmative vote of holders of seventy-five percent (75%) of the outstanding
shares of Series A Preferred Stock (which the Company obtained in November of
1997), and approval of Proposal 3 to amend the Company's Amended and Restated
Certificate of Incorporation requires the affirmative vote of holders of a
majority of the outstanding shares of Common Stock. Proposal 4 to ratify the
appointment of Price Waterhouse LLP as the Company's independent accountants for
the year ending December 31, 1998 requires the affirmative vote of holders of a
majority of the Shares represented in person or by proxy at the Annual Meeting.

Each enclosed proxy provides that a stockholder who holds shares of a class
of the Company's capital stock as of the Record Date may specify that his or her
shares of that class be voted "for," "against" or "abstain" from voting with
respect to each of the proposals presented at the Annual Meeting. (A separate
proxy is included for each class of stock.) If an enclosed proxy is properly
executed, duly returned to the Company in time for the Annual Meeting and not
revoked, your shares will be voted in accordance with the instructions contained
thereon. Where a signed proxy is returned and no specific instructions are
indicated, your shares represented thereby will be voted FOR each of the
proposals.

Proxies marked as abstaining will be treated as present for the purpose of
determining whether there is a quorum for the Annual Meeting, but will not be
counted as voting on any matter as to which abstinence is indicated. Thus, an
abstaining vote in the election of directors will have no legal effect on the
outcome, however, an abstention as to any other matter will have the same legal
effect as a vote against such matter. Proxies returned by brokers as "non-votes"
on behalf of shares held in street name because discretion has been withheld as
to one or more matters on the agenda for the Annual Meeting will not be treated
as present for purposes of determining whether there is a quorum for the Annual
Meeting unless the broker is given discretion to vote on at least one matter on
the agenda.

Any stockholder who executes and returns a proxy may revoke it in writing at
any time before it is voted at the Annual Meeting by: (i) filing with the
Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares; or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).

Each enclosed proxy gives discretionary authority to the persons named
therein with respect to any amendments or modifications of the Company proposals
and any other matters which may be proposed properly at the Annual Meeting. As
of the date hereof, the Company is not aware of any such amendment or
modification or other matter to be presented for action at the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, the
proxies solicited hereby will be exercised in accordance with the reasonable
judgment of the proxyholders named therein.

2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of April 8, 1998 with respect
to the beneficial ownership of (i) any person known to be the beneficial owner
of more than 5% of any class of voting securities of the Company, (ii) each
director and director nominee of the Company, (iii) each of the current
executive officers of the Company named in the Summary Compensation Table of
this Proxy Statement under the heading "Executive Compensation" and (iv) all
directors and executive officers of the Company as a group. THE NUMBERS AND
PERCENTAGES SET FORTH IN THE FOLLOWING TABLE ASSUME THAT THE HOLDERS OF SUCH
SHARES OF SERIES A OR SERIES B PREFERRED STOCK OUTSTANDING ON THE RECORD DATE
HAVE NOT BEEN CONVERTED INTO SHARES OF COMMON STOCK. For additional information
concerning the material terms of the Series A Preferred Stock and Series B
Preferred Stock, including the conversion provisions thereof, refer to Proposals
2 and 3 herein and the Company's Annual Report to Stockholders for the year
ended December 31, 1997, which accompanies this Proxy Statement.

<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK SERIES B PREFERRED STOCK
COMMON STOCK
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NAME NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT COMBINED
OF BENEFICIAL OWNER OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS VOTING PERCENT**
- ------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -------------------
Philip Sassower(1)............. 9,304,144 19.1% -- -- 40,070 16.7% 19.0%
CIC Standby Ventures, L.P.(2).. 9,000,000 18.5 -- -- -- -- 18.3
Guido DiGregorio(3)............ 99,997 * -- -- -- -- *
James Dao(4)................... 4,161,809 8.5 -- -- -- -- 8.4
C.B. Sung(5)................... 545,823 1.1 -- -- -- -- 1.1
Donald R. Scheuch(6)........... 96,647 * -- -- -- -- *
Michael A. Braun(7)............ -- -- -- -- -- -- --
Jeffrey Steiner(8)............. -- -- -- -- 40,000 16.7 *
Jess M. Ravich(9).............. 790,878 1.6 9,200 3.1% -- -- 1.6
Elliott Associates, L.P.(10)... -- -- 114,223 39.0 -- -- *
Westgate International,
L.P.(10)(11)................. -- -- 114,402 39.1 -- -- *
Paul E. Singer(10)(11)......... -- -- 228,625 78.1 -- --
Lakeshore International
Ltd.(12)..................... -- -- 30,000 40.2 -- -- *
Salomon Brothers, Inc.(13)..... -- -- 20,000 6.8 -- -- *
Philip S. Sassower 1996
Charitable Remainder Annuity
Trust(14).................... -- -- -- -- 16,000 6.7 *
Fairchild Holding Corp.(15).... -- -- -- -- 40,000 16.7 *
Michael G. Jesselson 12/18/80
Trust(16).................... -- -- -- -- 12,000 5.0 *
October 1983 Trust FBO
Jesselson Grandchildren(16).. -- -- -- -- 20,000 8.3 *
Michael G. Jesselson(16)(17)... -- -- -- -- 40,000 16.7 *
Sachs Investing Co.(18)........ -- -- -- -- 20,000 8.3 *
SAMCO Partners, L.P.(19)....... -- -- -- -- 15,000 6.3 *
Michael A. Steinberg(19)(20)... -- -- -- -- 24,660 10.3 *
All directors and executive
officers as a group (8
persons)..................... 14,208,420 28.6% 9,200 3.1% 40,070 16.7% 28.4%
</TABLE>

- ------------------------

* Less than 1%.

** The combined voting percentage information set forth in this table is based
on the assumptions that each holder of outstanding shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock as of the Record Date
has one vote per share and that such holders vote together as a class.

3
<PAGE>
(1) The number of shares of Common Stock includes (a) 9,000,000 shares held by
CIC Standby Ventures, L.P., a Delaware limited partnership of which Mr.
Sassower is the sole general partner ("Standby Ventures"), as reflected in
the table, (b) 113,251 shares beneficially owned by the Philip S. Sassower
1996 Grantor Retained Annuity Trust and 72,804 shares beneficially owned by
the Philip S. Sassower 1998 CIC Standby Ventures, L.P. Grantor Retained
Annuity Trust (together, the "Grantor Trusts"), two trusts in which Mr.
Sassower is the sole trustee, and (c) 110,000 shares issuable upon the
exercise of stock options held by Mr. Sassower which are exercisable within
60 days of April 8, 1998. Mr. Sassower may be deemed to beneficially own the
shares of Common Stock held by Standby Ventures and by the Grantor Trusts.
The number excludes shares owned, directly or indirectly, by Mr. Sassower's
wife, Susan O. Sassower. Mr. Sassower disclaims beneficial ownership of the
shares owned by his wife. The number of shares of Series B Preferred Stock
includes 24,070 shares held by Mr. Sassower directly and 16,000 shares held
by the Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the
"Remainder Trust"). Mr. Sassower may be deemed to beneficially own the
shares held by the Remainder Trust. Mr. Sassower and his spouse are
co-trustees of the Remainder Trust. The business address of Mr. Sassower is
Phoenix Enterprises LLC, 135 East 57th Street, 12th Floor, New York, New
York 10022. Mr. Sassower is the Co-Chief Executive Officer and Secretary of
the Company, as well as Chairman of the Executive and Finance Committees of
the Company's Board of Directors. See "Certain Relationships and Related
Transactions".

(2) Mr. Sassower is the sole general partner of Standby Ventures and may be
deemed to beneficially own the shares of Common Stock held by Standby
Ventures. The business address of Standby Ventures is c/o WinSass Corporate
Services LLC, 314 West Main, Suites 3&5, Lewisville, Texas 75057. See
"Certain Relationships and Related Transactions."

(3) Represents 99,997 shares of Common Stock issuable upon the exercise of stock
options which are exercisable within 60 days of April 8, 1998. The business
address of Mr. DiGregorio is 275 Shoreline Drive, Suite 500, Redwood Shores,
California 94065.

(4) Includes 660,000 shares of Common Stock issuable upon the exercise of stock
options which are exercisable within 60 days of April 8, 1998 and excludes
140,769 shares of Common Stock or options to purchase such shares held by
Mr. Dao's spouse, Karen Kellenbach. The business address of Mr. Dao is 275
Shoreline Drive, Suite 500, Redwood Shores, California 94065.

(5) Includes (a) 363,717 shares held by the Sung Family Trust of which Mr. Sung
is a trustee, (b) 10,106 shares held by the Sung-Kwok Foundation of which
Mr. Sung is the Chairman and (c) 172,000 shares of Common Stock issuable
upon the exercise of stock options or warrants which are exercisable within
60 days of April 8, 1998. Mr. Sung may be deemed to beneficially own the
shares held by the Sung Family Trust and the Sung-Kwok Foundation. The
business address of Mr. Sung is c/o Sandy Williams, UNISON Group, 651
Gateway Boulevard, #880, South San Francisco, California 94080.

(6) Includes (a) 26,129 shares held by Dr. Scheuch directly, (b) 72,647 shares
held by the Scheuch Family Living Trust of which Dr. Scheuch is a trustee,
and (c) 24,000 shares of Common Stock issuable upon the exercise of stock
options which are exercisable within 60 days of April 8, 1998. Dr. Scheuch
may be deemed to beneficially own the shares held by the trust. The business
address of Dr. Scheuch is 275 Shoreline Drive, Suite 500, Redwood Shores,
California 94065.

(7) The business address of Mr. Braun is Neuron Data, Inc., 1310 Villa, Mountain
View, California 94041.

(8) Represents 40,000 shares of Series B Preferred Stock held by Fairchild
Holding Corp., a wholly-owned subsidiary of RHI Holdings, Inc. ("RHI"). Mr.
Steiner is Chairman, President and CEO of RHI, and may be deemed to
beneficially own the shares held by Fairchild Holding Corp. Mr. Steiner's
business address is c/o The Fairchild Corporation, P.O. Box 10803,
Chantilly, Virginia 20153. See "Certain Relationships and Related
Transactions."

4
<PAGE>
(9) The number of shares of Common Stock includes (a) 10,500 shares held by
Libra Investments, Inc. ("Libra") of which Mr. Ravich is Chairman and CEO,
(b) 150,745 shares held by the Ravich Revocable Trust of 1989 (the "Ravich
Trust"), of which Mr. Ravich is the trustee, (c) 338,750 shares issuable
upon the exercise of warrants which are exercisable within 60 days of April
8, 1998 held by Libra, and (d) 190,883 shares issuable upon the exercise of
warrants which are exercisable within 60 days of April 8, 1998 held by the
Ravich Trust. The number of Series A Preferred Stock represents 9,200 shares
of Series A Preferred Stock held by the Ravich Trust. Mr. Ravich is the
Chairman, CEO and majority shareholder of Libra and a trustee of the Ravich
Trust, and may be deemed to beneficially own the shares held by or issuable
to such entities. Mr. Ravich's business address is Libra Investments, Inc.,
11766 Wilshire Blvd., Suite 870, Los Angeles, California 90025. Libra has
acted as placement agent for the Company in connection with private
placements consummated by the Company in November 1995, June 1996 and
December 1996. See "Certain Relationships and Related Transactions."

(10) Mr. Paul E. Singer, and an entity controlled by him, are the general
partners of Elliott Associates, L.P. ("Elliot") and may be deemed to
beneficially own all of the shares of the Company's stock held by Elliott
and Westgate International, L.P. The business address of Elliott Associates,
L.P. is 712 Fifth Avenue, New York, New York 10019.

(11) Westgate International, L.P. ("Westgate") is a wholly-owned subsidiary of
Elliott Associates, L.P. Mr. Paul E. Singer, one of the general partners of
Elliott Associates, L.P., may be deemed to beneficially own all of the
shares of the Company's stock held by Elliott and Westgate. The business
address of Westgate International, L.P. is c/o Stonington Management Corp.,
712 Fifth Avenue, New York, New York 10019.

(12) The business address of Lakeshore International Ltd. is Attn: Dale
Willenberg, c/o Global Capital Management, Inc., 601 Carlson Parkway, Suite
200, Minnetonka, Minnesota 55305.

(13) The business address of Salomon Brothers Inc. is 7 World Trade Center, 42nd
Floor, New York, New York 10048.

(14) Mr. Philip Sassower (the Company's Co-Chief Executive and Chairman of the
Company's Executive and Finance Committees) and his wife, Susan O. Sassower,
are co-trustees of the Remainder Trust. Mr. Sassower may be deemed to
beneficially own the shares of Series B Preferred Stock held by the
Remainder Trust as reflected in footnote (1) above. The business address of
the Remainder Trust is 135 East 57th Street, 12th Floor, New York, New York
10022.

(15) Fairchild Holding Corp. is a wholly-owned subsidiary of RHI Holdings, Inc.
Jeffrey Steiner is Chairman, President and CEO of RHI and may be deemed to
beneficially own the shares of Series B Preferred Stock held by Fairchild.
The business address of Fairchild Holding Corp. is c/o The Fairchild
Corporation, P.O. Box 10803, Chantilly, Virginia 20153. See "Certain
Relationships and Related Transactions."

(16) Michael G. Jesselson is the trustee of the Michael G. Jesselson 12/18/80
Trust and the October 1983 Trust FBO Jesselson Grandchildren and may be
deemed to beneficially own all of the shares of the Company's stock held by
such trusts. The business address of the Michael G. Jesselson 12/18/80 Trust
and the October 1983 Trust FBO Jesselson Grandchildren is c/o Michael G.
Jesselson, Trustee, 1301 Avenue of the Americas, Suite 4101, New York, New
York 10019.

(17) Includes (a) 12,000 shares of Series B Preferred Stock held by the Michael
G. Jesselson 12/18/80 Trust, (b) 20,000 shares of Series B Preferred Stock
held by the October 1983 Trust FBO Jesselson Grandchildren and (c) 8,000
shares of Series B Preferred Stock held by the Benjamin J. Jesselson
12/18/80 Trust. Michael G. Jesselson is trustee of each of the
aforementioned trusts, and may be deemed to beneficially own all of the
shares of the Company's stock held by such trusts.

5
<PAGE>
Mr. Jesselson's business address is 1301 Avenue of the Americas, Suite 4101,
New York, New York 10019.

(18) The business address of Sachs Investing Co. is c/o Marvin Sachs, 155 East
55th Street, Suite 5F, New York, New York 10022.

(19) Michael A. Steinberg is the general partner of SAMCO Partners, L.P.
("SAMCO") and may be deemed to beneficially own the shares held by SAMCO.
The business address of SAMCO Partners, L.P. is c/o Steinberg Asset
Management Co., Inc., 12 East 49th Street, Suite 1202, New York, New York
10017.

(20) Includes (a) 15,000 shares of Series B Preferred Stock held by SAMCO
Partners, L.P. of which Mr. Steinberg is general partner, (b) 60 shares of
Series B Preferred Stock held jointly by Michael Steinberg, James Steinberg
and Carole Krumland, (c) 600 shares of Series B Preferred Stock held by the
Michael A. Steinberg Profit Sharing Trust FBO Armena Joan Steinberg, of
which Mr. Steinberg is a trustee, and (d) 9,000 shares of Series B Preferred
Stock held by the Michael A. Steinberg Profit Sharing Trust FBO Michael A.
Steinberg, of which Mr. Steinberg is a trustee. Mr. Steinberg may be deemed
to beneficially own all of the shares held by SAMCO and the two
aforementioned trusts. Mr. Steinberg's business address is Steinberg Asset
Management Co., Inc., 12 East 49th Street, Suite 1202, New York, New York
10017.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own more than ten
percent of a registered class of the Company's equity securities to file certain
reports regarding ownership of, and transactions in, the Company's securities
with the Securities and Exchange Commission (the "SEC"). These officers,
directors and stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) reports that are filed with the SEC. Based
solely on a review of copies of such forms received by the Company, and written
representations received by the Company from certain reporting persons, the
Company believes that for the year ended December 31, 1997 all Section 16(a)
reports required to be filed by the Company's executive officers, directors and
10% stockholders were filed on a timely basis, except that Dr. Donald Scheuch
filed late a Form 4 for October 1997 and Mr. C.B. Sung filed late a Form 4 for
November 1997.

6
<PAGE>
PROPOSAL 1

ELECTION OF DIRECTORS

The Bylaws of the Company provide that the Board of Directors shall consist
of such number of directors, with a minimum of three, as the Board of Directors
may determine from time to time. Currently, the Board has determined that the
authorized number of directors is seven. The seven persons listed below are the
nominees for election as directors at the Annual Meeting. Each director elected
at this Meeting will serve until his successor is duly elected and qualified or
his earlier resignation, removal or disqualification.

Unless otherwise instructed, the proxyholders named in the accompanying
proxies will vote the shares represented by proxies received by them for the
election of the seven nominees to the Board of Directors named below. In the
event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the shares will be voted for the
election of any nominee designated by the present Board of Directors. The
Company is not aware of any nominee who will be unable or will decline to serve
as a director. In the event that additional persons are properly nominated for
election as directors, the proxyholders intend to vote all proxies received by
them for the election of as many of the nominees listed below as possible. The
proxies cannot be voted for a greater number of persons than the number of
nominees named.

DIRECTOR NOMINEES

The following table sets forth certain information concerning the nominees:

<TABLE>
<CAPTION>
YEAR FIRST ELECTED
NAME AGE OR APPOINTED
- ------------------------------------------------------------------------------------------ --- -------------------
<S> <C> <C>
Michael A. Braun.......................................................................... 48 --
James Dao................................................................................. 60 1981
Guido DiGregorio.......................................................................... 59 1997
Jess M. Ravich............................................................................ 40 --
Philip Sassower........................................................................... 58 1994
Jeffrey Steiner........................................................................... 60 --
C.B Sung.................................................................................. 73 1986
</TABLE>

The business experience of each of the director nominees for at least the
past five years includes the following:

MICHAEL A. BRAUN has been the President and CEO of Neuron Data, Inc. (a
software company) since 1996. From 1995 to 1996, Mr. Braun was Chairman of the
Board of Interactive Multimedia Association, a multimedia trade association
("IMA"), which with his assistance was founded in 1990. Mr. Braun served as
President and CEO of Kaleida Labs, Inc. (a multimedia software company) from
1993 to 1996, and, from 1972 to 1993, Mr. Braun held various executive and
managerial positions at IBM Corporation.

JAMES DAO, the Company's founder in 1981, has been the Chairman of the Board
of the Company since 1992. Mr. Dao also served as Chief Executive Officer of the
Company from 1981 to 1997 and the President of the Company from 1981 to 1995 and
from 1996 to 1997. Mr. Dao was appointed as Co-Chief Executive Officer in 1997.
From 1970 to 1980, Mr. Dao was Chief Executive Officer of Etec Systems (a
producer of semi-conductor manufacturing equipment) which he founded.

GUIDO DIGREGORIO was appointed President and Chief Operating Officer of the
Company in November 1997. He was a partner in DH Partners, Inc. (a management
consultant) from 1996 to 1997. Prior to that, Mr. DiGregorio was recruited by a
number of companies to reverse a trend of financial losses, serving as President
and CEO of each of the following companies: Display Technologies, Inc. (a
manufacturer of

7
<PAGE>
video data monitors) from 1994 to 1996, Superior Engineering Corp. (a producer
of factory-built gas fireplaces) from 1991 to 1993, Proxim, Inc. (wireless data
communications) from 1989 to 1991, Maxitrom Corp. (a manufacturer of computer
products) from 1986 to 1989 and Exide Electronics (producer of computer power
conditioning products) from 1983 to 1986. From 1966 to 1983, Mr. DiGregorio was
employed by General Electric in various management positions, rising to the
position of General Manager of an industrial automation business.

JESS M. RAVICH has been the Chairman of the Board, Chief Executive Officer
and a majority stockholder of Libra Investments, Inc. (a registered
broker-dealer) since he founded Libra in 1991. Mr. Ravich serves on the Board of
Directors of Cherokee, Inc. (a clothing manufacturer), ACTV, Inc. (a developer
of individualized television programming) and several privately-held companies.

PHILIP SASSOWER has been Co-Chief Executive Officer of the Company and
Chairman of the Company's Executive Committee since 1997, and Chairman of the
Finance Committee since 1995. Mr. Sassower joined the Company's Board of
Directors in 1994. Since its founding in 1996, Mr. Sassower has been the CEO of
Phoenix Enterprises LLC, a company which assists in restructuring and providing
long-term capital to business enterprises. Mr. Sassower was Chairman of the
Board of Newpark Resources, Inc. (an oil field and environmental services
company) from 1987 to 1996 and was Chairman of the Executive Committee from 1996
to 1997. Mr. Sassower is also a general partner of CIC Standby Ventures, L.P.
and Phoenix Searex Associates L.P., and was general partner of S&S Newpark
Ventures, L.P. and S&S Investments until 1995. Since 1993, he has been the Chief
Executive Officer of BP Acquisition, LLC (which owns interests in several
companies which operate restaurants in Texas and California) and since 1997 he
has been a director of SeaRex, Inc. (a developer and operator of lift boats used
for drilling in offshore waters).

JEFFREY STEINER has been Chairman of the Board, Chief Executive Officer and
a director of The Fairchild Corporation (a company in the fields of aerospace
and high technology) since 1985 and has been President since 1991. He also
serves as Chairman of the Board, Chief Executive Officer and President of Banner
Aerospace (distributor and lessor of aircraft parts and engines) since September
1993 and as Chairman, Chief Executive Officer and President of RHI Holdings,
Inc. (a holding company of The Fairchild Corporation) since 1988. From July 1992
through December 1993, Mr. Steiner was a Vice Chairman of the Board of Rexnord
Corporation. Mr. Steiner was also Vice Chairman of Shared Technologies Fairchild
until January 1998, when the Company was acquired by Intermedia. He currently
serves as a director of the Franklin Corporation and the Copley Fund.

C.B. SUNG has been the Chairman and Chief Executive Officer of Unison Group,
Inc. (a multi-national corporation involved in manufacturing, computer systems
and software development, international investment and trade) since 1986. He has
been a member of the Board of Directors of Capital Investment of Hawaii, Inc.
(real estate and security investing and wholesale bakery) since 1985, and serves
on the Board of Directors of several private companies.

OTHER DIRECTOR INFORMATION

The Company's affairs are managed under the direction of the Board of
Directors. Members of the Board receive information concerning the Company's
affairs through oral and written reports by management, Board and committee
meetings and other means. The Company's directors generally attend Board of
Directors meetings, committee meetings and informal meetings with management and
others, participate in telephone conversations and have other communications
with management and others regarding the Company's affairs.

Directors of the Company serve until their successors are duly elected and
qualified or until their earlier resignation, removal or disqualification. There
are no family relationships between the Company's

8
<PAGE>
directors and executive officers. For certain relationships between the Company
and its directors or director nominees, see "Certain Relationships and Related
Transactions."

In 1994, the Company agreed to use its best efforts to appoint Mr. Sassower
or his designee as a member of the Company's Board of Directors until neither
Mr. Sassower nor any of his assigns hold any of the 2,000,000 of Common Stock
issuable upon the exercise of warrants issued by the Company to Mr. Sassower in
1994 pursuant to financings provided by Mr. Sassower and/or his designee. The
warrants were subsequently transferred to CIC Standby Ventures, L.P., of which
Mr. Sassower is the general partner. In January 1997, Standby Ventures exercised
the warrants in full and received 1,686,275 shares of Common Stock in connection
therewith. See "Certain Relationships and Related Transactions."

Mr. Michael McFarland and Mr. George Clayson resigned as directors of the
Company in June and November of 1997, respectively. Dr. Donald Scheuch is not
standing for re-election as a director at this Meeting and will retire after the
election of directors at the Meeting.

BOARD COMMITTEES

The Company's Board of Directors has five committees as set forth below. The
members of each committee are appointed by the Board of Directors.

EXECUTIVE COMMITTEE. In March 1997, the Board of Directors formed an
Executive Committee to provide management with advice on significant matters and
acts at times when the full Board of Directors is not immediately available. The
members of the Executive Committee are James Dao, Philip Sassower and C.B. Sung.

AUDIT COMMITTEE. The Audit Committee generally reviews the scope and
results of the audit by the Company's independent auditors and reviews the
Company's procedures for establishing and monitoring internal accounting
controls. The members of the Audit Committee are Philip Sassower, Donald Scheuch
and C. B. Sung.

COMPENSATION COMMITTEE. The Compensation Committee generally reviews
compensation matters with respect to executive and senior management
arrangements. The members of Compensation Committee are Philip Sassower, Donald
Scheuch and C.B. Sung.

FINANCE COMMITTEE. The Finance Committee develops strategies for the
financing and development of the Company and monitors and evaluates progress
towards established objectives. The members of the Finance Committee are James
Dao, Philip Sassower, C.B. Sung and Donald R. Scheuch.

STOCK OPTION COMMITTEE. The Stock Option Committee administers the
Company's stock option plans. The members of the Stock Option Committee are
Philip Sassower, Donald Scheuch and C.B. Sung.

The Board of Directors does not have a standing nominating committee.

BOARD AND COMMITTEE MEETINGS

During 1997, the Board of Directors held four formal meetings and also acted
on a number of occasions by unanimous written consent. The Committees held
meetings jointly with the formal Board meetings. For the year ended December 31,
1997, each incumbent director participated in at least 75% of the total number
of formal meetings of the Board and each Committees on which he served other
than Dr. Scheuch as to committees on which he serves.

DIRECTOR COMPENSATION

For their services as directors of the Company, all non-employee directors
receive a fee of $1,000 for each Board of Directors meeting attended and are
reimbursed for all reasonable out-of-pocket expenses incurred in connection with
attending such meetings. Directors are also eligible to receive stock options.

9
<PAGE>
During 1997, Philip Sassower, and C.B. Sung were each granted options to
purchase 25,000 shares of Common Stock at an exercise price of $1.59, which
options expire on November 17, 2004. Also during 1997, as part of his employee
compensation, Guido DiGregorio received options to purchase 600,000 shares of
Common Stock at an exercise price of $1.59 which options expire on November 10,
2004.

REQUIRED AFFIRMATIVE VOTE

APPROVAL OF PROPOSAL I TO ELECT SEVEN DIRECTORS REQUIRES THE AFFIRMATIVE
VOTE OF A PLURALITY OF THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE
ANNUAL MEETING. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE EACH OF THE
NOMINEES NAMED HEREIN.

EXECUTIVE OFFICERS

The following table sets forth, as of April 8, 1998, the name and age of
each executive officer of the Company, and all positions and offices of the
Company presently held by each of them.

<TABLE>
<CAPTION>
DATE FIRST
APPOINTED TO
PRESENT
NAME AND AGE POSITION POSITION
- --------------------------------------- ------------------------------------------------------- ---------------
<S> <C> <C>
Guido DiGregorio, 59 President and Chief Operating Officer 1997

Philip S. Sassower, 58 Co-Chief Executive Officer and Chairman of the 1997
Executive Committee
Chairman of the Finance Committee 1995

James Dao, 60 Co-Chief Executive Officer 1997
Chairman of the Board 1981
</TABLE>

The business experience of each of the current executive officers of the
Company for at least the past five years includes the following:

GUIDO DIGREGORIO was appointed as President and Chief Operating Officer of
the Company in November 1997. He was a partner in DH Partners, Inc. (a
management consultant) from 1996 to 1997. Prior to that, Mr. DiGregorio was
recruited by a number of companies to reverse a trend of financial losses,
serving as President and CEO of each of the following companies: Display
Technologies, Inc. (a manufacturer of video data monitors) from 1994 to 1996,
Superior Engineering Corp. (a producer of factory-built gas fireplaces) from
1991 to 1993, Proxim, Inc. (wireless data communications) from 1989 to 1991,
Maxitrom Corp. (a manufacturer of computer products) from 1986 to 1989 and Exide
Electronics (producer of computer power conditioning products) from 1983 to
1986. From 1966 to 1983, Mr. DiGregorio was employed by General Electric in
various management positions rising to the position of General Manager of an
industrial automation business.

10
<PAGE>
JAMES DAO, the Company's founder in 1981, has been the Chairman of the Board
of the Company since 1992. Mr. Dao also served as Chief Executive Officer of the
Company from 1981 to 1997 and was the President of the Company from 1981 to 1995
and from 1996 to 1997. Mr. Dao was appointed as Co-Chief Executive Officer in
1997. From 1970 to 1980, Mr. Dao was Chief Executive Officer of Etec Systems (a
producer of semi-conductor manufacturing equipment) which he founded.

EXECUTIVE COMPENSATION

The following table sets forth compensation awarded to, earned by or paid to
the Company's President, regardless of the amount of compensation, and each
executive officer of the Company serving as of December 31, 1997 whose total
annual salary and bonus for 1997 exceeded $100,000 (collectively, the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
- --------------------------------------------------------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Guido DiGregorio(1)............................................ 1997 $ 22,375 -- 600,000
President and Chief
Operating Officer

James Dao...................................................... 1997 $ 213,811 $ 7,477(2) --
Co-Chief Executive 1996 199,700 7,305(2) --
Officer 1995 267,820(3) 7,217(2) --

Francis V. Dane(4)............................................. 1997 $ 133,900 -- --
(Former Vice President 1996 129,437 -- 100,000
and Secretary) 1995 130,138 -- --
</TABLE>

- ------------------------

(1) In November 1997, Mr. DiGregorio was appointed as the Company's President
and Chief Operating Officer, and is currently paid a salary at the annual
rate of $180,000.

(2) Includes the estimated economic benefit received by Mr. James Dao related to
a life insurance policy, the premiums of which were paid by the Company
($5,857 for 1997, $5,465 for 1996 and $5,154 for 1995) and the cost of an
automobile lease.

(3) To assist the Company through periods of cash constraints, Mr. Dao elected
to defer 50% of his salary from September 1994 through September 1995. In
December 1995, the Company paid the deferred amounts to Mr. Dao.

(4) In December 1997, Mr. Dane resigned as the Company's Vice President and
Secretary.

11
<PAGE>
OPTION GRANTS IN 1997

The following table sets forth certain information concerning the grant of
stock options in 1997 to the Named Executive Officers.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PERCENTAGE TO PRICE APPRECIATION FOR
TOTAL OPTIONS OPTION TERM(1)
OPTIONS GRANTED TO ----------------------
NAME GRANTED EMPLOYEES IN 1997 EXERCISE PRICE EXPIRATION DATE 5% 10%
- ------------------------------------ --------- ------------------- --------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>

Guido DiGregorio.................... 600,000 35.0% $ 1.59 11/10/04 $ 391,582 $ 909,519

James Dao........................... -- -- -- -- -- --

Francis V. Dane..................... -- -- -- -- -- --
</TABLE>

- ------------------------

(1) On November 10, 1997 (the date of grant), the closing sale price of the
Common Stock on The Nasdaq SmallCap Market was $1.59 per share. Assumes that
such closing price of the Common Stock appreciates in value from the date of
grant to the end of the option term at the annualized rates of 5% and 10%,
respectively.

AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES

The following table sets forth certain information concerning the Named
Executive Officers in respect to the exercise of options in 1997, the number of
shares covered by exercisable and unexercisable stock options at December 31,
1997 and the aggregate value of exercisable and unexercisable "in-the-money"
options at December 31, 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL AT FISCAL
ACQUIRED YEAR-END YEAR-END(2)
ON VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE REALIZED(1) UNEXERCISABLE(U) UNEXERCISABLE(U)
- --------------------------------------- ------------- --------------- --------------------- --------------------
<S> <C> <C> <C> <C>

Guido DiGregorio....................... -- -- 16,666(E)/ $ -- (E)
583,334(U) -- (U)

James Dao.............................. -- -- 660,000(E)/ $ 534,600(E)
660,000(U) $ 534,600(U)

Francis V. Dane........................ -- -- 178,106(E)/ $ 116,984(E)
92,000(U) $ 9,720(U)
</TABLE>

- ------------------------

(1) Determined by using the difference between the closing sale prices of the
Common Stock on the Nasdaq SmallCap Market as of the date of exercise and
the exercise price of such options.

(2) Determined by using the difference between the closing sale price of the
Common Stock on the Nasdaq SmallCap Market as of December 31, 1997 and the
exercise price of such options.

12
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE REPORT

The Compensation Committee and Stock Option Committee have provided the
following Report.

COMPENSATION PHILOSOPHY AND OBJECTIVES. The Committees' compensation
philosophy is based upon the belief that the success of the Company results from
the coordinated efforts of all employees working as a team to achieve objectives
of providing superior products and services to the Company's customers and
maximizing the Company's value for the benefit of its stockholders.

The Company's compensation programs are designed to attract, retain and
reward personnel whose individual and team performance contributes significantly
to the short and long-term objectives of the Company. The Company's executive
compensation programs are guided by the following principles, which may also be
considered in making compensation decisions for employees:

- To ensure competitiveness, the Company monitors industry standards and
considers this information when it makes compensation decisions.

- The compensation of executive officers is affected by individual, team and
overall Company performance. Overall Company performance is based upon
achievement of strategic and operating goals. Such factors include
revenues generated, technology validations, timely product introductions,
capturing market share and preservation of and increases in stockholder
value. Individual and team performance is considered to the extent of
whether departmental goals are achieved within the time and budget
constraints of Company operating plans. Additionally, individual
performance is measured, in part, against the extent to which an
individual executive officer is able to foster team spirit and loyalty and
minimize employee turnover.

METHODS OF COMPENSATION. The key elements of the Company's executive
compensation program consist primarily of base salary and stock options. Base
salary for the Company's executive officers is generally determined by
performance, the combined base salary and annual bonus for competitive positions
in the industry and general market and Company conditions. Currently, the
Company does not have an annual bonus plan. The Committees believe that the use
of stock options as a means of compensation provide an incentive for executives
and align their interests with those of the stockholders. All employees are
eligible to receive stock options under the Company's stock option plans.
Options are granted by the Company's Stock Option Committee upon recommendations
by management.

PRESIDENT'S COMPENSATION. Mr. Guido DiGregorio, the President of the
Company, was appointed by the Board of Directors in November 1997. The
President's compensation was determined after consideration of the same
principles and factors used in the determination of compensation for the other
executive officers of the Company. Mr. DiGregorio currently receives an annual
salary of $180,000. In November 1997, Mr. DiGregorio received options to
purchase 600,000 shares of Common Stock at the exercise price of $1.59 per share
in connection with his appointment. The Company does not currently have an
employment agreement with Mr. DiGregorio.

<TABLE>
<CAPTION>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>

Philip Sassower Philip Sassower
Donald R. Scheuch Donald R. Scheuch
C.B. Sung C.B. Sung
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In November 1997, Philip S. Sassower, who serves as a member of the
Company's Compensation and Stock Option Committees, was appointed as the
Company's Co-Chief Executive Officer. Notwithstanding the foregoing, the Company
did not pay Mr. Sassower any compensation for his services as an executive
officer of the Company. Mr. Sassower did, however, receive $150,000 in fees and
certain reimbursed office

13
<PAGE>
expenses from the Company in 1997 for his consulting services. See "Certain
Relationships and Related Transactions." No other executive officer is a member
of the Compensation or Stock Option Committees.

COMPENSATION AND TERMINATION OF EMPLOYMENT

The Company does not currently have a written employment agreement with
James Dao. However, on August 1, 1988, the Company's Board of Directors passed a
resolution approving a payment to Mr. Dao upon on his termination by the Board
of Directors (the "Termination Payment"), the majority of the members of which
was to change after August 2, 1988. The Termination Payment shall be equal to
299% of the average of his annual salary for the five taxable years ending prior
to such termination. The Termination Payment is to be made in an undetermined
number of equal monthly installments.

PERFORMANCE GRAPH

The Securities and Exchange Commission requires the Company to include in
this Proxy Statement a graph comparing the Company's cumulative five-year return
on its Common Stock with a broad-based stock index and either a nationally
recognized industry index or an index of peer companies selected by the Company.
This performance graph compares the cumulative five-year returns on the Common
Stock with the Nasdaq Computer and Data Processing Index and the Nasdaq Index.
In September 1991, the Common Stock was first listed on the Nasdaq SmallCap
Market and in June 1993 it was listed on the Nasdaq National Market. In July
1994, the Common Stock was delisted from Nasdaq and from July 1994 to July 1996,
the Common Stock was quoted on the OTC Bulletin Board. In July 1996, the Common
Stock was relisted on the Nasdaq SmallCap Market.

Comparison of Five-Year Total Return
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
US DOLLARS

<S> <C> <C>
Communication Intelligence
Corporation Nasdaq Computer & Data Processing Index
12/31/92 $ 100 $ 100
12/31/93 69 106
12/31/94 13 129
12/31/95 60 196
12/31/96 69 242
12/31/97 33 297

<CAPTION>
US DOLLARS
<S> <C>

Nasdaq Stock Market Index (US & Foreign)
12/31/92 $ 100
12/31/93 116
12/31/94 112
12/31/95 158
12/31/96 193
12/31/97 236
</TABLE>

14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRINCIPAL STOCKHOLDERS. In January 1997, CIC Standby Ventures, L.P., a
Delaware limited partnership ("Standby Ventures") of which Mr. Philip Sassower,
the Company's Co-Chief Executive Officer, is the general partner, exercised in
full the following warrants: (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 1,563,000 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
financings provided to the Company by Standby Ventures and its sole general
partner (Mr. Philip Sassower). Pursuant to such warrant exercises, Standby
Ventures received an aggregate of 2,759,000 shares of Common Stock under the
cashless exercise provisions contained in the warrants. Philip Sassower,
Chairman of the Executive Committee of the Company's Board of the Directors, is
the sole general partner of Standby Ventures. As of April 8, 1998, Standby
Ventures beneficially owned approximately 18.5% of the Company's outstanding
Common Stock.

DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS. In January 1996, the
Company retained Mr. Philip Sassower, a member of the Board of Directors, as a
financial consultant for financial and investor relations matters. Pursuant to
such consulting arrangement, Mr. Sassower was paid an aggregate of $100,000 in
1996 by the Company. In 1997, Mr. Sassower became Chairman of the Company's
Executive Committee and Co-Chief Executive Officer of the Company and increased
his time commitments to the Company. To compensate Mr. Sassower for his
additional time commitments and to reimburse him for certain office expenses,
the Company increased the consulting fees to be paid to Mr. Sassower for 1997 to
$150,000.

In November 1997, Mr. Sassower and the Philip S. Sassower 1996 Charitable
Remainder Annuity Trust purchased an aggregate of 24,070 and 16,000 shares of
Series B Preferred Stock, respectively, pursuant to the Company's private
placement, for an aggregate purchase price of $601,750 and $400,000,
respectively.

In April 1994, the Company loaned $210,000 to Mr. James Dao, the Company's
Chairman of the Board and Co-Chief Executive Officer, pursuant to a promissory
note due April 1, 1996 which bore interest at the highest marginal rate
applicable to the Company's borrowing or the highest rate allowable by law,
whichever is lower. In 1996, the due date of the promissory note was extended to
April 1, 1998. As of March 25, 1998, the promissory note bore interest at 10%
per annum and the outstanding principal and accrued interest due on the
promissory note was $270,000. The promissory note is secured by 103,450 shares
of Common Stock owned by Mr. Dao.

Jess Ravich, a director nominee, is the Chairman of the Board and CEO of
Libra Investments, Inc. ("Libra"). Libra has acted as the Company's placement
agent for the private placement of 450,000 shares of Series A Preferred Stock in
December 1996 and, in connection therewith, the Company paid Libra an aggregate
of $675,000 in commissions and issued to Libra (or its designees) five-year
warrants to purchase an aggregate of 337,500 shares of Common Stock (subject to
adjustments), with an exercise price of $2.50 per share. The Ravich Revocable
Trust of 1989 was one of Libra's designees in the December 1996 private
placement, and received warrants to purchase an aggregate of 154,750 shares of
Common Stock (subject to adjustments) out of the total number of warrants issued
to Libra. Libra also acted as the Company's placement agent for the private
placements of 5.5 million shares of Common Stock (at a price of $2.00 per share)
in November 1995 and 600,000 shares of Common Stock (at a price of $4.50 per
share) in June 1996. Upon the consummation of the November 1995 and June 1996
private placements, the Company paid Libra an aggregate of $610,000 in
commissions and issued to Libra (or its designees) five-year warrants to
purchase an aggregate of 267,500 shares of Common Stock (subject to
adjustments). The Ravich Revocable Trust of 1989 was Libra's designee in the
June 1996 private placement, and received warrants to purchase an aggregate of
30,000 shares of Common Stock (subject to adjustments) out of the total number
of warrants issued to Libra. Mr Ravich is the Chairman, CEO and majority
shareholder of

15
<PAGE>
Libra and the trustee of the Ravich Trust, and may be deemed to beneficially own
the shares held by Libra and the Ravich Trust.

In November 1997, Fairchild Holding Corp. purchased 40,000 shares of Series
B Preferred Stock pursuant to the Company's private placement for an aggregate
purchase price of $1,000,000. Jeffrey Steiner, a nominee for the Board of
Directors, is the President, Chairman and CEO of RHI Holdings, Inc. the parent
company and sole shareholder of Fairchild Holding Corp.

16
<PAGE>
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF DESIGNATIONS

REASONS FOR PROPOSAL

In December 1996, the Company consummated a private placement of 450,000
shares of Series A Preferred Stock for an aggregate purchase price of
$11,250,000. In 1997, the Company sought additional funds to satisfy its
operational requirements. In connection therewith, in November 1997, the Company
consummated a private placement of 240,000 shares of Series B Preferred Stock
for an aggregate purchase price of $6,000,000. The Company's Certificate of
Designations for the Series A Preferred Stock provides that the Series A
Preferred Stock has priority in the payment of dividends and liquidation rights
with respect to any other class of the Company's capital stock. In connection
with the November 1997 private placement, the Company and the purchasers of the
Series B Preferred Stock agreed that the Company would use reasonable efforts to
obtain all necessary approvals to cause the Series B Preferred Stock to be PARI
PASSU in terms of dividend and liquidation rights with the Series A Preferred
Stock. At the time of the private placement of Series B Preferred Stock, the
Company received the written consent of all of the then current holders of
Series A Preferred Stock to amend the Certificate of Designations for the Series
A Preferred Stock to provide for such PARI PASSU rights. However, in order to
implement this amendment, Delaware law also requires that the Company obtain the
approval of holders of a majority of the outstanding Shares.

DESCRIPTION OF CAPITAL STOCK

The Company's Amended and Restated Certificate of Incorporation currently
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 Stock and 340,000 shares of
Series B Preferred Stock. As of April 8, 1998, approximately 48,722,630 shares
of Common Stock were issued and outstanding, 292,825 shares of Series A
Preferred Stock were issued and outstanding, and 240,000 shares of Series B
Preferred Stock were issued and outstanding.

COMMON STOCK. Holders of Common Stock are entitled to one vote for each
share of record on all matters submitted to a vote of the holders thereof.
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 Stock, the Series B Preferred Stock
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 therefore, subject to, among other things,
the rights of the outstanding shares of Series A and Series B Preferred Stock.
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 payment
to the holders of the outstanding shares of Series A and Series B Preferred
Stock.

PREFERRED STOCK

At April 8, 1998, there were approximately 292,825 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 Stock is convertible by the holders into shares of Common Stock at any
time. In addition, all outstanding shares of Series A Preferred Stock 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
Stock will be automatically converted into shares of Common Stock on November
25, 2000, or at the Company's option, up to one year later.

17
<PAGE>
Generally, the number of shares of Common Stock to be issued upon conversion
of shares of Series A Preferred Stock 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 Designations for such shares) which is
approximately 72% of the then applicable market price of the Common Stock. The
then applicable market price generally is 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 dilutive 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 shares of the Series B Preferred Stock 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 Designations for such shares) which
is 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 is 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 dilutive events such as stock splits, stock dividends, reorganization
and certain mergers.

VOTING. Holders of the Series A Preferred Stock and the Series B Preferred
Stock 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 Stock and Series B
Preferred Stock has one vote on each matter. In addition, the affirmative vote
of 75% of the outstanding shares of Series A Preferred Stock 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 Stock. The affirmative vote of 51% of the outstanding shares
of Series B Preferred Stock 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 B Preferred Stock.

DIVIDENDS. Each holder of outstanding shares of the Series A Preferred
Stock and the Series B Preferred stock 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 on the Series
A Preferred Stock and Series B Preferred Stock prior to any dividends being paid
on any other class of stock ranking junior thereto. If the proposed amendment to
the Company's Certificate of Designation is approved at the Meeting by the
required affirmative vote, the holders of Series A and Series B Preferred Stock
will be PARI PASSU in their entitlement to receive such dividends. Approval of
this proposal will also provide that if any dividend is declared and paid in
cash to the holders of the Series B Preferred Stock, then the Company must give
notice to the holders of the Series A Preferred Stock of such fact, and the
holders of the Series A Preferred Stock then shall have the right to elect to
receive their next dividend payment in cash. The Company does not anticipate
paying cash dividends.

18
<PAGE>
LIQUIDATION. In the event of the Company's liquidation, dissolution or
winding up (voluntary or otherwise), the holders of the Series A Preferred Stock
and the Series B Preferred Stock are entitled to receive, prior and in
preference to any distribution of Company assets to the holders of any other
class or series of shares, the amount of $25 per share plus any accrued and
unpaid dividends. The holders of Series A Preferred Stock currently rank senior
to the holders of Series B Preferred Stock with regard to such distributions.
Approval of this Proposal would change that priority so that the holders of
Series A and Series B Preferred Stock would be entitled to receive such
distributions on a PARI PASSU basis.

DEFAULT PAYMENTS. Pursuant to the registration rights agreement entered
into in connection with the sale of the Series A Preferred Stock, 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 Stock 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 registration statement related thereto
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 registration statement
related thereto is suspended for more than sixty days in the aggregate, or (iii)
the Company does not have a sufficient number of shares of Common Stock
available to effect conversion of the Series A Preferred Stock.

Stockholders are being asked to approve the following resolution amending
the Company's Certificate of Designations relating to its Series A Preferred
Stock:

RESOLVED, an amendment to the Company's Certificate of Designations for its
5% Cumulative Convertible Preferred Stock, substantially in the form annexed
hereto as Exhibit A, be, and hereby is, approved.

EFFECTS OF PROPOSAL

Currently, the Series A Preferred Stock has priority in terms of the payment
of dividends and liquidation rights to any other class of the Company's capital
stock, including the Series B Preferred Stock and the Common Stock. If this
proposal is approved by the required affirmative vote and the Certificate of
Designations is amended in accordance herewith, the Series B Preferred Stock
will be PARI PASSU with the Series A Preferred Stock in terms of the payment of
dividends and liquidation rights. The holders of the Common Stock will not be
affected by this amendment. The amendment to the Certificate of Designations
will not modify any other material terms of the Series A Preferred Stock.

REQUIRED AFFIRMATIVE VOTE

Approval of the proposed amendment to the Company's Certificate of
Designations requires the affirmative vote of the holders of a majority of the
outstanding Shares.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO ITS SERIES A
PREFERRED STOCK.

19
<PAGE>
PROPOSAL 3
AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION

The Company's Amended and Restated Certificate of Incorporation currently
authorizes the issuance of 80 million shares of Common Stock and 10 million
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"),
including 600,000 shares of Series A Preferred Stock and 340,000 shares of
Series B Preferred Stock. As of April 8, 1998, approximately 48,722,630 shares
of Common Stock were issued and outstanding, 292,825 shares of Series A
Preferred Stock were issued and outstanding, and 240,000 shares of Series B
Preferred Stock were issued and outstanding. In addition, as of the Record Date,
approximately 8,512,356 shares of Common Stock (subject to adjustments) were
issuable upon the exercise in full of outstanding options and warrants.

The shares of Series A and Series B Preferred Stock are convertible into
shares of Common Stock at any time. See "Proposal 2." Generally, the number of
shares of Common Stock to be issued upon conversion of the shares of Series A
Preferred Stock 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 is approximately 72% of the
then applicable market price of the Common Stock. The then applicable market
price generally is 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 dilutive 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 shares of Series B Preferred
Stock 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 is 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 dilutive events
such as stock splits, stock dividends, reorganizations and certain mergers.
Assuming all of the shares of Series A Preferred Stock and Series B Preferred
Stock outstanding as of April 8, 1998 were converted on such date, the Company
would be obligated to issue approximately 9,150,781 shares of Common Stock with
respect to the Series A Preferred Stock (based upon the assumed conversion of
all of the 292,825 shares of Series A Preferred Stock then outstanding, using
the conversion price of $0.80 per share), and approximately 5,383,097 shares of
Common Stock with respect to the Series B Preferred Stock (based upon the
assumed conversion of all of the 240,000 shares of Series B Preferred Stock then
outstanding, using the conversion price of $1.1146 per share). The closing sale
price of the Common stock on April 6, 7 and 8 was $1.0938, $1.125 and $1.125,
respectively.

Pursuant to a registration agreement entered into by the Company in
connection with the sale of the Series A Preferred Stock, the Company is
required to pay to each then outstanding holder a default payment in an amount
equal to 3% of the liquidation preference for the shares of Series A Preferred
Stock (which is $25 per share) which they hold for any part of each 30-day
period in which, among other things, the Company does not have a sufficient
number of shares of Common Stock available to effect conversion of the Series A
Preferred Stock. The Company currently estimates that it has approximately,
31,277,370 shares of Common Stock available for issuance, including issuances
for the conversion of outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and exercise of outstanding options and

20
<PAGE>
warrants. If all such convertible securities were converted or exercised as of
the Record Date, the Company would be required to issue approximately 23,046,234
shares of Common Stock. THERE ARE NO LIMITATIONS ON 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 STOCK. If the conversion
prices of the Series A and Series B Preferred Stock are substantially lower than
those on the Record Date (which may be due to a drop in the market price of the
Common Stock), the Company may not have enough shares to meet its conversion
obligations, and could be obligated to make the aforementioned default payments.

Approval of this Proposal will increase the number of authorized shares of
the Company's Common Stock from 80,000,000 shares to 100,000,000 shares. THE
BOARD OF DIRECTORS CONSIDERED AND UNANIMOUSLY CONCLUDED THAT THE PROPOSED
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION WAS
ADVISABLE AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS PROPOSAL. Stockholders
are being asked to approve the following resolution amending the Company's
Amended and Restated Certificate of Incorporation:

RESOLVED, that Article Fourth, paragraph (a) of the Company's Amended and
Restated Certificate of Incorporation, shall be amended and restated in its
entirety as follows:

"FOURTH: (a) The total number of shares of stock which the Corporation
shall have authority to issue is 110,000,000 of which 100,000,000 shares
shall be Common Stock, par value $0.01 per share, and 10,000,000 shares
shall be Preferred Stock, par value $0.01 per share."

The Board of Directors considers the proposed increase in the number of
authorized shares to be desirable because it will give the Company with the
authority to issue, without obtaining stockholder approval, additional shares of
Common Stock in connection with, and in furtherance of, among other things the
following: (a) satisfying its obligations with respect to the issuance of shares
of Common Stock upon the conversion of shares of Series A and Series B Preferred
Stock and the exercise of other convertible securities, (b) raising additional
funds, if necessary and (c) satisfying general corporate purposes (whether in
the nature of stock dividends and splits, acquisitions, employee benefits or
other corporate purposes). If this proposal is approved, it will allow the
Company to issue shares of Common Stock from time to time for such purposes and
for such consideration as the Board may approve without the expense and delay
which would arise if stockholder approval was needed to increase the number of
shares of Common Stock available for issuance. As of the Record Date, if all
convertible securities were exercised or converted into Common Stock, the
Company estimates that it would have only approximately 8,231,136 authorized
shares of Common Stock available for issuance after giving effect to such
conversions and exercises.

The issuance of additional shares of Common Stock may have a dilutive effect
on the Company's earnings per share, if any, and on the equity of the present
holders of the Company's capital stock and their voting rights. The increase in
authorized shares of Common Stock available for issuance also could enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer or other business
combination directed at the Company. For example, the issuance of shares of
Common Stock in a public or private sale, merger or similar transaction would
increase the number of the Company's outstanding shares, thereby diluting the
interest of a party attempting to obtain control of the Company. The Company is
not aware of any attempt, whether formal or informal, to acquire a controlling
interest in the Company. In addition, as of the date of this Proxy Statement,
the Board of Directors has no present plans, agreements or arrangements to issue
any additional shares of Common Stock for any purpose other than for conversion
of Series A or Series B Preferred Stock or the exercise of outstanding options
and warrants.

REQUIRED AFFIRMATIVE VOTE

Approval of the proposed amendment to the Company's Amended and Restated
Certificate of Incorporation requires the affirmative vote of the holders of a
majority of the outstanding Shares and the

21
<PAGE>
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock, voting separately as a class.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY.

PROPOSAL 4
APPOINTMENT OF INDEPENDENT ACCOUNTANTS

Since August 1996, Price Waterhouse LLP has served as the Company's
independent accountants. In 1996, the Company appointed Price Waterhouse LLP to
re-audit the Company's financial statements for the year ended December 31, 1995
for the reasons set forth below and to audit the Company's 1996 financial
statements. In 1997, upon the recommendation of the Audit Committee, the Board
of Directors appointed Price Waterhouse LLP as its independent accountants for
the year ending December 31, 1998. Stockholders are being asked to ratify this
action by the Board. Representatives of Price Waterhouse LLP are expected to be
present at the Annual Meeting and will be given the opportunity to make
statements if they so desire and will be available to respond to appropriate
questions.

Certain information related to the resignation of KPMG Peat Marwick LLP in
1996 and the appointment of Price Waterhouse LLP in 1996 is set forth below.

RESIGNATION OF PEAT MARWICK LLP. On August 2, 1996, the Company received a
letter from KPMG Peat Marwick LLP ("Peat Marwick") stating that it was resigning
as the independent auditors for the Company. Peat Marwick advised the Company
that it was resigning as the Company's independent auditors following
discussions between Peat Marwick and the staff of the Securities and Exchange
Commission regarding the independence of Peat Marwick in light of consulting
services provided to the Company at that time by KPMG BayMark Capital LLC.

In connection with the Company's audit for the year ended December 31, 1995,
and during the subsequent periods through August 2, 1996, there were no
disagreements with Peat Marwick on any matter of accounting principles or
practices, financial statement disclosures or auditing scope or procedures,
which disagreements, if not resolved to Peat Marwick's satisfaction, would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.

The audit report of Peat Marwick on the consolidated financial statements of
the Company as of and for the year ended December 31, 1995 did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty with respect to its audit scope or accounting principles.

APPOINTMENT OF PRICE WATERHOUSE LLP. On August 14, 1996, the Company
appointed Price Waterhouse LLP as its independent accountants. The retention of
Price Waterhouse LLP was approved by the Board of Directors of the Company.
During the two years ended December 31, 1995, and during subsequent periods,
neither the Company nor any person on its behalf consulted with Price Waterhouse
LLP regarding the application of accounting principles to any transaction or the
type of audit opinion that might be rendered on the Company's financial
statements related thereto.

The audit of Price Waterhouse LLP of the Company's 1995 consolidated
financial statements did not result in any changes to such financial statements,
and the related audit report of Price Waterhouse LLP did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty with respect to its audit scope or accounting principles.

REQUIRED AFFIRMATIVE VOTE

Ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending December 31, 1998 requires the
affirmative vote of a majority of the Shares represented in person or by proxy
at the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.

22
<PAGE>
PROPOSALS OF SECURITY HOLDERS

A stockholder proposal requested to be presented at the Company's next
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices, 275 Shoreline Drive, Suite 500, Redwood Shores, California
94065, no later than December 21, 1998. The Board of Directors will review any
stockholder proposal received in accordance herewith and will determine whether
such proposal is appropriate and satisfies the applicable requirements for
inclusion in the Company's proxy statement for its next Annual Meeting of
Stockholders.

SOLICITATION OF PROXIES

The Company will bear the cost of the Annual Meeting and the solicitation of
proxies related thereto, including the costs relating to printing and mailing
the proxy materials. The Company has retained Skinner & Co., a firm specializing
in the solicitation of proxies, to assist the Company in the solicitation of
proxies at a fee estimated to be approximately $8,000 in the aggregate,
including expenses. Directors, officers and employees of the Company may make
additional solicitations in person or by telephone in respect to the Meeting
without additional expenses to the Company.

OTHER MATTERS

The Board of Directors knows of no other matter which may be presented for
action at the Annual Meeting. However, if any other matter properly comes before
the Annual Meeting, the persons named as proxies will vote in accordance with
their judgment in respect to any such matter.

Copies of the Company's Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, including any amendments thereto, and the notice of annual meeting of
stockholders, proxy statement and proxies, are available upon written request,
without cost, from the Company's principal executive offices at 275 Shoreline
Drive, Suite 500, Redwood Shores, California 94065 (Attention: Corporate
Secretary), Telephone (650) 802-7888.

Stockholders are urged to complete, sign, date and return the each enclosed
applicable proxy (or proxies) promptly in the envelope provided, regardless of
whether or not you expect to attend the Annual Meeting. The prompt return of
such proxy or proxies, as the case may be, will assist the Company in preparing
for the Annual Meeting. Your cooperation is greatly appreciated.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Guido DiGregorio

Guido DiGregorio, President

April 29, 1998

23
<PAGE>
EXHIBIT A

AMENDMENT TO THE
CERTIFICATE OF DESIGNATIONS
OF
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
COMMUNICATION INTELLIGENCE CORPORATION

It is hereby certified that:

1. The name of the corporation is Communication Intelligence Corporation
(the "Corporation").

2. The original Certificate of Designations of 5% Cumulative Convertible
Preferred Stock of the Corporation (the "Certificate of Designations") was filed
with the Secretary of State of the State of Delaware on December 27, 1996.

3. The Certificate of Designations is hereby amended as follows:

The first sentence of Section 1(a) of the Certificate of Designations
shall be amended and restated in its entirety as follows:

"(a) CUMULATIVE. The holders of the Preferred Shares shall be
entitled to receive out of any assets legally available therefor
cumulative dividends at the rate of $1.25 per share per annum compounded
semi-annually when payable (whether or not declared), payable on the
Conversion Commencement Date (as defined below) and semi-annually every
six (6) months thereafter (each a "Dividend Payment Date"), when and as
declared by the Board of Directors, in preference and priority to any
payment of any dividend on the Common Stock (as defined below) or any
other class or series of stock of the Corporation other than shares of
the Corporation's Series B Cumulative Convertible Preferred Stock
designated by that certain Certificate of Designations filed with the
Secretary of State of the State of Delaware on November 25, 1997 ("Series
B Preferred")."

Section 1(b) of the Certificate of Designations shall be amended and
restated in its entirety as follows:

"(b) CASH OR PIK. Any dividend payable on the outstanding Preferred
Shares may be paid, at the option of the Corporation, either (i) in cash
or (ii) in additional Preferred Shares (with each new Preferred Share
valued at $25 per share); PROVIDED, however, that if the Corporation
shall fail to pay any dividend on a Dividend Payment Date, the amount of
such dividend shall be added to the Liquidation Preference (as defined
below) for such Preferred Shares, and FURTHER PROVIDED that if any
dividend on the Series B Preferred shall be declared to be paid in cash,
then (i) the Corporation shall give the holders of the Preferred Shares
notice of such cash dividend payment not later than 5 days prior to the
date such dividend is to be paid and (ii) each holder of Preferred Shares
shall have the option of receiving the next dividend payment payable on
the Preferred Shares in cash."

Section 2 of the Certificate of Designations shall be amended and
restated in its entirety as follows:

"2. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of the Preferred Shares shall be entitled to
receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of any other class or series of shares other
than the Series B Preferred (which shall be on a PARI PASSU basis with
the Preferred Shares), the amount of $25 per share plus any accrued but

A-1
<PAGE>
unpaid dividends (with dividends deemed accrued on a per diem basis
through the date of such event and thereafter even if such event or any
distribution is not on a Dividend Payment Date) (the "Liquidation
Preference")."

4. The foregoing amendments to the Certificate of Designations herein
certified have been duly adopted in accordance with the provisions of Sections
151(g), 228 and 242 of the General Corporation Law of the State of Delaware.

Dated as of June , 1998

COMMUNICATION INTELLIGENCE CORPORATION

By:
-----------------------------------------------------------------------------

Philip S. Sassower
Office of the Chief Executive

A-2
<PAGE>
EXHIBIT B

CERTIFICATE OF AMENDMENT
OF
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COMMUNICATION INTELLIGENCE CORPORATION

It is hereby certified that:

1. The name of the corporation is Communication Intelligence Corporation
(hereinafter called the "Corporation").

2. The amended and restated certificate of incorporation of the Corporation
is hereby amended by striking out paragraph (a) of Article Fourth thereof and by
substituting in lieu of said paragraph the following new paragraph:

"FOURTH: (a) The total number of shares which the Corporation shall have
authority to issue is 110,000,000 of which 100,000,000 shall be Common
Stock, par value $0.01 per share, and 10,000,000 shares shall be
Preferred Stock, par value $0.01 per share."

The balance of Article Fourth shall remain unchanged.

3. This amendment of the Corporation's certificate of incorporation has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.

Dated as of June , 1998.

COMMUNICATION INTELLIGENCE
CORPORATION
By:
--------------------------------------------------------------------------
Name:
Title:

B-1

<PAGE>
COMMON STOCK

PROXY

COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CALIFORNIA 94065

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON JUNE 1, 1998.

The undersigned does hereby appoint Guido DiGregorio, Philip S. Sassower and
James Dao, and each of them as agents and proxies of the undersigned, with full
power of substitution, to represent and to vote, as designated below, all the
shares of Common Stock of Communication Intelligence Corporation (the "Company")
held of record by the undersigned on April 8, 1998 (the "Record Date") in
connection with the proposals presented at the Company's Annual Meeting of
Stockholders to be held on June 1, 1998 at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood Shores, California 94065, or any adjournment or postponement
thereof, all as more fully described in the attached Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 29, 1998, hereby revoking all
proxies heretofore given with respect to such shares.

1. ELECTION OF FOR all nominees listed below WITHHOLD AUTHORITY
DIRECTORS: / / / /
(EXCEPT AS MARKED TO THE TO VOTE FOR ALL
CONTRARY BELOW) NOMINEES LISTED
BELOW
(Instructions: To withhold authority to vote for any individual nominee
strike a line through the nominee's name in the list below.)

<TABLE>
<C> <S> <C> <C> <C>
MICHAEL A. BRAUN GUIDO DIGREGORIO JESS PHILIP S. SASSOWER JEFFREY STEINER
JAMES DAO M. RAVICH CHIEN BOR (C.B.) SUNG
</TABLE>

<TABLE>
<S> <C> <C> <C>
2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO
ITS FIRST SERIES OF 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK TO MODIFY
THE DIVIDEND AND LIQUIDATION RIGHTS.

FOR / / AGAINST / / ABSTAIN / /

3. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.

FOR / / AGAINST / / ABSTAIN / /
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.

FOR / / AGAINST / / ABSTAIN / /

5. In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the Annual Meeting.

The undersigned hereby revokes any proxy heretofore given with respect to
such shares and confirms all that said proxies, or any of them, or any
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted FOR Proposals 1, 2, 3 and 4. The undersigned hereby acknowledges
receipt of the Company's Notice of Annual Meeting of Stockholders to be held on
June 1, 1998, the Company's Proxy Statement dated April 29, 1998 (and the
accompanying proxy), and the Company's 1997 Annual Report to Stockholders.
</TABLE>

Dated:
- ----------------------------------------,
1998
--------------------------------------
(Signature)

--------------------------------------
(Additional signature, if held
jointly)

--------------------------------------
(Title, if applicable)
Please date and sign exactly as your
name appears hereon. If your shares
are held as joint tenants, both must
sign. When signing as attorney,
executor, administrator, trustee or
guardian or in any similar capacity,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer, giving title. If a
partnership, please sign in
partnership name by an authorized
person.

PLEASE COMPLETE, DATE, SIGN AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.

<PAGE>
SERIES A PREFERRED STOCK

PROXY

COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CALIFORNIA 94065

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON JUNE 1, 1998.

The undersigned does hereby appoint Guido DiGregorio, Philip S. Sassower and
James Dao, and each of them as agents and proxies of the undersigned, with full
power of substitution, to represent and to vote, as designated below, all the
shares of the first series of 5% Cumulative Convertible Preferred Stock of
Communication Intelligence Corporation (the "Company") held of record by the
undersigned on April 8, 1998 (the "Record Date") in connection with the
proposals presented at the Company's Annual Meeting of Stockholders to be held
on June 1, 1998 at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood Shores,
California 94065, or any adjournment or postponement thereof, all as more fully
described in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement dated April 29, 1998, hereby revoking all proxies heretofore given
with respect to such shares.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: FOR all nominees listed below / /
(EXCEPT AS MARKED TO THE CONTRARY BELOW)
(Instructions: To withhold authority to vote for any individual nominee strike a line
through the nominee's name in the list below.)

<CAPTION>
1. WITHHOLD AUTHORITY / /

<CAPTION>
TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>

<TABLE>
<C> <S> <C> <C> <C>
MICHAEL A. BRAUN GUIDO DIGREGORIO PHILIP S. SASSOWER JEFFREY STEINER
JAMES DAO JESS M. RAVICH CHIEN BOR (C.B.) SUNG
</TABLE>
<TABLE>
<S> <C> <C>
2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO ITS FIRST
SERIES OF 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK TO MODIFY THE DIVIDEND AND RIGHTS
LIQUIDATION RIGHTS.

FOR / / AGAINST / / ABSTAIN / /

3. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY.

FOR / / AGAINST / / ABSTAIN / /

<CAPTION>
2.
3.

<PAGE>
<TABLE>
<S> <C> <C>
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.

FOR / / AGAINST / / ABSTAIN / /

5. In their discretion, the proxy are authorized to vote upon such other matters as may
properly come before the Annual Meeting.

The undersigned hereby revokes any proxy heretofore given with respect to such shares and
confirms all that said proxies, or any of them, or any substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. This Proxy when properly executed will be voted in the
manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted FOR Proposals 1, 2, 3 and 4. The undersigned hereby acknowledges receipt of the
Company's Notice of Annual Meeting of Stockholders to be held on June 1, 1998, the Company's
Proxy Statement dated April 29, 1998 (and the accompanying proxy), and the Company's 1997 Annual
Report to Stockholders.

<CAPTION>
4.
5.
The u
confirms
or cause
manner di
be voted
Company's
Proxy Sta
Report to

<TABLE>
<S> <C>
Dated: ----------------------------------------------------, 1998
-----------------------------------------------------------
(Signature)

-----------------------------------------------------------
(Additional signature, if held jointly)

-----------------------------------------------------------
(Title, if applicable)
Please date and sign exactly as your name appears hereon.
If your shares are held as joint tenants, both must sign.
When signing as attorney, executor, administrator, trustee
or in guardian or any similar capacity, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized officer,
giving title. If a partnership, please sign in partnership
name by an authorized person.

PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>

<PAGE>
SERIES B PREFERRED STOCK

PROXY

COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE, SUITE 500
REDWOOD SHORES, CALIFORNIA 94065

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON JUNE 1, 1998.

The undersigned does hereby appoint Guido DiGregorio, Philip S. Sassower and
James Dao, and each of them as agents and proxies of the undersigned, with full
power of substitution, to represent and to vote, as designated below, all the
shares of Series B 5% Cumulative Convertible Preferred Stock of Communication
Intelligence Corporation (the "Company") held of record by the undersigned on
April 8, 1998 (the "Record Date") in connection with the proposals presented at
the Company's Annual Meeting of Stockholders to be held on June 1, 1998 at the
Hotel Sofitel, 223 Twin Dolphin Drive, Redwood Shores, California 94065, or any
adjournment or postponement thereof, all as more fully described in the attached
Notice of Annual Meeting of Stockholders and Proxy Statement dated April 29,
1998, hereby revoking all proxies heretofore given with respect to such shares.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: FOR all nominees listed below / /
(EXCEPT AS MARKED TO THE CONTRARY BELOW)
(Instructions: To withhold authority to vote for any individual nominee strike a line
through the nominee's name in the list below.)

<CAPTION>
1. WITHHOLD AUTHORITY / /

<CAPTION>
TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>

<TABLE>
<C> <S> <C> <C> <C>
MICHAEL A. BRAUN GUIDO DIGREGORIO PHILIP S. SASSOWER JEFFREY STEINER CHIEN BOR
JAMES DAO JESS M. RAVICH (C.B.) SUNG
</TABLE>
<TABLE>
<S> <C> <C>
2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO ITS FIRST
SERIES OF 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK TO MODIFY THE DIVIDEND AND RIGHTS
LIQUIDATION RIGHTS.

FOR / / AGAINST / / ABSTAIN / /

3. PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY.

FOR / / AGAINST / / ABSTAIN / /

<CAPTION>
2.
3.

<PAGE>
<TABLE>
<S> <C> <C>
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.

FOR / / AGAINST / / ABSTAIN / /

5. In their discretion, the proxy holders are authorized to vote upon such other matters
as may properly come before the Annual Meeting.

The undersigned hereby revokes any proxy heretofore given with respect to such shares and
confirms all that said proxies, or any of them, or any substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. This Proxy when properly executed will be voted in the
manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted FOR Proposals 1, 2, 3 and 4. The undersigned hereby acknowledges receipt of the
Company's Notice of Annual Meeting of Stockholders to be held on June 1, 1998, the Company's
Proxy Statement dated April 29, 1998 (and the accompanying proxy), and the Company's 1997 Annual
Report to Stockholders.

<CAPTION>
4.
5.
The u
confirms
or cause
manner di
be voted
Company's
Proxy Sta
Report to

<TABLE>
<S> <C>
Dated: ----------------------------------------------------, 1998
-----------------------------------------------------------
(Signature)

-----------------------------------------------------------
(Additional signature, if held jointly)

PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>