UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
X
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period
ended:
June 30,
2009
OR
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period
from
to
Commission
File
Number:
000-19301
COMMUNICATION
INTELLIGENCE CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
94-2790442
|
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
|
|
incorporation
or organization)
|
|
Identification
No.)
|
|
275
Shoreline Drive, Suite 500, Redwood Shores,
CA 94065-1413
(Address
of principal executive
offices) (Zip
Code)
Registrant's
telephone number, including area code:
(650)
802-7888
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
large
accelerated filer
|
|
accelerated
filer
|
|
non-accelerated
filer
|
X
|
Smaller
reporting Company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Section
12b-2 of the exchange Act)
Number of
shares outstanding of the issuer's Common Stock, as of August 14, 2009:
131,378,589.
INDEX
|
Page No.
|
PART
I. FINANCIAL INFORMATION
|
|
Item
1.
Financial
Statements
|
|
Condensed
Consolidated Balance Sheets at June 30, 2009 (unaudited) and
December 31,
2008
|
3
|
Condensed
Consolidated Statements of Operations for the Three-Month
And Six-Month Periods Ended
June 30, 2009 and 2008 (unaudited)
|
4
|
Condensed
Consolidated Statements of Changes in Stockholders’ Equity for
the
Six-Month Period Ended June 30,
2009 (unaudited)
|
5
|
Condensed
Consolidated Statements of Cash Flows for the Six-Month
Periods
Ended June 30, 2009 and 2008
(unaudited)
|
6
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
8
|
Item
2.
Management's
Discussion and Analysis of Financial Condition and
Results of
Operations
|
17
|
Item
3.
Quantitative and
Qualitative Disclosures About Market
Risk
|
23
|
Item
4.
Controls and
Procedures
|
23
|
PART
II. OTHER INFORMATION
|
|
Item
1.
Legal
Proceedings
|
23
|
Item
1A.
Risk
Factors
|
23
|
Item
2.
Unregistered Sale of
Securities and Use of
proceeds
|
23
|
Item
3.
Defaults Upon Senior
Securities
|
23
|
Item
4.
Submission of Matters
to a Vote of Security
Holders
|
24
|
Item
5.
Other
Information
|
24
|
Item
6.
Exhibits
|
|
(a)
Exhibits
|
24
|
Signatures
|
26
|
PART I–FINANCIAL
INFORMATION
Item
1.
Financial
Statements.
Communication
Intelligence Corporation
and
Subsidiary
Condensed
Consolidated Balance Sheets
(In
thousands)
|
|
June
30
|
|
|
December
31
|
|
|
|
2009
|
|
|
2008
|
|
Assets
|
|
Unaudited
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
706
|
|
|
$
|
929
|
|
Accounts receivable, net of
allowances of $104 and $104 at June 30, 2009 and December 31, 2008,
respectively
|
|
|
245
|
|
|
|
700
|
|
Prepaid expenses and other
current assets
|
|
|
84
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
1,035
|
|
|
|
1,709
|
|
Property
and equipment, net
|
|
|
34
|
|
|
|
48
|
|
Patents
|
|
|
2,960
|
|
|
|
3,149
|
|
Capitalized
software development costs
|
|
|
1,507
|
|
|
|
1,406
|
|
Deferred
financing costs (Note 5)
|
|
|
329
|
|
|
|
301
|
|
Other
assets
|
|
|
29
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,894
|
|
|
$
|
6,643
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt – net of
discount of $1 at June 30, 2009 and $5 at December 31,
2008
|
|
$
|
34
|
|
|
$
|
60
|
|
Accounts payable
|
|
|
186
|
|
|
|
92
|
|
Accrued
compensation
|
|
|
293
|
|
|
|
369
|
|
Other accrued
liabilities
|
|
|
152
|
|
|
|
236
|
|
Deferred revenue
|
|
|
295
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
960
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt – net of discount of $3,011 and $873 at June 30, 2009 and December
31, 2008, including related party debt of $4,744 and $2,644 net of
discount of $2,921 and $834 at June 30, 2009 and December 31, 2008,
respectively
|
|
|
1,880
|
|
|
|
2,765
|
|
Derivative
liability
|
|
|
4,865
|
|
|
|
−
|
|
Total
liabilities
|
|
|
7,705
|
|
|
|
3,865
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value;
10,000 shares authorized; 742 shares outstanding at June 30, 2009 and 856
at December 31, 2008
|
|
|
742
|
|
|
|
856
|
|
Common stock, $.01 par value;
275,000 shares authorized; 131,379 and 130,374 shares issued and
outstanding at June 30, 2009 and December 31, 2008,
respectively
|
|
|
1,314
|
|
|
|
1,304
|
|
Additional paid-in
capital
|
|
|
92,697
|
|
|
|
95,174
|
|
Accumulated
deficit
|
|
|
(96,574
|
)
|
|
|
(94,569
|
)
|
Accumulated other comprehensive
income
|
|
|
10
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
(1,811
|
)
|
|
|
2,778
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
5,894
|
|
|
$
|
6,643
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements
Communication
Intelligence Corporation
and
Subsidiary
Condensed
Consolidated Statements of Operations
Unaudited
(In
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
211
|
|
|
$
|
218
|
|
|
$
|
280
|
|
|
$
|
460
|
|
Maintenance
|
|
|
193
|
|
|
|
189
|
|
|
|
370
|
|
|
|
377
|
|
Total Revenues
|
|
|
404
|
|
|
|
407
|
|
|
|
650
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
183
|
|
|
|
157
|
|
|
|
353
|
|
|
|
327
|
|
Maintenance
|
|
|
48
|
|
|
|
43
|
|
|
|
97
|
|
|
|
73
|
|
Research and
development
|
|
|
14
|
|
|
|
43
|
|
|
|
126
|
|
|
|
96
|
|
Sales and
marketing
|
|
|
322
|
|
|
|
355
|
|
|
|
697
|
|
|
|
715
|
|
General and
administrative
|
|
|
497
|
|
|
|
552
|
|
|
|
959
|
|
|
|
1,019
|
|
Total operating costs and
expenses
|
|
|
1,064
|
|
|
|
1,150
|
|
|
|
2,232
|
|
|
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from
operations
|
|
|
(660
|
)
|
|
|
(743
|
)
|
|
|
(1,582
|
)
|
|
|
(1,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income (expense), net
|
|
|
−
|
|
|
|
2
|
|
|
|
1
|
|
|
|
5
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
(78
|
)
|
|
|
(48
|
)
|
|
|
(147
|
)
|
|
|
(92
|
)
|
Other
|
|
|
(4
|
)
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
(41
|
)
|
Amortization
of loan discount and deferred financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
(312
|
)
|
|
|
(217
|
)
|
|
|
(510
|
)
|
|
|
(308
|
)
|
Other
|
|
|
(12
|
)
|
|
|
(63
|
)
|
|
|
(20
|
)
|
|
|
(108
|
)
|
Loss
on extinguishment of long term debt
|
|
|
(829
|
)
|
|
|
−
|
|
|
|
(829
|
)
|
|
|
−
|
|
Loss
on derivative
liability
|
|
|
(966
|
)
|
|
|
−
|
|
|
|
(1,035
|
)
|
|
|
−
|
|
Net
loss
|
|
|
(2,861
|
)
|
|
|
(1,087
|
)
|
|
|
(4,130
|
)
|
|
|
(1,937
|
)
|
Accretion
of beneficial conversion feature, Preferred shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
−
|
|
|
|
(273
|
)
|
|
|
−
|
|
|
|
(273
|
)
|
Other
|
|
|
−
|
|
|
|
(98
|
)
|
|
|
−
|
|
|
|
(98
|
)
|
Preferred
stock dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(24
|
)
|
|
|
(4
|
)
|
Other
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
commonstockholders
|
|
$
|
(2,876
|
)
|
|
$
|
(1,464
|
)
|
|
$
|
(4,162
|
)
|
|
$
|
(2,314
|
)
|
Basic
and diluted loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
131,346
|
|
|
|
129,057
|
|
|
|
131,010
|
|
|
|
129,057
|
|
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements
Communication
Intelligence Corporation
and
Subsidiary
Consolidated
Statements of Changes in Stockholders' Equity (Deficit)
Six
Months Ended June 30, 2009
Unaudited
(In
thousands, except share amounts)
|
|
Preferred
Shares
Outstanding
|
|
|
Preferred
Shares
Amount
|
|
|
Common
Shares
Outstanding
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of December 31, 2008
|
|
|
856
|
|
|
$
|
856
|
|
|
|
130,374
|
|
|
$
|
1,304
|
|
|
$
|
95,174
|
|
|
$
|
(94,569
|
)
|
|
$
|
13
|
|
|
$
|
2,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle on January 1, 2009 –
Reclassification of equity linked financial instrument to derivative
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,510
|
)
|
|
|
2,157
|
|
|
|
|
|
|
|
(1,353
|
)
|
Stock
based employee compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Conversion
of preferred shares
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
1,005
|
|
|
|
10
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Cancellation
of warrants recorded as derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
875
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,162
|
)
|
|
|
|
|
|
|
(4,162
|
)
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,165
|
)
|
Preferred
share dividends
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
−
|
|
Balances
as of June 30, 2009
|
|
|
742
|
|
|
|
742
|
|
|
|
131,379
|
|
|
$
|
1,314
|
|
|
$
|
92,697
|
|
|
$
|
(96,574
|
)
|
|
$
|
10
|
|
|
$
|
(1,811
|
)
|
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements
Communication
Intelligence Corporation
and
Subsidiary
Condensed
Consolidated Statements of Cash Flows
Unaudited
(In
thousands)
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,130
|
)
|
|
$
|
(1,937
|
)
|
Adjustments to reconcile net
loss to net cash
used
for operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
551
|
|
|
|
438
|
|
Amortization of debt discount and
deferred financing costs
|
|
|
534
|
|
|
|
416
|
|
Loss on extinguishment of
long-term debt
|
|
|
829
|
|
|
|
|
|
Stock-based employee
compensation
|
|
|
54
|
|
|
|
40
|
|
Loss on derivative
liability
|
|
|
1,035
|
|
|
|
−
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
455
|
|
|
|
208
|
|
Prepaid
expenses and other
assets
|
|
|
(3
|
)
|
|
|
51
|
|
Accounts
payable
|
|
|
94
|
|
|
|
(11
|
)
|
Accrued
compensation
|
|
|
(76
|
)
|
|
|
(67
|
)
|
Other accrued
liabilities
|
|
|
38
|
|
|
|
138
|
|
Deferred
revenue
|
|
|
(48
|
)
|
|
|
(47
|
)
|
Net cash used for
operating activities
|
|
|
(667
|
)
|
|
|
(771
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
Acquisition of property and
equipment
|
|
|
(2
|
)
|
|
|
(7
|
)
|
Capitalized software development
costs
|
|
|
(447
|
)
|
|
|
(492
|
)
|
Net cash used for investing
activities
|
|
|
(449
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Deferred financing
costs
|
|
|
(174
|
)
|
|
|
(452
|
)
|
Proceeds from issuance of
short-term
debt
|
|
|
−
|
|
|
|
125
|
|
Proceeds from issuance of
long-term
debt
|
|
|
1,100
|
|
|
|
3,000
|
|
Principal payments on short term
debt
|
|
|
(30
|
)
|
|
|
(125
|
)
|
Net cash provided by financing
activities
|
|
|
896
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(3
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(223
|
)
|
|
|
1,243
|
|
Cash
and cash equivalents at beginning of period
|
|
|
929
|
|
|
|
1,144
|
|
Cash
and cash equivalents at end of
period
|
|
$
|
706
|
|
|
$
|
2,387
|
|
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements
Communication
Intelligence Corporation
and
Subsidiary
Condensed
Consolidated Statements of Cash Flows (Continued)
Unaudited
(In
thousands)
Supplementary
disclosure of cash flow information
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
−
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing and investing transactions
|
|
|
|
|
|
|
|
|
Short-term notes and accrued
interest exchanged for convertible preferred stock
|
|
$
|
−
|
|
|
$
|
1,040
|
|
Dividends on preferred
shares
|
|
$
|
32
|
|
|
$
|
6
|
|
Short-term notes and accrued
interest exchanged for long-term notes
|
|
$
|
−
|
|
|
$
|
638
|
|
Accretion of beneficial
conversion feature and warrants
|
|
$
|
−
|
|
|
$
|
371
|
|
Conversion of preferred stock
to common stock
|
|
$
|
146
|
|
|
$
|
−
|
|
Issuance of long-term debt for
payment of interest in kind
|
|
$
|
154
|
|
|
$
|
−
|
|
Reclassification of equity linked
instrument to derivative liability
|
|
$
|
1,353
|
|
|
$
|
−
|
|
Debt discount and related
liability recorded in connection
with long-term
debt
|
|
$
|
3,178
|
|
|
$
|
−
|
|
Warrants issued for interest
recorded as derivative liability
|
|
$
|
74
|
|
|
$
|
−
|
|
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
The
financial information contained herein should be read in conjunction with the
Company's consolidated audited financial statements and notes thereto included
in its Annual Report for the year ended December 31, 2008.
The
accompanying unaudited condensed consolidated financial statements of
Communication Intelligence Corporation and its subsidiary (the “Company” or
“CIC”) have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America (“GAAP”) for complete consolidated financial
statements. In the opinion of management, the unaudited condensed consolidated
financial statements included in this quarterly report reflect all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of its financial position at the dates
presented and the Company’s results of operations and cash flows for the periods
presented. The Company’s interim results are not necessarily
indicative of the results to be expected for the entire year.
The
Company's core technologies are classified into two broad categories:
"transaction and communication enabling technologies" and "natural input
technologies". These technologies include multi-modal electronic signature,
handwritten biometric signature verification, cryptography (Sign-it, iSign, and
SignatureOne) and multilingual handwriting recognition software
(Jot). The Company reports results in one segment.
The
Company's transaction and communication enabling technologies are designed to
provide a cost-effective means for securing electronic transactions, providing
network and device access control and enabling workflow automation of
traditional paper form processing. The Company believes that these technologies
offer more efficient methods for conducting electronic transactions while
providing more functional user authentication and heightened data security. The
Company's transaction and communication enabling technologies have been
fundamental to its development of software for multi-modal electronic
signatures, handwritten biometric signature verification, and data
security.
The
Company’s natural input technologies are designed to allow users to interact
with a computer or handheld device by using an electronic pen or stylus as the
primary input device. CIC's natural input offering includes multilingual
handwriting recognition software for such devices as electronic organizers,
pagers and smart cellular phones that do not have a keyboard. For such devices,
handwriting recognition offers the most viable solutions for performing text
entry and editing.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Except for 2004, the
Company has incurred significant losses since its inception and, at June 30,
2009, the Company’s accumulated deficit was approximately $96,600. At June 30,
2009, the Company had working capital of $75, including cash and cash
equivalents of $706. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The Company has
primarily funded losses through the sale of debt and equity
securities.
In May
2009 and June 2008, the Company raised additional funds through debt and equity
financings and also converted short-term notes payable to equity (see notes 4
and 5). There can be no assurance that the Company will have adequate
capital resources to fund planned operations or that any additional funds will
be available to the Company when needed, or if available, will be available on
favorable terms or in amounts required by the Company. If the Company is unable
to obtain adequate capital resources to fund operations, it may be required to
delay, scale back or eliminate some or all of its operations, which may have a
material
Communication
Intelligence Corporation
and
Subsidiary
Notes to Unaudited
Financial Statements
(In thousands,
except share and per share amounts)
adverse
effect on the Company's business, results of operations and ability to operate
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Recent
Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) approved its Accounting
Standards Codification (“Codification”) as the single source of authoritative
United States accounting and reporting standards applicable for all
non-governmental entities, with the exception of the SEC and its staff. The
Codification, which changes the referencing of financial standards, is effective
for interim or annual financial periods ending after September 15, 2009.
Therefore, in the third quarter of fiscal year 2009, all references made to US
GAAP will use the new Codification numbering system prescribed by the FASB. As
the Codification is not intended to change or alter existing US GAAP, it is not
expected to have any impact on our consolidated financial position or results of
operations.
In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, "
Interim Disclosures about Fair Value
of Financial Instruments
", or FSP 107-1, which will require that the fair
value disclosures required for all financial instruments within the scope of
SFAS 107, "
Disclosures
about Fair Value of Financial Instruments
", be included in interim
financial statements. This FSP also requires entities to disclose the method and
significant assumptions used to estimate the fair value of financial instruments
on an interim and annual basis and to highlight any changes from prior periods.
FSP 107-1 is effective for interim periods ending after June 15, 2009. The
adoption of FSP 107-1 did not have a material impact on the Company’s
consolidated financial statements.
On
January 1, 2009, the Company adopted EITF Issue No. 07-5, “
Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock
” (“EITF
07-5”), which requires that the Company apply a two-step approach in evaluating
whether an equity-linked financial instrument (or embedded feature) is indexed
to the Company’s stock, including evaluation the instrument’s contingent
exercise and settlement provisions. See Note 6 for the impact of the
adoption of EITF 07-5 on our balance sheet and statement of
operations.
2.
Accounts receivable and
revenue concentration
Two
customers accounted for 80% of net accounts receivable as of June 30, 2009.
American Family Insurance accounted for 53% and eCom Asia Pacific accounted for
27%. Four customers accounted for 82% of accounts receivable at
December 31, 2008. Allstate Insurance Company accounted for 37%, SHI
Inc. accounted for 18%, Travelers Indemnity Company accounted for 15% and eCom
Asia Pacific, Ltd accounted for 12%.
Two
customers in the aggregate accounted for 57% of total revenues for the three
months ended June 30, 2009: American Family Insurance (43%) and Wells Fargo Bank
NA (14%). Three customers in the aggregate accounted for 49% of total revenues
for the three months ended June 30, 2008: Fiserv (12%), Wells Fargo Bank, NA
(13%), and Travelers Insurance Company (24%).
Two
customers in the aggregate accounted for 44% of total revenues for the six
months ended June 30, 2009: American Family Insurance (27%) and Wells Fargo Bank
NA (17%). Three customers in the aggregate accounted for 50% of total revenue
for the six months ended June 30, 2008: Travelers Insurance Company (11%), Wells
Fargo Bank, NA (20%) and Access Systems Americas, Inc. (19%).
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
The
Company performs intangible asset impairment analyses at least annually in
accordance with the guidance in Statement of Financial Accounting Standards No.
142,
“Goodwill and Other
Intangible Assets”
("SFAS 142") and Statement of Financial Accounting
Standards No. 144,
“Accounting
for the Impairment or Disposal of Long Lived Assets”
("SFAS 144"). The
Company follows the guidance of SFAS 144 in response to changes in industry and
market conditions that affect its patents. The Company then determines if an
impairment of its assets has occurred. The Company periodically reassesses the
lives of its patents and tests for impairment in order to determine whether the
book value of each patent exceeds the fair value of each patent. Fair value is
determined by estimating future cash flows from the products that are and will
be protected by the patents and considering the additional factors listed in
Critical Accounting Policies in the Company’s Annual Report on Form
10-K.
Management
recognizes that revenues have fluctuated based on comparable prior periods, and
may continue to fluctuate based upon historical experience of the time involved
to close large sales transactions. Management completed an analysis of its
patents as of December 31, 2008. Based on that analysis, the Company
concluded that no impairment of the carrying value of the patents existed. The
Company believes that no events or circumstances occurred or changed during the
six months ended June 30, 2009, and therefore concluded that no impairment in
the carrying values of the patents existed at June 30, 2009.
Amortization
of patent costs was $94 and $189 for the three and six month periods ended June
30, 2009 and $95 and $190 in the corresponding periods of the prior
year.
Short-term
debt as of June 30, 2009 consists of a principal balance of $35, net of a
remaining debt discount of $1. The note agreement, originally entered into in
2004, was modified in October 2007. The modification extended the maturity of
the note through October 2009 and terminated the conversion feature of the note.
In addition, the note holder received warrants to purchase two shares per one
dollar of principal outstanding (234 warrants exercisable at $0.29 per share,
the 20 day volume weighted average price of the Company’s Common Stock ending on
October 25, 2007).
5.
Long-term
debt
On May
28, 2009, the Company entered into a financing transaction (“New Financing
Transaction”) under which the Company raised capital through the issuance of new
secured indebtedness and modified the terms of the June 2008 credit agreement
(“Credit Agreement”). Certain parties (Phoenix Venture Fund LLC
(“Phoenix”), Michael Engmann and certain entities related to Mr. Engmann) to the
New Financing Transaction had a pre-existing relationship with the Company.
In the New
Financing Transaction, the Company received an aggregate of $1,100, which is due
on December 31, 2010, accrues interest at 8% per annum, and which, at the option
of the Company, may be paid in cash or in kind. In conjunction with the
New Financing Transaction, the Company issued warrants to the lenders to
purchase an aggregate of 18,333 shares of common stock (exercisable through June
30, 2012 at $0.06 per share). Additionally, the Company issued a warrant
to SG Phoenix LLC, an affiliate of Phoenix, to purchase 3,948 shares of common
stock (exercisable through June 30, 2012 at $0.06 per share) and a warrant to
purchase 250 shares of common stock (exercisable through June 30, 2012 at $0.06
per share) to an unrelated third party in connection with administrative
services provided to the Company.
In
connection with the New Financing Transaction, the Company amended the Credit
Agreement such that the notes underlying the Credit Agreement were cancelled and
new notes were issued (principal amount of $3,709). In addition, warrants
to purchase 26,495 shares of common stock included in the June 2008
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
5.
Long-term debt
(continued)
transaction
were cancelled and new warrants to purchase 61,821 shares of common stock were
issued. The note and warrants have identical terms to the terms outlined
in the New Financing Transaction above The Company recorded a loss on debt
extinguishment in the amount of $829 related to the cancellation of the notes,
and recorded an increase to additional paid in capital in the amount of $875
related to the cancellation of warrants that had been recorded as a derivative
liability.
The
Company ascribed the fair value of $3,178 to the new warrants, excluding the
warrants issued for administrative services, which is recorded as a discount to
Long-term debt in the balance sheet. The fair value of the warrants was
estimated on the commitment date using the Black-Scholes pricing model with the
following assumptions: risk-free interest rate of 1.64%; expected term of 3
years; expected volatility of 137%; and expected dividend yield of 0%. The
Company may use the proceeds from the New Financing Transaction to pay the
Company’s indebtedness and accrued interest on that indebtedness, for working
capital and general corporate purposes, in each case in the ordinary course of
business, and to pay fees and expenses in connection with the New Financing
Transaction, which were $347, including $173 attributable to the warrants issued
for the administrative services. The fees and expenses are recorded as
deferred financing costs and are to be amortized over the life of the
loan.
In
connection with the New Financing Transaction, the Registration Rights Agreement
from the previous financing transaction was amended to provide the lenders
certain rights to demand registration of shares issuable upon exercise of the
new warrants.
At June
30, 2009, the Company exercised its option to make the second quarter interest
payment in kind. The Company issued new notes in the amount of $82 and
additional warrants to purchase 1,366 shares of common stock with the same terms
as those issued in the New Financing Transaction.
Interest
expense associated with the Company’s debt for the three months ended June 30,
2009 and 2008 was $406 and $346, respectively. Included in interest
expense for the three months ended June 30, 2009 and 2008 was $324 and $280,
respectively, of amortization of the debt discount and deferred financing costs.
Interest expense for the six months ended June 30, 2009 and 2008 was $685
and $549, respectively. Included in interest expense for the six months
ended June 30, 2009 and 2008 was $530 and $416, respectively, of amortization of
the debt discount and deferred financing costs.
6.
Derivative
liability
In June
2008, the FASB ratified EITF No. 07-5, “
Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock
”. Paragraph
11(a) of SFAS No. 133 specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. The
Company adopted EITF 07-5 effective January 1, 2009, and determined that certain
warrants and the embedded conversion feature on the preferred
stock require liability classification because of certain provisions
that may result in an adjustment to the number of shares upon settlement and an
adjustment to their exercise or conversion price. The fair value of the embedded
conversion feature at January 1, 2009 and June 30, 2009 was insignificant. The
warrants were retroactively reclassified as liabilities upon the effective date
of EITF 07-5 as required by the EITF. The result was a decrease in paid in
capital as of January 1, 2009, of $3,510, a decrease in accumulative deficit of
$2,157, and the recognition of a liability of $1,353. The liability, including
additional liabilities related to the New Financing Transaction, was further
adjusted to fair value as of June 30, 2009, resulting in an increase
in
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
6.
Derivative liability
(continued)
the
liability and other expense of $1,035 for the six months ended June 30, 2009 and
$966 for the three months ended June 30, 2009.
The
Company uses the Black-Scholes pricing model to calculate fair value of its
warrant liabilities. Key assumptions used to apply these models are as
follows:
|
June 30, 2009
|
January 1, 2009
|
Expected
term
|
.25
to 3.00 years
|
.75
to 2.5 years
|
Volatility
|
137.4%
- 199.0%
|
141.9%
- 171.7%
|
Risk-free
interest rate
|
1.64%
|
1.14%
|
Dividend
yield
|
0%
|
0%
|
Fair
value measurements:
Assets
and liabilities measured at fair value as of June 30, 2009, are as
follows:
|
Value
at
|
|
Quoted
prices in active markets
|
|
Significant
other observable inputs
|
|
Significant
unobservable inputs
|
|
June
30, 2009
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Derivative
liability
|
$ 4,865
|
|
$
−
|
|
$
−
|
|
$ 4,865
|
The fair
value framework requires a categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to price the assets and
liabilities. Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment. The three levels are
defined as follows:
Level 1:
Unadjusted quoted prices in active markets for identical assets and
liabilities.
Level 2:
Observable inputs other than those included in Level 1. For example, quoted
prices for similar assets or liabilities in active markets or quoted prices for
identical assets or liabilities in inactive markets.
Level 3:
Unobservable inputs reflecting management’s own assumptions about the inputs
used in pricing the asset or liability.
There
were no financial assets or liabilities measured at fair value, with the
exception of cash and the above mentioned derivative liability as of June 30,
2009 and December 31, 2008.
The
Company calculates net loss per share under the provisions of Statement of
Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). SFAS
128 requires the disclosure of both basic net loss per share, which is based on
the weighted average number of shares outstanding, and when applicable, diluted
income per share, which is based on the weighted average number of shares and
dilutive potential shares outstanding.
For the
three and six month periods ended June 30, 2009, 8,913 and 100,867 shares of
common stock issuable upon the exercise of outstanding options and warrants,
respectively, and 5,296 shares of common stock issuable upon the conversion of
the convertible preferred stock were excluded from the calculation of dilutive
earnings per share because the exercise of such options and warrants and the
conversion of the preferred stock would be anti-dilutive.
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
7.
|
Net (loss) per share
(continued)
|
For the
three and six month periods ended June 30, 2008, 6,002 and 41,131 shares of
common stock issuable upon the exercise of outstanding options and warrants,
respectively, and 7,429 shares of common stock issuable upon the conversion of
the convertible preferred stock were excluded from the calculation of dilutive
earnings per share because the exercise of such options and warrants and the
conversion of the preferred stock would be anti-dilutive.
The
Company has granted stock options under its 1999 Option Plan which expired in
April of 2009 (options outstanding under that plan are not effected by its
expiration) and also granted options to employees, directors and consultants
pursuant to individual plans.
Share-based
compensation expense is based on the estimated grant date fair value of the
portion of share-based payment awards that are ultimately expected to vest
during the period. The grant date fair value of stock-based awards to
employees and directors is calculated using the Black-Scholes option pricing
model. Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “
Share-Based Payment
” requires
forfeitures of share-based payment awards to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. The estimated average forfeiture rate for the
three and six months ended June 30, 2009 was approximately 19%, and for the
comparable three and six months in 2008 was approximately 27%, based on
historical data.
SFAS No.
123(R) requires the cash flows from tax benefits for deductions in excess of the
compensation costs recognized for share-based payment awards to be classified as
financing cash flows. Due to the Company’s loss position, there were
no such tax benefits during the three and six month periods ending June 30, 2009
and 2008.
Valuation
and Expense Information under SFAS No. 123(R):
The
weighted-average fair value of stock-based compensation is based on the single
option valuation approach. Forfeitures are estimated and it is
assumed no dividends will be declared. The estimated fair value of
stock-based compensation awards to employees is amortized using the accrual
method over the vesting period of the options. The fair value calculations are
based on the following assumptions:
|
|
|
|
|
Three
and Six Months Ended
June
30, 2009
|
Three
and Six Months
Ended
June
30, 2008
|
Risk
free interest rate
|
|
1.45%
– 5.11%
|
3.32%
- 5.11%
|
Expected
life (years)
|
|
3.21
– 6.88
|
3.21
– 6.86
|
Expected
volatility
|
|
80.96%
– 131.35%
|
80.96%
– 104.57%
|
Expected
dividends
|
|
None
|
None
|
The
following table summarizes the allocation of stock-based compensation expense
related to stock option grants under SFAS 123(R) for the three and six months
ended June 30, 2009 and 2008. The Company granted 1,200 stock options during the
three and six months ended June 30, 2009 and no stock options were exercised.
There were 100 stock options granted during the three and six months ended June
30, 2008 and no options were exercised.
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
|
|
Three
Months Ended June 30,
|
|
|
Six
months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Research
and development
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
15
|
|
|
$
|
2
|
|
Sales
and marketing
|
|
|
5
|
|
|
|
8
|
|
|
|
13
|
|
|
|
20
|
|
General
and administrative
|
|
|
12
|
|
|
|
1
|
|
|
|
26
|
|
|
|
2
|
|
Director
options
|
|
|
−
|
|
|
|
15
|
|
|
|
−
|
|
|
|
16
|
|
Stock-based
compensation expense
|
|
$
|
28
|
|
|
$
|
25
|
|
|
$
|
54
|
|
|
$
|
40
|
|
A summary
of option activity under the Company’s plans as of June 30, 2009 and 2008 is as
follows:
|
|
As
of June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Options
|
|
Shares
(000)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
average Remaining Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Shares
(000)
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
average Remaining Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1,
|
|
|
7,608
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
6,036
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
Granted
|
|
|
1,200
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
100
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
Exercised
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(595
|
)
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
$
|
0.25
|
|
|
|
|
|
|
|
Outstanding
at June 30
|
|
|
8,213
|
|
|
$
|
0.42
|
|
|
|
4.53
|
|
|
$
|
−
|
|
|
|
6,002
|
|
|
$
|
0.58
|
|
|
|
4.16
|
|
|
$
|
−
|
|
Vested
and expected to vest at June 30
|
|
|
8,213
|
|
|
$
|
0.42
|
|
|
|
4.53
|
|
|
$
|
−
|
|
|
|
6,002
|
|
|
$
|
0.58
|
|
|
|
4.16
|
|
|
$
|
−
|
|
Exercisable
at June 30
|
|
|
5,616
|
|
|
$
|
0.54
|
|
|
|
3.74
|
|
|
$
|
−
|
|
|
|
5,550
|
|
|
$
|
0.61
|
|
|
|
4.04
|
|
|
$
|
−
|
|
The
following tables summarize significant ranges of outstanding and exercisable
options as of June 30, 2009 and 2008:
|
|
|
As
of June 30, 2009
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (in years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.10
– $0.50
|
|
|
|
5,184
|
|
|
|
5.3
|
|
|
$
|
0.21
|
|
|
|
2,588
|
|
|
$
|
0.28
|
|
|
0.51
– 1.00
|
|
|
|
2,941
|
|
|
|
3.3
|
|
|
$
|
0.72
|
|
|
|
2,940
|
|
|
$
|
0.72
|
|
|
1.01
– 2.00
|
|
|
|
73
|
|
|
|
2.7
|
|
|
$
|
1.66
|
|
|
|
73
|
|
|
$
|
1.66
|
|
|
2.01
– 3.00
|
|
|
|
−
|
|
|
|
−
|
|
|
$
|
−
|
|
|
|
−
|
|
|
$
|
−
|
|
|
3.01
– 7.50
|
|
|
|
15
|
|
|
|
1.0
|
|
|
$
|
3.56
|
|
|
|
15
|
|
|
$
|
3.56
|
|
|
|
|
|
|
8,213
|
|
|
|
4.5
|
|
|
$
|
0.42
|
|
|
|
5,616
|
|
|
$
|
0.54
|
|
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
|
|
|
As
of June 30, 2008
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life(in years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
$
|
0.14
– $0.50
|
|
|
|
2,479
|
|
|
|
4.80
|
|
|
$
|
0.32
|
|
|
|
2,027
|
|
|
$
|
0.33
|
|
|
0.51
– 1.00
|
|
|
|
3,341
|
|
|
|
3.84
|
|
|
$
|
0.73
|
|
|
|
3,341
|
|
|
$
|
0.73
|
|
|
1.01
– 2.00
|
|
|
|
167
|
|
|
|
1.62
|
|
|
$
|
1.32
|
|
|
|
167
|
|
|
$
|
1.32
|
|
|
2.01
– 3.00
|
|
|
|
−
|
|
|
|
−
|
|
|
$
|
−
|
|
|
|
−
|
|
|
$
|
−
|
|
|
3.01
– 7.50
|
|
|
|
15
|
|
|
|
1.97
|
|
|
$
|
3.56
|
|
|
|
15
|
|
|
$
|
3.56
|
|
|
|
|
|
|
6,002
|
|
|
|
4.16
|
|
|
$
|
.58
|
|
|
|
5,550
|
|
|
$
|
|
|
A summary
of the status of the Company’s non-vested shares as of June 30, 2009 is as
follows:
Nonvested
Shares
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Nonvested
at January 1, 2009
|
|
|
1,565
|
|
|
$
|
0.16
|
|
Granted
|
|
|
1,200
|
|
|
$
|
0.00
|
|
Forfeited
|
|
|
(168
|
)
|
|
$
|
0.77
|
|
Vested
|
|
|
−
|
|
|
$
|
−
|
|
Nonvested
|
|
|
2,597
|
|
|
$
|
0.13
|
|
As of
June 30, 2009, there was $115 of total unrecognized compensation expense related
to non-vested share-based compensation arrangements granted under the
plans. The unrecognized compensation expense is expected to be
realized over a weighted average period of 2.8 years.
Preferred
Shares
In
connection with the closing of the June 2008 Financing Transaction (see Note 5,
Long-term debt), the Company also entered into a Securities Purchase Agreement
(the “Purchase Agreement”) and a Registration Rights Agreement (the
“Registration Rights Agreement”) each dated as of June 5, 2008. Under
the Purchase Agreement, in exchange for the cancellation of $995 in principal
amount and $45 of interest accrued thereon of the Company’s aggregate
outstanding $2,071 in existing debt and interest accrued thereon through May 31,
2008, the Company issued to the holders of such debt an aggregate of 1,040
shares of the Company’s Series A Cumulative Convertible Preferred Stock (the
“Preferred Shares”), As of June 30, 2009, there are 742 Preferred Shares
outstanding. The Preferred Shares carry an eight percent (8%) annual
dividend, payable quarterly in arrears in cash or in additional Preferred
Shares, have a liquidation preference over Common Stock of one dollar ($1.00)
per share and are convertible into shares of Common Stock at the conversion
price of fourteen cents ($0.14) per share. If the outstanding
“Preferred Shares” are converted in their entirety, the Company would issue
5,300 shares of common stock. The shares of Preferred Stock are convertible any
time after June 30, 2008. The preferred stock transaction resulted in a
beneficial conversion feature of $371, of which $273 is attributable to Michael
Engmann and $98 to the other creditors. The beneficial conversion
feature was recorded as a charge to loss applicable to common stockholders for
the quarter ended June 30, 2008. The Company has accrued dividends on the
preferred shares of $58. As of June 30, 2009, $27 of accrued
dividends had been paid in cash.
Communication
Intelligence Corporation
and Subsidiary
Notes to Unaudited Financial
Statements
(In thousands, except share and per share
amounts)
During
the six months ended June 30, 2009, 146 Preferred Shares were converted into
1,005 shares of the Company’s common stock. The Company paid the
first and second quarter dividends due on the Preferred Shares by issuing an
additional 32 Preferred Shares which are convertible into 229 shares of common
stock, included in the total below. At June 30, 2009 there are 742
preferred shares outstanding, that if converted, the Company would issue 5,296
shares of the Company’s common stock.
The
Company evaluated events through August 14, 2009 for consideration as a
subsequent event to be included in its June 30, 2009 financial statements,
issued August 14, 2009.
The Company's Board of Directors adopted the 2009
Stock Compensation Plan on July 1, 2009, reserving 7,000,000 shares of Common
Stock of the Company for issuance thereunder. The Board has granted 896,992
options pursuant to the plan.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Forward
Looking Statements
Certain
statements contained in this quarterly report on Form 10-Q, including, without
limitation, statements containing the words “believes”, “anticipates”, “hopes”,
“intends”, “expects”, and other words of similar import, constitute “forward
looking” statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements involve known and unknown risks,
uncertainties and other factors which may cause actual events to differ
materially from expectations. Such factors include those set forth in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2008,
including the following:
·
|
Technological,
engineering, manufacturing, quality control or other circumstances that
could delay the sale or shipment of
products;
|
·
|
Economic,
business, market and competitive conditions in the software industry and
technological innovations that could affect the Company’s
business;
|
·
|
The
Company’s inability to protect its trade secrets or other proprietary
rights, operate without infringing upon the proprietary rights of others
and prevent others from infringing on the proprietary rights of the
Company; and
|
·
|
General
economic and business conditions and the availability of sufficient
financing.
|
Except as
otherwise required by applicable laws, the Company undertakes no obligation to
publicly update or revise any forward-looking statements, as a result of new
information, future events or otherwise.
Item
2.
Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis should be read in conjunction with the
Company’s unaudited condensed consolidated financial statements and notes
thereto included in Part 1, Item 1 of this quarterly report on Form 10-Q and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” set forth in the Company’s Annual report on Form 10-K for the fiscal
year ended December 31, 2008.
Overview
The
Company is a leading supplier of electronic signature solutions for business
process automation serving primarily the financial services industry and is the
acknowledged leader in biometric signature verification technology. Its products
enable companies to achieve secure paperless business transactions with multiple
signature technologies across virtually all applications and hardware
platforms.
The
Company was incorporated in Delaware in October 1986. Except for the year ended
December 31, 2004, in each year since its inception the Company has incurred
losses. For the five-year period ended December 31, 2008, net losses aggregated
approximately $12,800 and at December 31, 2008, the Company's accumulated
deficit was approximately $94,600. At June 30, 2009, its accumulated deficit was
approximately $96,600.
Total
revenue of $650 for the six months ended June 30, 2009 decreased $187 or 22%,
compared to revenues of $837 in the corresponding six months of the prior year.
The Company believes that revenues in the first half reflects
primarily the freeze in IT spending resulting from the meltdown in the financial
market which delayed orders, even beyond the historical delays consistent with
companies entering a new year and new budget period, because of the heightened
senior management oversights, reviews, and prioritization processes implemented.
The Company still anticipates that 2009 revenue will exceed 2008. Fourth quarter
of 2008 revenue was up 17% over the third quarter of 2008, revenue for the last
half of 2008 was up 25% over the last half of 2007 and based on sales related
activity, the Company anticipates delayed orders and deployments will resume in
2009.
Total
revenues for the three months ended June 30, 2009 were $404,000 compared to
revenues of $407,000 in the corresponding prior year period. Orders for the
three month period ended June 30, 2009, however, were $930,000, $526,000 higher
than revenue recognizable for that period and 75% of such orders are
expected to be recognized as revenue by year end. Revenues were primarily
attributable to American Family Insurance, American General Life & Accident,
Charles Schwab, Misys healthcare, Prudential Insurance, Snap-On Credit and Wells
Fargo Bank.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
With the
significant increase in second quarter orders it appears that the momentum we
experienced in the last half of last year will resume and continue into the last
half of this year. Despite the first quarter financial services IT
spending freeze we experienced, and the resultant negative effect on our first
quarter revenue, we believe that cash is freeing up for orders that fund mission
critical projects. Last month we announced that American Family
Insurance, a Fortune 500 firm, chose CIC to fulfill its automation needs. We
believe this win evidences the product differentiation of our Signature One
Ceremony Server and also the successful track record that our Ceremony Server
deployments have established including the two prior successive wins with
Travelers and Allstate deployed in the third and fourth quarter last
year. We have not received any significant input from customers or
prospects suggesting that the adverse conditions have resulted in cancellation
of the mission critical projects for this year. Rather, they have been delayed.
There is increasing awareness in the financial industry that our technology is
the answer to the heightened challenges they are facing and, recognition of the
need and desire to purchase sooner rather than later in order to gain the
benefits of deployment this year. So, we believe the purchase priority necessary
to generate sufficient orders to achieve last half profitability exists.
However, realization of that possibility depends on the speed and magnitude of
the spending recovery.
The net
loss for the six months ended June 30, 2009 was $4,162, compared with a net loss
of $2,314 in the prior year period. The increase in net loss for the
six months ended June 30, 2009 was primarily the result of expensing the
remaining unamortized debt discount and deferred financing cost as a loss on
debt extinguishment, aggregating $829, associated with the cancelled notes and
warrants which were replaced with new notes and warrants in the New Financing
Transaction (see Note 5 to the Condensed Consolidated Financial Statements) and
the loss on derivative liability of $1,035. Cost of sales increased 13% or $50
while operating expenses decreased approximately 3%, or $48, for the six months
ended June 30, 2009, compared to the prior year period. The increase
in cost of sales was due to additional amortization of capitalized software
development from projects completed since June of the prior year, pertaining to
direct engineering costs related to meeting customer specific requirements
associated with integration of our standard products into customer systems. The
decrease in Operating expenses is primarily due to reduced spending during the
six months ended June 30, 2009 compared to the prior year.
Critical
Accounting Policies and Estimates
Derivatives.
The
Company follows the provisions of SFAS No. 133 “
Accounting for Derivative
Instruments and Hedging Activities
” (“SFAS No. 133”) along with
related interpretations
EITF No. 07-5,
“
Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own
Stock
”,
EITF No. 00-19
“
Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock
” (“EITF 00-19”) and EITF No. 05-2 “
The Meaning of ‘Conventional
Convertible Debt Instrument
” in Issue No. 00-19” (“EITF 05-2”). SFAS
No. 133 requires every derivative instrument (including certain derivative
instruments embedded in other contracts) to be recorded in the balance sheet as
either an asset or liability measured at its fair value, with changes in the
derivative’s fair value recognized currently in earnings unless specific hedge
accounting criteria are met. The Company values these derivative securities
under the fair value method at the end of each reporting period (quarter), and
their value is marked to market at the end of each reporting period with the
gain or loss recognition recorded against earnings. The Company continues to
revalue these instruments each quarter to reflect their current value in light
of the current market price of our common stock. The Company utilizes the
Black-Scholes option-pricing model to estimate fair value. Key assumptions of
the Black-Scholes option-pricing model include applicable volatility rates,
risk-free interest rates and the instrument’s expected remaining life. These
assumptions require significant management judgment.
Refer to
Item 7, “Management Discussion and Analysis of Financial Condition and Results
of Operations” in the Company’s 2008 Form 10-K.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Results
of Operations
Revenues
Product
revenues for the three-month period ended June 30, 2009 decreased 3%, or $7, to
$211, compared to revenues of $218 in the prior year period. The
decrease in revenue is primarily due to a decrease in royalties from the
Company’s natural input/jot product. Maintenance revenue increased
2%, or $4, for the three-month period ended June 30, 2009 to $193, compared to
revenues of $189 in the prior year period. This increase is primarily
due to maintenance renewals from existing eSignature customers.
Product
revenues for the six-month period ended June 30, 2009 decreased 39%, or $180, to
$280, compared to revenues of $460 in the prior year period. The
decrease in revenue is primarily due to a 97%, or $161 decrease in royalties
from the Company’s natural input/jot product to $5, compared to $166 in the
prior year period. Royalty from the Company’ natural input products is expected
to remain at the lower volume due to changes in OEM product and operating system
offerings which do not include the Company’s natural input/jot
product. Maintenance revenue decreased 2%, or $7, for the six-month
period ended June 30, 2009 to $370, compared to revenues of $377 in the prior
year period. This decrease is primarily due to the decline in natural
input/jot maintenance.
Cost
of Sales
Cost of
sales increased $31, or 16%, to $231, for the three-month period ended June 30,
2009, compared to $200 in the prior year period. The increase in cost of sales
was due to additional capitalized software development amortization from
projects completed since June of the prior year pertaining to direct engineering
costs related to meeting customer specific requirements associated
with integration of our standard products into customer systems. For
the six month period ended June 30, 2009, cost of sales increased $50, or 13% to
$450, compared to $400 in the prior year period. The increase was due
to the same factors as described for the three-month period. Cost of
sales is expected to increase near term as previously capitalized software
development costs begin to be amortized once new products and enhancements are
completed and released.
Operating
expenses
Research
and Development Expenses
Research
and development expenses decreased approximately 67%, or $29, for the
three-month period ended June 30, 2009, compared to the prior year
period. Research and development expenses consist primarily of
salaries and related costs, outside engineering, maintenance items, and
allocated facilities expenses. The most significant factor in the $29
decrease was the higher levels of software development costs capitalized during
the three months ended June 30, 2009, as compared to the prior year
period. For the six-month period ended June 30, 2009 engineering
expenses increased 31%, or $30 to $126, compared to $96 in the prior year
period. The increase was primarily due to a lower capitalization of software
development costs over the six-month period, compared to the prior year. Total
expenses, before capitalization of software development costs and other
allocations for the three and six months ended June 30, 2009 was $417 and 867
compared to $394 and $794 in the prior year. The increases in the three and
six-month periods were primarily due to the addition of a senior-level engineer
compared to the prior year. Research and development expenses before
capitalization of software development costs, as well as the amounts to be
capitalized on future product development are expected to remain at current
levels in the near term.
Sales
and Marketing Expenses
Sales and
marketing expenses decreased 9%, or $33, for the three months ended June 30,
2009, compared to the prior year period. The decrease was primarily attributable
to lower expenditures on marketing programs. Offsetting the above mentioned
reductions, engineering sales support costs increased $37, compared to the prior
year period, due to an increase in requests for information and product
demonstrations from potential customers.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
For the
six months ended June 30, 2009, sales and marketing expense decreased 3%, or
$18, to $697 compared to $715 in the prior year period. The decrease
is due in part to the reasons discussed above. In addition salary and
related expenses decreased 19% due to the reduction of two sales persons during
the period.
General
and Administrative Expenses
General
and administrative expenses decreased 10%, or $55, for the three months ended
June 30, 2009, compared to the prior year period. For the six month period ended
June 30, 2009, general and administrative expenses decreased 6%, or $60, to $959
compared to $1,019 in the prior year. The decrease was primarily due to
reductions in general corporate expenses. These decreases were offset by an
increase in stock option compensation. The Company anticipates that general and
administrative expense will remain relatively consistent with the amounts
incurred in the prior year in the near term.
Interest
income and other income, net
Interest
income and other income, net was $0 and $1 for the three and six months ended
June 30, 2009, compared to $2 and $5 in the prior year. The decrease
is due to the lower cash balance and lower interest rates during the current
period compared to the prior year period.
Interest
expense
Interest
expense, related party increased 63%, or $30, to $78 for the three months ended
June 30, 2009, compared to $48 in the prior year period. The increase was
primarily due to the financing in June 2008. Interest expense-other for the
three months ended June 30, 2009 decreased $14, to $4, compared to $18 in the
prior year period. The decrease was primarily due to the conversion
in June 2008 of non-related party debt into Preferred Shares. See
Notes 5 and 8 in the Condensed Consolidated Financial Statements of this report
on Form 10-Q.
Interest
expense, related party increased 60%, or $55, to $147 for the six months ended
June 30, 2009, compared to $92 in the prior year period. The increase was
primarily due to the financing in June 2008. Interest expense-other for the six
months ended June 30, 2009 decreased $33, to $8, compared to $41 in the prior
year period. The decrease was due to the same factors discussed for
the three month periods above.
Amortization
of loan discount and deferred financing expense-related party increased $95, or
44%, to $312 for the three months ended June 30, 2009, compared to $217 in the
prior year period. The increase was primarily due to the New
Financing Transaction. For the six months ended June 30, 2009 deferred financing
expense-related party increased $202, or 66%, to $510 compared to $308 in the
prior year period. The increase was primarily due to the same factors discussed
above.
For the
three and six months ended June 30, 2009, the Company expensed the remaining
unamortized debt discount and deferred financing costs, aggregating $829, as the
result of the debt extinguishment associated with the cancelled notes and
warrants which were replaced with new notes and warrants as a condition of the
New Financing Transaction.
The
Company expects to amortize an additional $3,011 of debt discount related to the
New Financing Transaction to interest expense through December
2010.
Liquidity
and Capital Resources
At June
30, 2009, cash and cash equivalents totaled $706 compared to cash and cash
equivalents of $929 at December 31, 2008. The decrease in cash was primarily due
to cash used by operations of $564, cash used in investing activities of $439,
including $437 in capitalization of software development costs, and $2 in the
acquisition of property and equipment. The cash used by operations
and investing activities were offset by $799 provided by financing activities,
net of $30 used to repay a portion of short-term debt. Total current assets were
$1,035 at June 30, 2009, compared to $1,709 at December 31, 2008. As of June 30,
2009, the Company's principal sources of funds included its cash and cash
equivalents aggregating $706.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Accounts
receivable net decreased $455 for the six months ended June 30, 2009, compared
to the December 31, 2008 balance, due primarily to the decrease in sales and
billed but unpaid maintenance contracts that are off set against deferred
revenue compared to the fourth quarter of 2008. The billed but unpaid
maintenance amounts off set against the deferred revenue amount to
$377. These amounts are expected to be collected in the third
quarter. The Company expects the development of the eSignature market
ultimately will result in more consistent revenue on a quarter-to-quarter basis
and, therefore, less fluctuation in accounts receivable from quarter to
quarter.
Prepaid
expenses and other current assets increased by $4 for the six months ended June
30, 2009, compared to December 31, 2008, due primarily to increases in prepaid
insurance and annual fees on maintenance and support costs added to prepaid
expenses over the six months ended June 30, 2009.
Accounts
payable increased $94 for the six months ended June 30, 2009, compared to
December 31, 2008, due primarily to an increase in professional service
fees. Accrued compensation decreased $76 during the six months ended
June 30, 2009, compared to the December 31, 2008 balance. The balance
may fluctuate in the future due to increases or decreases in the number of
personnel and utilization of, or increases to, the accrued vacation
balance.
Total
current liabilities were $960 at June 30, 2009, compared to $1,100 at December
31, 2008. Deferred revenue, totaling $295 at June, 2009, compared to $343 at
December 31, 2008, primarily reflects advance payments for maintenance fees from
the Company's licensees that are generally recognized as revenue by the Company
when all obligations are met or over the term of the maintenance agreement,
whichever is longer. Deferred revenue is recorded when the Company
receives advance payment from its customers.
On May
28, 2009, the Company entered into a financing transaction (“New Financing
Transaction”) under which the Company raised capital through the issuance of new
secured indebtedness and modified the terms of the June 2008 credit agreement
(“Credit Agreement”). Certain parties (Phoenix Venture Fund LLC
(“Phoenix”), Michael Engmann and certain entities related to Mr. Engmann) to the
New Financing Transaction had a pre-existing relationship with the
Company. In the New Financing Transaction, the Company received an
aggregate of $1,100, which is due on December 31, 2010, accrues interest at 8%
per annum, and which, at the option of the Company, may be paid in cash or in
kind. In conjunction with the New Financing Transaction, the Company
issued warrants to the lenders to purchase an aggregate of 18,333 shares of
common stock (exercisable through June 30, 2012 at $0.06 per share).
Additionally, the Company issued a warrant to SG Phoenix LLC, an affiliate of
Phoenix, to purchase 3,948 shares of common stock (exercisable through June 30,
2012 at $0.06 per share) and a warrant to purchase 250 shares of common stock
(exercisable through June 30, 2012 at $0.06 per share) to an unrelated third
party in connection with administrative services provided to the
Company.
In
connection with the New Financing Transaction, the Company amended the Credit
Agreement such that the notes underlying the Credit Agreement were cancelled and
new notes were issued (principal amount of $3,709). In addition, warrants
to purchase 26,495 shares of common stock included in the June 2008 transaction
were cancelled and new warrants to purchase 61,821 shares of common stock were
issued. The note and warrants have identical terms to the terms outlined
in the New Financing Transaction above The Company recorded a loss on debt
extinguishment in the amount of $829 related to the cancellation of the notes,
and recorded an increase to additional paid in capital in the amount of $875
related to the cancellation of warrants that had been recorded as a derivative
liability.
The
Company ascribed the fair value of $3,178 to the new warrants, excluding the
warrants issued for administrative services, which is recorded as a discount to
Long-term debt in the balance sheet. The fair value of the warrants was
estimated on the commitment date using the Black-Scholes pricing model with the
following assumptions: risk-free interest rate of 1.64%; expected term of 3
years; expected volatility of 137%; and expected dividend yield of
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
0%.
The Company may use the proceeds from the New Financing Transaction to pay
the Company’s indebtedness and accrued interest on that indebtedness, for
working capital and general corporate purposes, in each case in the ordinary
course of business, and to pay fees and expenses in connection with the New
Financing Transaction, which were $347, including $173 attributable to the
warrants issued for the administrative services. The fees and expenses are
recorded as deferred financing costs and are to be amortized over the life of
the loan.
In
connection with the New Financing Transaction, the Registration Rights Agreement
from the previous financing transaction was amended to provide the lenders
certain rights to demand registration of shares issuable upon exercise of the
new warrants.
At June
30, 2009, the Company exercised its option to make the second quarter interest
payment in kind. The Company issued new notes in the amount of $82 and
additional warrants to purchase 1,366 shares of common stock with the same terms
as those issued in the New Financing Transaction.
Interest
expense associated with the Company’s debt for the three months ended June 30,
2009 and 2008 was $406 and $346, respectively. Included in interest
expense for the three months ended June 30, 2009 and 2008 was $324 and $280,
respectively, of amortization of the debt discount and deferred financing costs.
Interest expense for the six months ended June 30, 2009 and 2008 was $685
and $549, respectively. Included in interest expense for the six months
ended June 30, 2009 and 2008 was $530 and $416, respectively, of amortization of
the debt discount and deferred financing costs.
The
Company has the following material commitments as of June 30, 2009:
|
|
Payments
due by period
|
|
Contractual
obligations
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
Short-term
debt (1)
|
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Long-term
debt related party (2)
|
|
|
4,891
|
|
|
|
–
|
|
|
|
4,891
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Operating
lease commitments (3)
|
|
|
660
|
|
|
|
140
|
|
|
|
280
|
|
|
|
240
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total
contractual cash obligations
|
|
$
|
5,586
|
|
|
$
|
175
|
|
|
$
|
5,171
|
|
|
$
|
240
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
1.
|
Short-term
debt reported on the balance sheet is net of approximately $1 in discounts
representing the fair value of warrants issued in connection with the
Company’s debt financings.
|
2.
|
Long-term
debt reported on the balance sheet is net of approximately $3,011 in
discounts representing the fair value of warrants issued to the debt
holders.
|
3.
|
The
operating lease commenced on November 1, 2002. The lease was renegotiated
in December 2005 and extended for an additional 60 months. The base rent
will increase approximately 3% per annum over the term of the lease, which
expires on October 31, 2011.
|
The
Company has experienced recurring losses from operations that raise a
substantial doubt about its ability to continue as a going concern. There can be
no assurance that the Company will have adequate capital resources to fund
planned operations or that any additional funds will be available to it when
needed, or if available, will be available on favorable terms or in amounts
required by it. If the Company is unable to obtain adequate capital resources to
fund operations, it may be required to delay, scale back or eliminate some or
all of its operations, which may have a material adverse effect on its business,
results of operations and ability to operate as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Item
3.
Quantitative and Qualitative
Disclosures About Market Risk.
Interest Rate
Risk
The
Company has an investment portfolio of fixed income securities that are
classified as cash equivalents. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if market
interest rates increase. The Company attempts to limit this exposure by
investing primarily in short term securities. The Company did not enter into any
short-term security investments during the three months ended June 30,
2009.
Foreign Currency
Risk
From time
to time, the Company makes certain capital equipment or other purchases
denominated in foreign currencies. As a result, the Company’s cash flows and
earnings are exposed to fluctuations in interest rates and foreign currency
exchange rates. The Company attempts to limit these exposures through
operational strategies and generally has not hedged currency exposures. During
the three months ended June 30, 2009 and 2008, foreign currency translation
gains and losses were insignificant.
Future Results and Stock
Price Risk
The
Company's stock price may be subject to significant volatility. The public stock
markets have experienced significant volatility in stock prices in recent years.
The stock prices of technology companies have experienced particularly high
volatility, including, at times, price changes that are unrelated or
disproportionate to the operating performance of such companies. The trading
price of the Company's common stock could be subject to wide fluctuations in
response to, among other factors, quarter-to-quarter variations in operating
results, announcements of technological innovations or new products by the
Company or its competitors, announcements of new strategic relationships by the
Company or its competitors, general conditions in the computer industry or the
global economy in general, or market volatility unrelated to the Company's
business and operating results.
Item 4.
Controls and Procedures.
Under the
supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of
the period covered by this quarterly report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are effective. There were no significant
changes in the Company’s internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their
evaluation.
Part II-Other
Information
Item
1.
Legal
Proceedings.
None.
Item
1A.
Risk
Factors
Not applicable.
Item
2. Unregistered Sale of Securities and Use of
Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Item
4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting
of Stockholders on June 30, 2009. The number of shares of common stock with
voting rights and preferred shares on-as-if converted basis as of the record
date represented at the meeting either in person or by proxy was 125,546,842
shares, or 92% of the eligible outstanding Common Stock and outstanding Series
A-1 Cumulative Convertible Preferred Stock (voting on-as-if converted basis).
Two proposals were voted upon by the stockholders. The proposals and
the voting results are as follows:
Proposal
1
The five
persons listed below received the most votes in favor of election at the annual
meeting and, accordingly were elected as directors to serve until the next
Annual Meeting or until his successor is elected or appointed.
|
|
|
|
|
|
Name
|
|
For
|
|
|
Guido
DiGregorio
|
|
115,278,788
|
|
|
Garry
Meyer
|
|
113,693,099
|
|
|
Louis
P. Panetta
|
|
115,687,473
|
|
|
Chien
Bor (C. B.) Sung
|
|
118,183,584
|
|
|
David
E. Welch
|
|
114,080,464
|
|
Proposal
2
The
voting on the proposal to amend the Company’s amended and restated certificate
of incorporation to increase the number of common shares available for issuance
from 255,000 to 275,000 was as follows:
|
FOR
|
|
Against
|
|
Abstain
|
Shares
voted
|
110,260,531
|
|
14,877,156
|
|
409,155
|
Percent
of voted
|
87.8%
|
|
11.9%
|
|
0.3%
|
Percent
of total
|
80.7%
|
|
10.9%
|
|
0.3%
|
Item
5.
Other
Information.
None.
Item
6.
Exhibits.
(a) Exhibits.
Exhibit
Number
|
Document
|
3.1
|
Certificate
of Incorporation of the Company, as amended, incorporated herein by
reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration
Statement on Form 10 (File No. 0-19301).
|
3.2
|
Certificate
of Amendment to the Company's Certificate of Incorporation (authorizing
the reclassification of the Class A Common Stock and Class B
Common Stock into one class of Common Stock) as filed with the Delaware
Secretary of State's office on November 1, 1991, incorporated herein
by reference to Exhibit 3 to Amendment 1 on Form 8 to the
Company's Form 8-A (File No. 0-19301).
|
3.3
|
By-laws
of the Company adopted on October 6, 1986, incorporated herein by
reference to Exhibit 3.5 to the Company's Registration Statement on
Form 10 (File No. 0-19301).
|
Communication
Intelligence Corporation
and Subsidiary
(In thousands, except share and per share
amounts)
FORM 10-Q
Exhibit
Number
|
Document
|
3.4
|
By-laws
of the Company adopted on October 6, 1986, incorporated herein by
reference to Exhibit 3.5 to the Company's Registration Statement on
Form 10 (File No. 0-19301).
|
3.5
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of
Incorporation dated January 24, 2001, incorporated herein by reference to
Exhibit 3.5 to the Company’s Registration Statement on Form S/1, filed
December 28, 2007.
|
3.6
|
Certificate
of Elimination of the Company’s Certificate of Designation of the Series A
Preferred Stock dated August 17, 2001, incorporated herein by reference to
Exhibit 3.6 to the Company’s Registration Statement on Form S/1, filed
December 28, 2007.
|
3.7
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary of State August 17, 2007,
incorporated herein by reference to Exhibit 3.7 to the Company’s
Registration Statement on Form S/1 filed on December 28,
2007.
|
3.8
|
Amended
and Restated Certificate of Incorporation of the Company filed with the
Delaware Secretary of State on May 18, 1995, incorporated herein by
reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q
filed on August 14, 2008.
|
3.9
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A Cumulative
Convertible Preferred Stock filed with the Delaware Secretary of State on
June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the
Company’s Quarterly Report on Form 10-Q filed on August 14,
2008.
|
3.10
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary of State on June 30, 2008,
incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly
Report on Form 10-Q filed on August 14, 2008.
|
3.11
|
Certificate
of Designations, Powers, Preferences and Rights of the Series A-1
Cumulative Convertible Preferred Stock filed with the Delaware Secretary
of State on October 30, 2008., incorporated herein by reference to Exhibit
3.11 to the Company’s Annual Report on Form 10-K filed on March 12,
2009.
|
3.12
|
Certificate
of Elimination of the Company’s Series A Cumulative Convertible Preferred
Stock filed with the Delaware Secretary of State on December 30, 2008,
incorporated herein by reference to Exhibit 3.12 to the Company’s Annual
Report on Form 10-K filed on March 12, 2009..
|
*3.13
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary of State on June 30,
2009.
|
*4.24
|
Form
of Secured Promissory Note.
|
*4.25
|
Form
of Additional Secured Promissory Note.
|
*4.26
|
Form
of Common Stock Purchas Warrant.
|
*4.27
|
Form
of Additional Common Stock Purchase Warrant.
|
*10.46
|
Amendment
No. 1 to the Credit Agreement dated May 28, 2009.
|
*10.47
|
Amendment
No. 1 to the Registration Rights Agreement dated May 28,
2009.
|
*10.48
|
Side
Letter Regarding Salary Reduction Plan for Executive Officers dated May
28, 2009.
|
*31.1
|
Certification
of Company’s Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
*31.2
|
Certificate
of Company’s Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
*32.1
|
Certification
of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
*32.2
|
Certification
of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
COMMUNICATION
INTELLIGENCE CORPORATION
|
|
|
Registrant
|
|
|
|
August
14, 2009
|
|
/s/
Francis V. Dane
|
Date
|
|
Francis
V. Dane
|
|
|
(Principal
Financial Officer and Officer Duly Authorized to Sign on Behalf of the
Registrant)
|
- 26 -
Exhibit
3.13
Delaware
PAGE 1
The
First State
I,
JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF “CPMMUNICATIONS INTELLIGENCE CORPORATION”, FILED IN THIS OFFICE ON THE
THIRTIENTH DAY OF JUNE, A.S. 2009, AT 7:17 O’CLOCK P. M.
A
FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY
RECORDER OF DEEDS.
|
|
|
|
/s/ Jeffrey W. Bullock
|
2103295 8100
|
Jeffrey
W. Bullock, Secretary of State
|
090664107
|
AUTHENTICATION:
7395961
|
You
may verify this certificate online
At
corp.delaware.gov/authver.shtml
|
DATE:
07-01-09
|
State
of Delaware
Secretary
of state
Division
of Corporations
Delivered
07:31 PM 06/30/2009
Filed
07:17 PM 06/30/2009
SRV
090664107 – 2103295 FILE
CERTIFICATE
OF AMENDMENT
TO
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 paragraph (a) of Article Fourth thereof and by substituting
in lieu of said paragraph the following new paragraph:
“FOURTH: The
total number of shares which the Corporation shall have authority to issue is
285,000,000 of which 275,000,000 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 balance of Article Fourth shall
remain unchanged.
3. This
amendment to the Corporation’s Amended and Restated 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.
4. This
Certificate of Amendment shall be effective as of the date of filing with the
Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has
caused this Certificate of Amendment to be signed by Guido DiGregario, its
Chairman and Chief Executive Officer, this 30th day of June, 2009.
COMMUNICATION
INTELLIGENCE
CORPORATION
/
s/ Guido
DiGregorio
By: Guido DiGregorio
Chairman and
Chief Executive Officer
1
EXHIBIT
4.24
THIS
SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID). PURSUANT TO
TREASURY REGULATION §1.1275-3(b)(1), FRANCIS V. DANE, A REPRESENTATIVE OF THE
ISSUER HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUE DATE OF THIS SECURITY,
PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN
TREASURY REGULATION §1.1275-3(b)(1)(i). MR. DANE MAY BE REACHED AT TELEPHONE
NUMBER (650) 802-7737.
[FORM OF] SECURED PROMISSORY
NOTE
$[____________]
May 28,
2009 New
York, New York
FOR VALUE RECEIVED, COMMUNICATION
INTELLIGENCE CORPORATION (the “
Borrower
”),
having an office at 275
Shoreline Drive, Suite 500, Redwood Shores, California 94065, hereby promises to
pay to the order of [_________________________] (the “
Payee
”), or its registered
assigns, the principal amount of [__________] Dollars and 00/100 ($[_________])
on December 31, 2010 (the “
Maturity Date
”).
The
Borrower shall make
principal payments on this Secured Promissory Note (this “
Note
”) on or before the
Maturity Date in accordance with that certain Credit Agreement, dated as of June
5, 2008 (as it may be amended, supplemented or otherwise modified from time to
time, the “
Credit
Agreement
”; the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among the Borrower, the Lenders
party thereto, and SG Phoenix LLC, as Collateral Agent.
The
Borrower also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of the Credit
Agreement.
This Note
is being executed and delivered by the Borrower to the Payee to evidence the
Loan made by the Payee to the Borrower pursuant to the Credit
Agreement.
This Note
is issued with a detachable Warrant evidencing the right initially to purchase a
number of shares of Common Stock of the Borrower equal to the principal amount
of this Note divided by 0.06, at an initial exercise price of Six Cents ($0.06)
per share.
This Note
is entitled to the benefits of the Credit Agreement and the Loan Documents,
including the Pledge and Security Agreement. This Note may be prepaid, in whole
or in part (together with interest accrued thereon at the time of such
prepayment), at any time.
All cash
payments of principal and interest in respect of this Note shall be made in
lawful money of the United States of America in same day funds to the Payee’s
account set forth in
Section 1.5(a)
of the
Credit Agreement (or any other account as may be designated by the Payee to the
Borrower in writing from time to time) and otherwise in accordance with the
provisions of the Credit Agreement. The Payee hereby agrees, by its acceptance
hereof, that, before
disposing
of this Note or any part hereof, it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid;
provided
that
the failure
to make a notation of any payment made on this Note shall not limit or otherwise
affect the obligations of the Borrower hereunder with respect to payments of
principal of or interest on this Note.
This Note
and all amounts payable hereunder are secured by a pledge of certain Collateral
and is entitled to the benefits of the Pledge and Security
Agreement.
Upon the
occurrence of an Event of Default, the unpaid balance of the principal amount of
this Note, together with all accrued and unpaid interest thereon, may become, or
may be declared to be, due and payable in the manner, upon the conditions and
with the effect provided in
the Credit
Agreement.
The
Borrower hereby waives demand, presentment, protest and notice of any kind and
consents to the extension of time of payments, the release, surrender or
substitution of any and all security or guarantees for the obligations evidenced
hereby or other indulgence with respect to this Note, all without notice and
agrees that no such extension or other indulgence, and no substitution, release
or surrender of collateral shall discharge or otherwise affect the liability of
the Borrower. No delay or omission on the part of the Payee in exercising any
right hereunder shall operate as a waiver of such right or of any other right
hereunder, and a waiver of any such right on any one occasion shall not be
construed as a bar to or waiver of any such right on any future
occasion.
This Note
and the rights and obligations of the Borrower and the Payee hereunder shall be
governed by and construed in accordance with the laws of the State of New York.
The Borrower hereby irrevocably consents to the jurisdiction of any state or
federal court located in New York, New York.
In the
event of any litigation with respect to the obligations evidenced by this Note,
the Borrower WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and
rights to interpose permissive counterclaims and cross claims. The Borrower
further agrees to pay the Payee for the costs and expenses of enforcement and
collection of this Note, including attorneys’ fees and expenses and court costs.
All such costs and expenses shall be immediately due and payable.
The terms
of this Note are subject to amendment only in the manner provided in the Credit
Agreement.
This Note
shall be binding upon the successors, assigns and legal representatives of the
Borrower and inure to the benefit of the Payee, its successors, endorsees,
assigns and legal representatives.
If any
term or provision of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
This Note
is a full recourse obligation of the Borrower and is not limited to the
Collateral.
[
Signature page
follows
.]
IN
WITNESS WHEREOF, the
Borrower has executed
this Secured Promissory Note as of the date first written above.
COMMUNICATION
INTELLIGENCE CORPORATION
EXHIBIT
4.25
THIS
SECURITY HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID). PURSUANT TO
TREASURY REGULATION §1.1275-3(b)(1), FRANCIS V. DANE, A REPRESENTATIVE OF THE
ISSUER HEREOF WILL, BEGINNING TEN DAYS AFTER THE ISSUE DATE OF THIS SECURITY,
PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN
TREASURY REGULATION §1.1275-3(b)(1)(i). MR. DANE MAY BE REACHED AT TELEPHONE
NUMBER (650) 802-7737.
[FORM OF] ADDITIONAL SECURED
PROMISSORY NOTE
$[____________]
[__________
___,
200_] New
York, New York
FOR VALUE RECEIVED, COMMUNICATION
INTELLIGENCE CORPORATION (the “
Borrower
”),
having an office at 275
Shoreline Drive, Suite 500, Redwood Shores, California 94065, hereby promises to
pay to the order of [_________________________] (the “
Payee
”), or its registered
assigns, the principal amount of [__________] Dollars and 00/100 ($[_________])
on December 31, 2010 (the “
Maturity Date
”).
The
Borrower shall make
principal payments on this Additional Secured Promissory Note (this “
Note
”) on or before the
Maturity Date in accordance with that certain Credit Agreement, dated as of June
5, 2008 (as it may be amended, supplemented or otherwise modified from time to
time, the “
Credit
Agreement
”; the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among the Borrower, the Lenders
party thereto, and SG Phoenix LLC, as Collateral Agent.
The
Borrower also promises to pay interest on the unpaid principal amount hereof,
from the date hereof until paid in full, at the rates and at the times which
shall be determined in accordance with the provisions of the Credit
Agreement.
This Note
is being executed and delivered by the Borrower to the Payee to evidence payment
by the Borrower to the Payee of interest on the Loan made by the Payee to the
Borrower by issuing this Note pursuant to the Credit Agreement.
This Note
is issued with a detachable Warrant evidencing the right initially to purchase a
number of shares of Common Stock of the Borrower equal to the principal amount
of this Note divided by 0.06, at an initial exercise price of Six Cents ($0.06)
per share.
This Note
is entitled to the benefits of the Credit Agreement and the Loan Documents,
including the Pledge and Security Agreement. This Note may be prepaid, in whole
or in part (together with interest accrued thereon at the time of such
prepayment), at any time.
All cash
payments of principal and interest in respect of this Note shall be made in
lawful money of the United States of America in same day funds to the Payee’s
account set forth in
Section 1.5(a)
of the
Credit Agreement (or any other account as may be designated by the Payee to the
Borrower in writing from time to time) and otherwise in accordance with the
provisions of the Credit Agreement. The Payee hereby agrees, by its acceptance
hereof, that, before
.
disposing
of this Note or any part hereof, it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid;
provided
that
the failure
to make a notation of any payment made on this Note shall not limit or otherwise
affect the obligations of the Borrower hereunder with respect to payments of
principal of or interest on this Note.
This Note
and all amounts payable hereunder are secured by a pledge of certain Collateral
and is entitled to the benefits of the Pledge and Security
Agreement.
Upon the
occurrence of an Event of Default, the unpaid balance of the principal amount of
this Note, together with all accrued and unpaid interest thereon, may become, or
may be declared to be, due and payable in the manner, upon the conditions and
with the effect provided in
the Credit
Agreement.
The
Borrower hereby waives demand, presentment, protest and notice of any kind and
consents to the extension of time of payments, the release, surrender or
substitution of any and all security or guarantees for the obligations evidenced
hereby or other indulgence with respect to this Note, all without notice and
agrees that no such extension or other indulgence, and no substitution, release
or surrender of collateral shall discharge or otherwise affect the liability of
the Borrower. No delay or omission on the part of the Payee in exercising any
right hereunder shall operate as a waiver of such right or of any other right
hereunder, and a waiver of any such right on any one occasion shall not be
construed as a bar to or waiver of any such right on any future
occasion.
This Note
and the rights and obligations of the Borrower and the Payee hereunder shall be
governed by and construed in accordance with the laws of the State of New York.
The Borrower hereby irrevocably consents to the jurisdiction of any state or
federal court located in New York, New York.
In the
event of any litigation with respect to the obligations evidenced by this Note,
the Borrower WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and
rights to interpose permissive counterclaims and cross claims. The Borrower
further agrees to pay the Payee for the costs and expenses of enforcement and
collection of this Note, including attorneys’ fees and expenses and court costs.
All such costs and expenses shall be immediately due and payable.
The terms
of this Note are subject to amendment only in the manner provided in the Credit
Agreement.
This Note
shall be binding upon the successors, assigns and legal representatives of the
Borrower and inure to the benefit of the Payee, its successors, endorsees,
assigns and legal representatives.
If any
term or provision of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
This Note
is a full recourse obligation of the Borrower and is not limited to the
Collateral.
[
Signature page
follows
.]
IN WITNESS WHEREOF,
the
Borrower has executed
this Additional Secured Promissory Note as of the date first written
above.
COMMUNICATION
INTELLIGENCE CORPORATION
EXHIBIT
4.26
NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT, OR (B) IF REASONABLY REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.
COMMUNICATION
INTELLIGENCE CORPORATION
[FORM
OF] COMMON STOCK PURCHASE WARRANT
Warrant
No.
_____________ Dated: May
28, 2009
Communication
Intelligence Corporation, a Delaware corporation (the “
Company
”), hereby certifies
that, for value received, _____________________, or its registered assigns (the
“
Holder
”), is entitled
to purchase from the Company up to a total of ________________ shares of common
stock, $0.01 par value per share (the “
Common Stock
”), of the Company
(each such share, a “
Warrant
Share
” and all such shares, the “
Warrant Shares
”) at an
exercise price equal to $0.06 (as adjusted from time to time as provided in
Section 9
, the
“
Exercise Price
”), (i)
with respect to [INSERT NUMBER OF SHARES FROM JUNE 5, 2008 WARRANT, IF
APPLICABLE] shares, at any time from the date hereof, and (ii) with respect to
all other shares Holder is entitled to purchase under this Warrant other than
those specified in (i) above, at any time from June 30, 2009 and through and
including June 30, 2012 (the “
Expiration Date
”), and subject
to the following terms and conditions. This Warrant (this “
Warrant
”) is one of a series
of similar warrants (collectively, the “
Warrants
”) issued pursuant to
that certain Credit Agreement, dated as of June 5, 2008, by and among the
Company, the Lenders party thereto and SG Phoenix LLC, as Collateral Agent, as
amended by Amendment No. 1 to the Credit Agreement, dated as of May 28, 2009
(collectively, as the same may be further amended, modified, supplemented or
amended and restated from time to time, the “
Credit
Agreement
”).
1.
Definitions
. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
Credit Agreement.
2.
Registration of
Warrant
. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “
Warrant Register
”), in the
name of the record Holder hereof from time to time. The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
3.
Registration of
Transfers
. The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto as
Annex A
duly
completed and signed, to the transfer agent or to the Company at its address
specified herein. Upon any such registration or transfer, a new
warrant to purchase Common Stock, in substantially the form of this Warrant (any
such new warrant, a “
New
Warrant
”), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a holder of a Warrant.
4.
Exercise and Duration of
Warrants
.
(a)
This
Warrant shall be exercisable by the registered Holder (i) with respect to
[INSERT NUMBER OF SHARES FROM JUNE 5, 2008 WARRANT, IF APPLICABLE] shares, at
any time from the date hereof, and (ii) with respect to all other shares Holder
is entitled to purchase under this Warrant other than those specified in (i)
above, at any time from June 30, 2009 and through and including the Expiration
Date. At 6:30 p.m. New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value;
provided
that
, if on the Expiration Date, there is no effective Registration
Statement covering the resale of the Warrant Shares, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a “cashless exercise” basis at 6:30 p.m. New York City time on the Expiration
Date. The Company may not call or redeem any portion of this Warrant
without the prior written consent of the affected Holder.
5.
Delivery of Warrant
Shares
.
(a)
Other
than as may be required in connection with registration of a transfer of this
Warrant, the Holder shall not be required to physically surrender this Warrant
unless this Warrant is being exercised in full. To effect exercises
hereunder, the Holder shall duly execute and deliver to the Company at its
address for notice set forth herein (or to such other address as the Company may
designate by notice in writing to the Holder), an Exercise Notice in the form of
Annex B
hereto,
along with the Warrant Share Exercise Log in the form of
Annex C
hereto, and
shall pay the Exercise Price, if applicable, multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder. The Company
shall promptly (but in no event later than three Trading Days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder a certificate for the
Warrant Shares issuable upon such exercise. The Company shall, upon
request of the Holder, and subsequent to the date on which a Registration
Statement covering the resale of the Warrant Shares has been declared effective
by the SEC, use commercially reasonable efforts to deliver Warrant Shares
hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. A
“
Date of Exercise
” for
purposes of this Warrant, means the date on which the Holder shall have
delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log
attached to it), appropriately completed and duly signed and (ii) if such Holder
is not utilizing the cashless exercise provisions set forth in this Warrant,
payment of the Exercise Price for the number of Warrant Shares so indicated by
the Holder to be purchased. If by the
third
Trading Day after the Date of Exercise, the Company fails to deliver the
required number of Warrant Shares, the Holder will have the right to rescind the
exercise. If by the third Trading Day after a Date of Exercise, the
Company fails to deliver the required number of Warrant Shares, and if after
such third Trading Day and prior to the receipt of such Warrant Shares, the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of Warrant Shares which
the Holder anticipated receiving upon such exercise (a “
Buy In
”), then the Company
shall (i) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue by (B) the closing bid price of the
Common Stock on the exercise date and (ii) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number of
shares of Warrant Shares that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy In.
(b)
In the
event that a Holder surrenders this Warrant following one or more partial
exercises, the Company shall,
provided that
the applicable
number of Warrant Shares related to each such partial exercise has been
delivered pursuant to
Section 5(a)
, cancel
such surrendered Warrant and issue or cause to be issued to the Holder, at the
Company’s expense, a New Warrant evidencing the right to purchase the remaining
number of Warrant Shares.
(c)
The
Company’s obligations to issue and deliver Warrant Shares in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
6.
Charges, Taxes and
Expenses
. Issuance
and delivery of certificates for Warrant Shares upon exercise of this Warrant
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company;
provided, however
, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
or Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Replacement of
Warrant
. If
this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity (which shall not
include a surety bond), if requested. Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe. If a New Warrant is requested as a result
of a mutilation of this Warrant, then the Holder shall deliver such mutilated
Warrant to the Company as a condition precedent to the Company’s obligation to
issue the New Warrant.
8.
Reservation of Warrant
Shares
.
(a)
The
Company covenants that it will at all times reserve and keep available out of
the aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares that
are then issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (after giving effect to the adjustments and restrictions of
Section 9
, if
any). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and non-assessable. The Company will take all
such action as may be necessary to assure that such shares of Common Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed. The
Company will notify its transfer agent for the Common Stock of the reservation
of shares of Common Stock as required under this provision.
(b)
Insufficient Authorized
Shares
. If at any time after June 30, 2009, and prior to the
Expiration Date, the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant and Warrants of like tenor at least a
number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants of like tenor then outstanding (an
“
Authorized Share
Failure
”), then the Company shall promptly take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the required amount for the Warrants of like
tenor then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
commercially reasonable efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such
proposal.
9.
Certain
Adjustments
. The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section
9.
(a)
Stock Dividends and
Splits
. If at any time while this Warrant is outstanding, the
number of outstanding shares of Common Stock is increased by a stock dividend
payable in shares of Common Stock or by a split-up of shares of Common Stock or
other similar event, then, on the effective date thereof, the number of shares
issuable on exercise of each Warrant shall be increased in proportion to such
increase in outstanding shares and the then applicable Exercise Price shall be
correspondingly decreased, each in accordance with
Section
9(h)
.
(b)
Change in Option Price or
Conversion Rate
. If, at any time after the date hereof, (1)
the purchase price or exercise price provided for in any warrants or other
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable for
Common Stock that are outstanding as of the date hereof (such warrants, rights
or options being called “
Options
” and such convertible
or exchangeable stock or securities being called “
Convertible Securities
”)
issued by the Corporation is reduced, (2) the number of shares into which the
Option is exercisable is increased, (3) the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities is
increased (if such consideration is payable to the holder of the Convertible
Securities) or decreased (if such consideration is payable by the holder of the
Convertible Securities), or (4) the rate at which Convertible Securities are
convertible into or exchangeable for Common Stock is increased or the conversion
price is decreased (including, but not limited to, such increases or decreases,
as applicable, under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.
(c)
Aggregation of
Shares
. If at any time while this Warrant is outstanding, the
number of outstanding shares of Common Stock is decreased by a consolidation,
combination or reclassification of shares of Common Stock or other similar
event, then, upon the effective date of such consolidation, combination or
reclassification, the number of shares issuable on exercise of each Warrant
shall be decreased in proportion to such decrease in outstanding shares and the
then applicable Exercise Price shall be correspondingly increased.
(d)
Replacement of Securities
Upon Reorganization, etc
. If at any time while this Warrant is
outstanding (1) the Company effects any merger or consolidation of the Company
with or into another Person, (2) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (3)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (4) the Company
effects any capital reorganization or reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (each, a
“
Fundamental
Transaction
”), then, as a condition of such Fundamental Transaction,
lawful and
fair
provision shall be made whereby the Holder of the Warrant shall thereafter have
the right to purchase and receive, upon the basis and upon the terms and
conditions specified in the Warrants and in lieu of the shares of Common Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented thereby, such shares of stock, securities, or
assets as may be issued or payable with respect to or in exchange for the number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by the Warrants, had such Fundamental Transaction not
taken place and in such event appropriate provision shall be made with respect
to the rights and interests of the Holder of the Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of shares purchasable upon the exercise of
the Warrants) shall thereafter be applicable, as nearly as may be in relation to
any share of stock, securities, or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such Fundamental
Transaction unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such Fundamental Transaction, or the
corporation purchasing such assets in a Fundamental Transaction, shall assume by
written instrument executed and delivered to the Holders of the Warrants the
obligation to deliver to the Holders of the Warrant such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
Holders may be entitled to purchase. Notwithstanding the foregoing,
in the event of any Fundamental Transaction, other than a Fundamental
Transaction in which a successor entity of the Company that is a publicly traded
corporation whose stock is quoted or listed for trading on a Trading Market (as
defined in the Registration Rights Agreement, dated as of June 5, 2008, by and
among the Company and the investors signatory thereto, as amended by Amendment
No. 1 to the Registration Rights Agreement (collectively, as the same may be
further amended, modified, supplemented or amended and restated from time to
time, the “
Registration Rights
Agreement
”)) assumes this Warrant such that the Warrant shall thereafter
be exercisable for the publicly traded common stock of such successor entity,
then, at the written request of the Holder, if and only if such request is
delivered by notice in writing to the Company within 30 Business Days following
the effective date of the Fundamental Transaction, the Company (or the successor
entity) shall purchase this Warrant from the Holder by paying to the Holder,
within five Business Days after such request (or, if later, on the effective
date of the Fundamental Transaction), cash in an amount per Warrant Share equal
to the greater of (A) the Black Scholes value of the remaining unexercised
portion of this Warrant on the date of such request or (B) the Transaction Value
per share of Common Stock outstanding. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Section
9(d) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
“
Transaction Value
” shall mean
the value on the effective date of the Fundamental Transaction of the net
pre-tax proceeds received or receivable by common stockholders of the Company in
the Fundamental Transaction. Any proceeds not constituting cash shall
be valued at their fair market value (as determined in good faith by the
Company's Board of Directors after reasonable prior notice of the proposed
determination to the Holder, and an opportunity for the Holder to discuss the
proposed determination with the Company).
(e)
Number of Warrant
Shares
. Simultaneously with any adjustment to the Exercise
Price pursuant to this
Section 9
, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.
(f)
Calculations
. All
calculations under this
Section 9
shall be
made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock.
(g)
Notice of
Adjustments
. Upon the occurrence of each adjustment pursuant
to this
Section
9
, the Company at its expense will promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities, cash or property
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the
Company will promptly deliver a copy of each such certificate to the Holder and
to the Company’s transfer agent.
(h)
Notice of Corporate
Events
. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least ten Business Days prior to
the applicable record or effective date on which a Person would need to hold
Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
(i)
Rights Upon Distribution Of
Assets
. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to Holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “
Distribution
”), at any time
after the issuance of this Warrant, then, in each such case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive such Distribution and such record date shall be deemed to be the
date of such Distribution (the “
Record Date
”), then, in each
such case:
(A) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (I) the numerator shall be the closing bid
price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the fair market value of the Distribution (as determined
in good faith by the Company's Board of Directors) applicable to one share of
Common Stock, and (II) the denominator shall be the closing bid price of the
shares of Common Stock on the Trading Day immediately preceding such record
date; and
(B) the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (A);
provided that
in the event
that the Distribution is of shares of Common Stock (or common stock) (“
Other Shares of Common Stock
”)
of a company whose common shares are traded on a national securities exchange or
a national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (A) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (B).
(j)
Treasury
Shares
. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock for the purpose of this
Section
9
.
10.
Payment of Exercise
Price
. The
Holder shall pay the Exercise Price in immediately available funds;
provided
,
however
, the Holder, in its
sole discretion, may also satisfy its obligation to pay the Exercise Price
through one of the following means:
(a)
A
“cashless exercise,” in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
|
X =
the number of Warrant Shares to be issued to the
Holder.
|
|
Y =
the number of Warrant Shares with respect to which this Warrant is being
exercised.
|
|
A =
the average of the Closing Prices for the five Trading Days immediately
prior to (but not including) the Exercise
Date.
|
For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.
(b)
Reduction
in the amount of its Loan as evidenced by any Note or Additional Note in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares to
be issued to the Holder, up to the unpaid outstanding obligations under such
Note or Additional Note. To the extent that the Exercise Price
multiplied by the number of Warrant Shares to be issued to the Holder exceeds
the outstanding obligations under such Note or Additional Note, the holder may
pay such excess by any other means permitted hereunder. In the event
that the Holder chooses to exercise all or part of this Warrant pursuant to this
paragraph, the Holder shall deliver the Note or Additional Note, as the case may
be, to the Company and, the Company shall, upon such exercise, issue to or at
the direction of the Holder, a new Note or Additional Note, as the case may be,
that reflects such reduced principal amount (
provided
that, if such
reduced principal amount is zero, no such new Note or Additional Note shall be
issued).
11.
Fractional
Shares
. The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon
exercise of this Warrant, the number of Warrant Shares to be issued will be
rounded up to the nearest whole share.
12.
Notices
. Any
and all notices or other communications or deliveries hereunder (including
without limitation any Exercise Notice) shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in the Credit Agreement prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in the Credit Agreement on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices or communications
shall be as set forth in the Credit Agreement or at such other address as the
Holder shall notify the Company.
13.
Registration Rights
Agreement
. The
Warrant Shares for which this Warrant is exercisable are entitled to the
benefits and subject to the limitations of the Registration Rights Agreement,
which include registration rights for the Warrant Shares.
14.
Warrant
Agent
. The
Company shall serve as warrant agent under this Warrant. Upon 10
days’ notice to the Holder, the Company may appoint a new warrant
agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.
15.
Miscellaneous
.
(a)
Subject
to the restrictions on transfer set forth herein, this Warrant and the
registration rights set forth in the Registration Rights Agreement may be
assigned by the Holder in whole or in part. This Warrant may not be
assigned by the Company except to a successor in the event of a sale of all or
substantially all of the Company’s assets or a merger or acquisition of the
Company. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and
assigns. Subject to the preceding sentences, nothing in this Warrant
shall be construed to give to any Person other than the Company and the Holder
any legal or equitable right, remedy or cause of action under this
Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b)
The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be reasonably necessary or appropriate in order
to protect the rights of the Holder against impairment. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any Warrant Shares above the amount payable therefor on such
exercise, (ii) will take all such action as may be reasonably necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its stockholder books or records in any manner which interferes
with the timely exercise of this Warrant.
(c)
GOVERNING LAW; VENUE; WAIVER
OF JURY TRIAL
. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES
NOT TO
ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE
COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e)
In case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f)
Prior to
exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a stockholder with respect to the Warrant
Shares.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.
COMMUNICATION
INTELLIGENCE CORPORATION
ANNEX
A
FORM
OF ASSIGNMENT
[To be
completed and signed only upon transfer of Warrant]
FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase ____________ shares of Common Stock of Communication
Intelligence Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Communication
Intelligence Corporation with full power of substitution in the
premises.
Dated:
,
(Signature
must conform in all respects to name of holder
as specified on the face of
the Warrant)
Address of Transferee
In the
presence of:
ANNEX
B
FORM
OF EXERCISE NOTICE
[To be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant]
To: COMMUNICATION
INTELLIGENCE CORPORATION
The
undersigned is the Holder of Warrant No. _______ (the “
Warrant
”) issued by
Communication Intelligence Corporation, a Delaware corporation (the “
Company
”). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1.
|
The
Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.
|
2.
|
The
undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the
Warrant.
|
3.
|
The
Holder intends that payment of the Exercise Price shall be made as (check
one):
|
____ “Cash
Exercise” under
Section
10
____ “Cashless
Exercise” under
Section
10
____ Reduction
in Note or Additional Note under
Section
10(b)
4.
|
If
the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$____________ to the Company in accordance with the terms of the
Warrant.
|
|
If
the Holder has elected a reduction in a Note or Additional Note, Holder
shall deliver Note(s) or Additional Note(s) in the aggregate principal
amount of $________________ to the Company in accordance with the terms of
the Warrant. Please reduce the aggregate principal amount of
such Note(s) or Additional Note(s) in the amount of $____________ and
issue a new Note or Additional Note to Holder (or in accordance with
Holder’s instructions provided herewith) in the amount of the
difference. To the extent that the difference is zero, no such
Note or Additional Note shall be issued. To the extent that the
difference is a negative amount, Holder intends that the payment of such
amount shall be made as a (check one): ______ “Cash Exercise” under
Section 10
or a
____ “Cashless Exercise” under
Section
10(a)
. If Cash Exercise is checked, Holder shall pay the
sum of $_____________ to the Company in accordance with the terms of the
Warrant.
|
5.
|
Pursuant
to this exercise, the Company shall deliver to the Holder _______________
Warrant Shares in accordance with the terms of the
Warrant.
|
6.
|
Following
this exercise, the Warrant shall be exercisable to purchase a total of
______________ Warrant Shares.
|
Dated: ,
Name of Holder:
(Print)
By:
Name:
Title:
(Signature
must conform in all respects to name of holder as specified on the face of the
Warrant)
ANNEX
C
WARRANT
SHARES EXERCISE LOG
DATE
|
NUMBER
OF WARRANT SHARES AVAILABLE TO BE EXERCISED
|
NUMBER
OF WARRANT SHARES EXERCISED
|
NUMBER
OF WARRANT SHARES REMAINING TO BE EXERCISED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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EXHIBIT
4.27
NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT, OR (B) IF REASONABLY REQUESTED BY THE
COMPANY, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.
COMMUNICATION
INTELLIGENCE CORPORATION
[FORM
OF] ADDITIONAL COMMON STOCK PURCHASE WARRANT
Warrant
No.
_____________ Dated: ____________
Communication
Intelligence Corporation, a Delaware corporation (the “
Company
”), hereby certifies
that, for value received, _____________________, or its registered assigns (the
“
Holder
”), is entitled
to purchase from the Company up to a total of ________________ shares of common
stock, $0.01 par value per share (the “
Common Stock
”), of the Company
(each such share, a “
Warrant
Share
” and all such shares, the “
Warrant Shares
”) at an
exercise price equal to $0.06 (as adjusted from time to time as provided in
Section 9
, the
“
Exercise Price
”), at
any time from the date hereof and through and including June 30, 2012 (the
“
Expiration Date
”), and
subject to the following terms and conditions. This Warrant (this
“
Warrant
”) is one of a
series of similar warrants (collectively, the “
Warrants
”) issued pursuant to
that certain Credit Agreement, dated as of June 5, 2008, by and among the
Company, the Lenders party thereto and SG Phoenix LLC, as Collateral Agent, as
amended by Amendment No. 1 to the Credit Agreement, dated as of May 28, 2009
(collectively, as the same may be further amended, modified, supplemented or
amended and restated from time to time, the “
Credit
Agreement
”).
1.
Definitions
. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
Credit Agreement.
2.
Registration of
Warrant
. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “
Warrant Register
”), in the
name of the record Holder hereof from time to time. The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
3.
Registration of
Transfers
. The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto as
Annex A
duly
completed and signed, to the transfer agent or to the Company at its address
specified herein. Upon any such registration or transfer, a new
warrant to purchase Common Stock, in substantially the form of this Warrant (any
such new warrant, a “
New
Warrant
”), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this
Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a holder of a Warrant.
4.
Exercise and Duration of
Warrants
.
(a)
This
Warrant shall be exercisable by the registered Holder at any time from the date
hereof and through and including the Expiration Date. At 6:30 p.m.
New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value;
provided that
, if on the
Expiration Date, there is no effective Registration Statement covering the
resale of the Warrant Shares, then this Warrant shall be deemed to have been
exercised in full (to the extent not previously exercised) on a “cashless
exercise” basis at 6:30 p.m. New York City time on the Expiration
Date. The Company may not call or redeem any portion of this Warrant
without the prior written consent of the affected Holder.
5.
Delivery of Warrant
Shares
.
(a)
Other
than as may be required in connection with registration of a transfer of this
Warrant, the Holder shall not be required to physically surrender this Warrant
unless this Warrant is being exercised in full. To effect exercises
hereunder, the Holder shall duly execute and deliver to the Company at its
address for notice set forth herein (or to such other address as the Company may
designate by notice in writing to the Holder), an Exercise Notice in the form of
Annex B
hereto,
along with the Warrant Share Exercise Log in the form of
Annex C
hereto, and
shall pay the Exercise Price, if applicable, multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder. The Company
shall promptly (but in no event later than three Trading Days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder a certificate for the
Warrant Shares issuable upon such exercise. The Company shall, upon
request of the Holder, and subsequent to the date on which a Registration
Statement covering the resale of the Warrant Shares has been declared effective
by the SEC, use commercially reasonable efforts to deliver Warrant Shares
hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. A
“
Date of Exercise
” for
purposes of this Warrant, means the date on which the Holder shall have
delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log
attached to it), appropriately completed and duly signed and (ii) if such Holder
is not utilizing the cashless exercise provisions set forth in this Warrant,
payment of the Exercise Price for the number of Warrant Shares so indicated by
the Holder to be purchased. If by the third Trading Day after the
Date of Exercise, the Company fails to deliver the required number of Warrant
Shares, the Holder will have the right to rescind the exercise. If by
the third Trading Day after a Date of Exercise, the Company fails to deliver the
required number of Warrant Shares, and if after such third Trading Day and prior
to the receipt of such Warrant Shares, the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to
deliver
in satisfaction of a sale by the Holder of Warrant Shares which the Holder
anticipated receiving upon such exercise (a “
Buy In
”), then the Company
shall (i) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue by (B) the closing bid price of the
Common Stock on the exercise date and (ii) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number of
shares of Warrant Shares that would have been issued had the Company timely
complied with its exercise and delivery obligations hereunder. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy In.
(b)
In the
event that a Holder surrenders this Warrant following one or more partial
exercises, the Company shall,
provided that
the applicable
number of Warrant Shares related to each such partial exercise has been
delivered pursuant to
Section 5(a)
, cancel
such surrendered Warrant and issue or cause to be issued to the Holder, at the
Company’s expense, a New Warrant evidencing the right to purchase the remaining
number of Warrant Shares.
(c)
The
Company’s obligations to issue and deliver Warrant Shares in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
6.
Charges, Taxes and
Expenses
. Issuance
and delivery of certificates for Warrant Shares upon exercise of this Warrant
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company;
provided, however
, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
or Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Replacement of
Warrant
. If
this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity (which shall not
include a surety bond), if requested. Applicants for a
New
Warrant under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe. If a New Warrant is requested as a result
of a mutilation of this Warrant, then the Holder shall deliver such mutilated
Warrant to the Company as a condition precedent to the Company’s obligation to
issue the New Warrant.
8.
Reservation of Warrant
Shares
.
(a)
The
Company covenants that it will at all times reserve and keep available out of
the aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares that
are then issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (after giving effect to the adjustments and restrictions of
Section 9
, if
any). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and non-assessable. The Company will take all
such action as may be necessary to assure that such shares of Common Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed. The
Company will notify its transfer agent for the Common Stock of the reservation
of shares of Common Stock as required under this provision.
(b)
Insufficient Authorized
Shares
. If at any time after June 30, 2009, and prior to the
Expiration Date, the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant and Warrants of like tenor at least a
number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants of like tenor then outstanding (an
“
Authorized Share
Failure
”), then the Company shall promptly take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the required amount for the Warrants of like
tenor then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
commercially reasonable efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such
proposal.
9.
Certain
Adjustments
. The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section
9.
(a)
Stock Dividends and
Splits
. If at any time while this Warrant is outstanding, the
number of outstanding shares of Common Stock is increased by a stock dividend
payable in shares of Common Stock or by a split-up of shares of Common Stock or
other similar event, then, on the effective
date
thereof, the number of shares issuable on exercise of each Warrant shall be
increased in proportion to such increase in outstanding shares and the then
applicable Exercise Price shall be correspondingly decreased, each in accordance
with
Section
9(h)
.
(b)
Change in Option Price or
Conversion Rate
. If, at any time after the date hereof, (1)
the purchase price or exercise price provided for in any warrants or other
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable for
Common Stock that are outstanding as of the date hereof (such warrants, rights
or options being called “
Options
” and such convertible
or exchangeable stock or securities being called “
Convertible Securities
”)
issued by the Corporation is reduced, (2) the number of shares into which the
Option is exercisable is increased, (3) the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities is
increased (if such consideration is payable to the holder of the Convertible
Securities) or decreased (if such consideration is payable by the holder of the
Convertible Securities), or (4) the rate at which Convertible Securities are
convertible into or exchangeable for Common Stock is increased or the conversion
price is decreased (including, but not limited to, such increases or decreases,
as applicable, under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.
(c)
Aggregation of
Shares
. If at any time while this Warrant is outstanding, the
number of outstanding shares of Common Stock is decreased by a consolidation,
combination or reclassification of shares of Common Stock or other similar
event, then, upon the effective date of such consolidation, combination or
reclassification, the number of shares issuable on exercise of each Warrant
shall be decreased in proportion to such decrease in outstanding shares and the
then applicable Exercise Price shall be correspondingly increased.
(d)
Replacement of Securities
Upon Reorganization, etc
. If at any time while this Warrant is
outstanding (1) the Company effects any merger or consolidation of the Company
with or into another Person, (2) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (3)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (4) the Company
effects any capital reorganization or reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (each, a
“
Fundamental
Transaction
”), then, as a condition of such Fundamental Transaction,
lawful and fair provision shall be made whereby the Holder of the Warrant shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in the Warrants and in lieu of the shares of
Common Stock of the Company immediately theretofore purchasable and receivable
upon the
exercise of the rights represented thereby, such shares of stock, securities, or
assets as may be issued or payable with respect to or in exchange for the number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by the Warrants, had such Fundamental Transaction not
taken place and in such event appropriate provision shall be made with respect
to the rights and interests of the Holder of the Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of shares purchasable upon the exercise of
the Warrants) shall thereafter be applicable, as nearly as may be in relation to
any share of stock, securities, or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such Fundamental
Transaction unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such Fundamental Transaction, or the
corporation purchasing such assets in a Fundamental Transaction, shall assume by
written instrument executed and delivered to the Holders of the Warrants the
obligation to deliver to the Holders of the Warrant such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
Holders may be entitled to purchase. Notwithstanding the foregoing,
in the event of any Fundamental Transaction, other than a Fundamental
Transaction in which a successor entity of the Company that is a publicly traded
corporation whose stock is quoted or listed for trading on a Trading Market (as
defined in the Registration Rights Agreement, dated as of June 5, 2008, by and
among the Company and the investors signatory thereto, as amended by Amendment
No. 1 to the Registration Rights Agreement (collectively, as the same may be
further amended, modified, supplemented or amended and restated from time to
time, the “
Registration Rights
Agreement
”)) assumes this Warrant such that the Warrant shall thereafter
be exercisable for the publicly traded common stock of such successor entity,
then, at the written request of the Holder, if and only if such request is
delivered by notice in writing to the Company within 30 Business Days following
the effective date of the Fundamental Transaction, the Company (or the successor
entity) shall purchase this Warrant from the Holder by paying to the Holder,
within five Business Days after such request (or, if later, on the effective
date of the Fundamental Transaction), cash in an amount per Warrant Share equal
to the greater of (A) the Black Scholes value of the remaining unexercised
portion of this Warrant on the date of such request or (B) the Transaction Value
per share of Common Stock outstanding. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Section
9(d) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
“
Transaction Value
” shall mean
the value on the effective date of the Fundamental Transaction of the net
pre-tax proceeds received or receivable by common stockholders of the Company in
the Fundamental Transaction. Any proceeds not constituting cash shall
be valued at their fair market value (as determined in good faith by the
Company's Board of Directors after reasonable prior notice of the proposed
determination to the Holder, and an opportunity for the Holder to discuss the
proposed determination with the Company).
(e)
Number of Warrant
Shares
. Simultaneously with any adjustment to the Exercise
Price pursuant to this
Section 9
, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.
(f)
Calculations
. All
calculations under this
Section 9
shall be
made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock.
(g)
Notice of
Adjustments
. Upon the occurrence of each adjustment pursuant
to this
Section
9
, the Company at its expense will promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities, cash or property
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the
Company will promptly deliver a copy of each such certificate to the Holder and
to the Company’s transfer agent.
(h)
Notice of Corporate
Events
. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least ten Business Days prior to
the applicable record or effective date on which a Person would need to hold
Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
(i)
Rights Upon Distribution Of
Assets
. If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to Holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “
Distribution
”), at any time
after the issuance of this Warrant, then, in each such case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive such Distribution and such record date shall be deemed to be the
date of such Distribution (the “
Record Date
”), then, in each
such case:
(A) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (I) the numerator shall be the closing bid
price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the fair market value of the Distribution (as determined
in good faith by the Company's Board of Directors) applicable to one share of
Common Stock, and (II) the denominator shall be the closing bid price of the
shares of Common Stock on the Trading Day immediately preceding such record
date; and
(B) the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (A);
provided that
in the event
that the Distribution is of shares of Common Stock (or common stock) (“
Other Shares of Common Stock
”)
of a company whose common shares are traded on a national securities exchange or
a national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (A) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (B).
(j)
Treasury
Shares
. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock for the purpose of this
Section
9
.
10.
Payment of Exercise
Price
. The
Holder shall pay the Exercise Price in immediately available funds;
provided
,
however
, the Holder, in its
sole discretion, may also satisfy its obligation to pay the Exercise Price
through one of the following means:
(a)
A
“cashless exercise,” in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
|
X =
the number of Warrant Shares to be issued to the
Holder.
|
|
Y =
the number of Warrant Shares with respect to which this Warrant is being
exercised.
|
|
A =
the average of the Closing Prices for the five Trading Days immediately
prior to (but not including) the Exercise
Date.
|
For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.
(b)
Reduction
in the amount of its Loan as evidenced by any Note or Additional Note in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares to
be issued to the Holder, up to the unpaid outstanding obligations under such
Note or Additional Note. To the extent that the Exercise Price
multiplied by the number of Warrant Shares to be issued to the Holder exceeds
the outstanding obligations under such Note or Additional Note, the holder may
pay such excess by any other means permitted hereunder. In the event
that the Holder chooses to exercise all or part of this Warrant pursuant to this
paragraph, the Holder shall deliver the Note or Additional Note, as the case may
be, to the Company and, the Company shall, upon such exercise, issue to or at
the direction of the Holder, a new Note or Additional Note, as the case may be,
that reflects such reduced principal amount (
provided
that, if such
reduced principal amount is zero, no such new Note or Additional Note shall be
issued).
11.
Fractional
Shares
. The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon
exercise of this Warrant, the number of Warrant Shares to be issued will be
rounded up to the nearest whole share.
12.
Notices
. Any
and all notices or other communications or deliveries hereunder (including
without limitation any Exercise Notice) shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in the Credit Agreement prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in the Credit Agreement on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices or communications
shall be as set forth in the Credit Agreement or at such other address as the
Holder shall notify the Company.
13.
Registration Rights
Agreement
. The
Warrant Shares for which this Warrant is exercisable are entitled to the
benefits and subject to the limitations of the Registration Rights Agreement,
which include registration rights for the Warrant Shares.
14.
Warrant
Agent
. The
Company shall serve as warrant agent under this Warrant. Upon 10
days’ notice to the Holder, the Company may appoint a new warrant
agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor
warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Warrant Register.
15.
Miscellaneous
.
(a)
Subject
to the restrictions on transfer set forth herein, this Warrant and the
registration rights set forth in the Registration Rights Agreement may be
assigned by the Holder in whole or in part. This Warrant may not be
assigned by the Company except to a successor in the event of a sale of all or
substantially all of the Company’s assets or a merger or acquisition of the
Company. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and
assigns. Subject to the preceding sentences, nothing in this Warrant
shall be construed to give to any Person other than the Company and the Holder
any legal or equitable right, remedy or cause of action under this
Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b)
The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be reasonably necessary or appropriate in order
to protect the rights of the Holder against impairment. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any Warrant Shares above the amount payable therefor on such
exercise, (ii) will take all such action as may be reasonably necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its stockholder books or records in any manner which interferes
with the timely exercise of this Warrant.
(c)
GOVERNING LAW; VENUE; WAIVER
OF JURY TRIAL
. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT
FOR
NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS
TO A TRIAL BY JURY.
(d)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e)
In case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f)
Prior to
exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a stockholder with respect to the Warrant
Shares.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.
COMMUNICATION
INTELLIGENCE CORPORATION
ANNEX
A
FORM
OF ASSIGNMENT
[To be
completed and signed only upon transfer of Warrant]
FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase ____________ shares of Common Stock of Communication
Intelligence Corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Communication
Intelligence Corporation with full power of substitution in the
premises.
Dated:
,
(Signature
must conform in all respects to name of holder
as specified on the face
of the Warrant)
Address
of Transferee
In the
presence of:
ANNEX
B
FORM
OF EXERCISE NOTICE
[To be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant]
To: COMMUNICATION
INTELLIGENCE CORPORATION
The
undersigned is the Holder of Warrant No. _______ (the “
Warrant
”) issued by
Communication Intelligence Corporation, a Delaware corporation (the “
Company
”). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1.
|
The
Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.
|
2.
|
The
undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the
Warrant.
|
3.
|
The
Holder intends that payment of the Exercise Price shall be made as (check
one):
|
____ “Cash
Exercise” under
Section
10
____ “Cashless
Exercise” under
Section
10
____ Reduction
in Note or Additional Note under
Section
10(b)
4.
|
If
the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$____________ to the Company in accordance with the terms of the
Warrant.
|
|
If
the Holder has elected a reduction in a Note or Additional Note, Holder
shall deliver Note(s) or Additional Note(s) in the aggregate principal
amount of $________________ to the Company in accordance with the terms of
the Warrant. Please reduce the aggregate principal amount of
such Note(s) or Additional Note(s) in the amount of $____________ and
issue a new Note or Additional Note to Holder (or in accordance with
Holder’s instructions provided herewith) in the amount of the
difference. To the extent that the difference is zero, no such
Note or Additional Note shall be issued. To the extent that the
difference is a negative amount, Holder intends that the payment of such
amount shall be made as a (check one): ______ “Cash Exercise” under
Section 10
or a
____ “Cashless Exercise” under
Section
10(a)
. If Cash Exercise is checked, Holder shall pay the
sum of $_____________ to the Company in accordance with the terms of the
Warrant.
|
5.
|
Pursuant
to this exercise, the Company shall deliver to the Holder _______________
Warrant Shares in accordance with the terms of the
Warrant.
|
6.
|
Following
this exercise, the Warrant shall be exercisable to purchase a total of
______________ Warrant Shares.
|
Dated:
,
Name of Holder:
(Print)
By:
Name:
Title:
(Signature
must conform in all respects to name of
holder as
specified on the face of the Warrant)
ANNEX
C
WARRANT
SHARES EXERCISE LOG
DATE
|
NUMBER
OF WARRANT SHARES AVAILABLE TO BE EXERCISED
|
NUMBER
OF WARRANT SHARES EXERCISED
|
NUMBER
OF WARRANT SHARES REMAINING TO BE EXERCISED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT 10.46
EXECUTION
VERSION
AMENDMENT
NO. 1
TO
CREDIT AGREEMENT
dated as
of May 28, 2009
by and
among
COMMUNICATION INTELLIGENCE
CORPORATION
,
as
Borrower,
LENDERS AND ADDITIONAL LENDERS
PARTIES HERETO
,
and
SG
PHOENIX LLC,
as
Collateral Agent
This
AMENDMENT NO. 1 TO
CREDIT AGREEMENT
in entered
into as of May 28, 2009 (this “
Amendment Agreement
”) by and
among COMMUNICATION INTELLIGENCE CORPORATION, a Delaware corporation having an
address at 275 Shoreline Drive, Suite 500, Redwood Shores, California 94065
(together with its successors, the “
Borrower
”), PHOENIX VENTURE
FUND LLC, a Delaware limited liability company having an address at 110 East
59th Street, Suite 1901, New York, New York 10022 (“
Phoenix
”), MICHAEL ENGMANN, an
individual having an address at 38 San Fernando Way, San Francisco, California
94127 (“
Engmann
”), those
additional lenders listed on the signature pages hereto(such additional lenders,
collectively, the “
Additional
Lenders
”, and each such additional lender, individually, an “
Additional Lender
”; the
Additional Lenders and the Existing Lenders are herein collectively referred to
as the “
Lenders
”), and
SG PHOENIX LLC, as collateral agent (the “
Collateral
Agent
”).
R E C I T A L
S
:
WHEREAS
, the Borrower,
Phoenix, Engmann and Ronald Goodman, an individual having an address at 31
Tierra Verde Court, Walnut Creek, California 94598 (“
Goodman
”, and Phoenix, Engmann
and Goodman, collectively, the “
Existing Lenders
”), and the
Collateral Agent are parties to, among other documents, (a) the Credit Agreement
(the “
Original Credit
Agreement
”), dated as of June 5, 2008 (the “
Closing Date
”), pursuant to
which the Existing Lenders extended loans to the Borrower in the aggregate
principal amount of $3,637,500, and (b) the Pledge and Security Agreement, dated
as of June 5, 2008 (the “
Pledge
and Security Agreement
”), pursuant to which the Borrower secured all of
its Obligations under the Loan Documents by granting to the Collateral Agent,
for the benefit of the Existing Lenders, a first-priority Security Interest in
and Lien upon the Collateral, including the Pledged Stock (as defined in the
Pledge and Security Agreement);
WHEREAS
, the Borrower,
Phoenix, Engmann and the Collateral Agent desire to amend the Original Credit
Agreement to, among other things, allow for additional loans in the aggregate
principal amount of $1,100,000 to be extended to the Borrower by Phoenix,
Engmann and the Additional Lenders listed on the signature pages
hereto;
WHEREAS
,
Section 8.8
of the
Original Credit Agreement provides that amendments to the Loan Documents,
including the Original Credit Agreement, may only become effective with the
written concurrence of the Majority Lenders, and, that, upon execution by the
Majority Lenders and the Borrower of such amendments, such amendments shall be
binding on the Borrower and all Lenders;
WHEREAS
, Phoenix and Engmann
constitute the “Majority Lenders” under the Original Credit Agreement by holding
Obligations that exceed 50% of the Obligations outstanding under the Original
Credit Agreement; and
WHEREAS
, the Additional
Lenders desire to become parties to the Original Credit Agreement, as amended by
this Amendment Agreement.
NOW, THEREFORE
, in
consideration of the premises and the agreements, provisions and covenants
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree, as
follows:
SECTION
1.
DEFINITIONS IN THIS AMENDMENT AGREEMENT
Except as
otherwise defined in this Amendment Agreement (including the preamble and the
recitals hereof), capitalized terms are used herein with the meanings ascribed
to such terms in the Original Credit Agreement.
SECTION
2. CONSENT
OF MAJORITY LENDERS TO AMENDMENTS TO ORIGINAL CREDIT AGREEMENT
Phoenix
and Engmann, as the Majority Lenders, hereby consent to the amendments to the
Original Credit Agreement contained in this Amendment Agreement, such consent to
be evidenced by the execution of this Amendment Agreement by Phoenix and
Engmann.
SECTION
3. AMENDMENTS
TO ORIGINAL CREDIT AGREEMENT
3.1.
Amendments to, and Addition
of, Certain Definitions in Original Credit Agreement
.
(a)
Amendment to Definition of
“Lenders” in Original Credit Agreement
. The definition of
“
Lenders
” in the
Original Credit Agreement shall be deemed to include the Additional
Lenders.
(b)
Amendment to Definition of
“Maturity Date” in Original Credit Agreement
. The definition
of “
Maturity Date
” in
Section 10.1
of
the Original Credit Agreement is hereby amended to be “December 31,
2010”.
(c)
Amendment to Definition of
“Warrant” in Original Credit Agreement
. The definition of
“Warrant” in
Section
10.1
of the Original Credit Agreement is hereby amended and restated in
its entirety to read as follows:
““
Warrants
” means the Initial
Warrants, the Additional Warrants and the Agent Warrants.”
(d)
Addition of Certain
Definitions to Original Credit Agreement
. The following
definitions are hereby added to
Section 10.1
of the
Original Credit Agreement:
““
Additional Closing Date
” means
the date of Amendment No. 1.”
““
Agent Warrants
” means warrants
issued to the Collateral Agent pursuant to
Section 5.2
of
Amendment No. 1, in substantially the form of
Exhibit 1.9
hereto.”
““
Amendment No. 1
” means that
certain Amendment No. 1 to the Credit Agreement, dated as of May 28, 2009, among
the Borrower, the Majority Lenders and the Collateral Agent, as acknowledged and
agreed to by the additional lenders listed on the signatures pages
thereto.”
3.2.
Amendments to Section 1.1 of
Original Credit Agreement
.
(a)
Amendments to Section 1.1(a)
of, Schedule 1.1(a) to, and Exhibit 1.1(a) to Original Credit Agreement
.
Section 1.1(a)
of the Original Credit Agreement is hereby amended and restated in its entirety
to read as follows:
“(a)
Loans to
Borrower
. The Lenders agree to lend to the Borrower, on the
Closing Date, an aggregate of Three Million Six Hundred Thirty-Seven Thousand
Five Hundred Dollars ($3,637,500), each Lender to lend the amount set forth on
Schedule 1.1(a)
opposite its name with respect to the Closing Date;
provided
that all conditions
precedent set forth in
Section 7
are
satisfied or waived. The Lenders agree to lend to the Borrower, on the
Additional Closing Date, an aggregate of One Million One Hundred Thousand
Dollars ($1,100,000), each Lender to lend the amount set forth on
Schedule 1.1(a)
opposite its name with respect to the Additional Closing Date (such loans made
on the Additional Closing Date, together with the loans made on the Closing
Date, collectively, the “
Loans
”, and, each
individually, a “
Loan
”);
provided
that all
conditions precedent set forth in
Section 5
of
Amendment No. 1 are satisfied or waived. Amounts borrowed under this
Section 1.1(a)
that
are repaid or prepaid may not be reborrowed. The Borrower shall execute and
deliver to each Lender a Note in the amount of each of such Lender's Loans in
the form attached to this Agreement as
Exhibit 1.1(a)
(together with any Notes issued pursuant to
Section 1.2(b)
),
dated as of the Closing Date or the Additional Closing Date, as the case may
be.”
Schedule 1.1(a)
and
Exhibit 1.1(a)
referenced in
Section
1.1(a)
of the Original Credit Agreement and attached to the Original
Credit Agreement are hereby replaced by
Schedule 1.1(a)
and
Exhibit 1.1(a)
,
respectively, attached hereto.
(b)
Amendment to Section
1.1(b)(i) of Original Credit Agreement
.
Section 1.1(b)(i)
of
the Original Credit Agreement is hereby amended and restated in its entirety to
read as follows:
“(i) with
respect to the Loans made by Phoenix on the Closing Date and the Loans made on
the Additional Closing Date, by wire transfer of immediately available funds to
such account or accounts as may be authorized by the Borrower, less the
aggregate amount of all fees and expenses due to the Lenders
hereunder”.
3.3.
Amendments to Section 1.2 of
Original Credit Agreement
.
(a)
Amendment to Section 1.2(a)
of Original Credit Agreement
.
Section 1.2(a)
of the
Original Credit Agreement is hereby amended and restated in its entirety to read
as follows:
“(a)
Interest
. (i)
Commencing as of the Closing Date, the Loans made on such date shall accrue
interest on a monthly basis at a rate equal to eight percent (8%) per annum
until the Maturity Date. (ii) Commencing on the Additional Closing Date, the
Loans made on such date shall accrue interest on a monthly basis at a rate equal
to eight percent (8%) per annum until the Maturity Date.”
(b)
Amendments to Section 1.2(b)
of and Exhibits 1.2(b)-1 and 1.2(b)-2 to Original Credit Agreement
.
Section 1.2(b)
of the
Original Credit Agreement is hereby amended by the replacement of the reference
to “0.14” in such Section with the reference to “0.06”. Such Section is further
amended by the amendment and restatement of the last sentence of such Section,
such last sentence to read in its entirety as follows:
“Notwithstanding
the foregoing, the Borrower shall not have an option to pay interest in kind in
the event that (i) an Event of Default has occurred and is continuing, or (ii)
the Borrower does not have sufficient authorized, unissued and unreserved Common
Stock to fully reserve shares of Common Stock for issuance upon exercise of the
Additional Warrants, or is otherwise unable to comply with the terms of the
Additional Warrants.”
Exhibit 1.2(b)-1
and
Exhibit
1.2(b)-2
referenced in
Section 1.2(b)
of the
Original Credit Agreement and attached to the Original Credit Agreement are
hereby replaced by
Exhibit 1.2(b)-1
and
Exhibit
1.2(b)-2
, respectively, attached hereto.
(c)
Amendment to Section 1.2(c)
of Original Credit Agreement
.
Section 1.2(c)
of the
Original Credit Agreement is hereby amended and restated in its entirety to read
as follows:
“(c)
Default Rate of
Interest
. Upon the occurrence of an Event of Default and for
so long as it continues, all Loans and other Obligations shall bear interest at
a rate equal to thirteen percent (13%) per annum.”
3.4
Amendment to Section 1.3 of
Original Credit Agreement
.
Section 1.3
of the
Original Credit Agreement is hereby amended and restated in its entirety to read
as follows:
“1.3
Use of
Proceeds
. The Borrower agrees that (a) the proceeds of the
Loans made on the Closing Date shall be used only in accordance with the
following: (1) to refinance the loans due and payable on May 15, 2008 to certain
of the Lenders as set forth on
Schedule 1.3
hereto
pursuant to the Debt Refinancing, (2) for working capital and general corporate
purposes, in each case in the ordinary course of business, and (3) to pay fees
and expenses in connection with the Debt Refinancing, including the fees and
expenses hereunder, and (b) the proceeds of the Loans made on the Additional
Closing Date shall be used only (1) for working capital and general corporate
purposes, in each case in the ordinary course
of
business, and (2) to pay fees and expenses relating to or in connection with
Amendment No. 1. In no event shall the proceeds of the Loans be used to (i) make
distributions or (ii) make a contribution to the capital of any Subsidiary of
the Borrower.”
3.5.
Amendment to Section 1.4(a)
of Original Credit Agreement
.
Section 1.4(a)
of the
Original Credit Agreement is hereby amended by the removal of the word “and”
before clause (vi) of such Section and the addition of clause (vii) at the end
of clause (vi), such clause (vii) to read as follows:
“(vii)
any registration or filing (or the like) with, or report or notice (or the like)
to, any Governmental Authority, including, without limitation, the SEC, by any
of the Lenders or their Affiliates relating to or in connection with the
transactions contemplated by Amendment No. 1 or the Loan
Documents”.
3.6.
Amendment to Section 1.5(a)
of Original Credit Agreement
.
Section 1.5(a)
of the
Original Credit Agreement is hereby amended by the addition of account
information for the Additional Lenders, after the account information for
Goodman, as follows:
“If to Kendu Partners
Company:
Bank of
the West
180
Montgomery St., 3
rd
Floor
San
Francisco, CA 94104
Attn:
Daniel Tondeau
ABA #
121-100-782
for account #756-00-7043 for the
account of Kendu Partners Company
If to
MDNH Partners L.P.:
Bank of
the West
180
Montgomery St., 3
rd
Floor
San
Francisco, CA 94104
Attn:
Daniel Tondeau
ABA #
121-100-782
for
account #756-00-5971 for the account of MDNH Partners L.P.”.
3.7
Amendment to Section 1.6 of
Original Credit Agreement
.
Section 1.6
of the
Original Credit Agreement is hereby amended by the removal of
Section 1.6(h)
from
Section
1.6
.
3.8
Amendments to Section 1.9 of
and Exhibit 1.9 to Original Credit Agreement
.
Section 1.9
of the
Original Credit Agreement is hereby amended by the replacement of the reference
to “0.14” in such Section with the reference to “0.06”.
Exhibit 1.9
referenced in such Section and
attached
to the Original Credit Agreement is hereby replaced by
Exhibit 1.9
attached
hereto.
3.9
Amendments to Section 2 of
Original Credit Agreement
.
Section 2
of the
Original Credit Agreement is hereby amended by the addition of
Section 2.9
,
Section 2.10
,
Section 2.11
and
Section 2.12
at
the end of such
Section 2
, such added
Section 2.9
,
Section 2.10
,
Section 2.11
and
Section
2.12
to read in their entirety as follows:
“2.9
Salary Reduction
Plans
. The Borrower shall, commencing with the first pay
period subsequent to the Additional Closing Date, implement salary reduction
plans for its executive officers and employees as proposed by the Borrower and
agreed to by the Borrower and the Collateral Agent, which plans shall result in
at least a
13%
aggregate reduction in the salaries of the Borrower’s executive officers and
employees. Both salary reduction plans shall remain in effect until the Borrower
has, for two (2) consecutive fiscal quarters, positive cash flows from operating
activities, as determined by the Borrower’s consolidated statements of cash
flows filed with the SEC in connection with the Borrower’s quarterly or annual
reports, as the case may be. The Borrower may grant, to each of its executive
officers or employees subject to the salary reduction plans, options to purchase
Common Stock of the Borrower with an aggregate value equivalent to the amount of
the salary reduction for such executive officer or employee;
provided
that such options
shall have an exercise price equal to the closing market price of the Common
Stock of the Borrower on the date of grant and shall be exercisable for not
longer than three (3) years from the date of such grant.”
“2.10
Registration of Common Stock
Issued Upon Exercise of Warrants
. The Borrower shall,
promptly, but, in any event, not later than thirty (30) days after demand for
registration by the holders of the majority of the Registrable Securities (as
defined in the Registration Rights Agreement), file a registration statement
with the SEC on Form S-1 (or such other form the Borrower is qualified to file)
and register such Common Stock in accordance with the terms of
Section 2(c)
of the
Registration Rights Agreement. The Borrower shall use its reasonable best
efforts to cause such registration statement to be declared effective under the
Securities Act of 1933, as amended, as soon as possible but, in any event, not
later than its Effectiveness Date (as defined in the Registration Rights
Agreement).”
“2.11
Board Meetings; Observation
Rights
. The Borrower shall hold, in person or by telephone
conference, regular or special meetings of its Board of Directors at least once
per each fiscal quarter. Phoenix shall be permitted to designate two (2)
representatives of its choice to attend all such meetings of the Board of
Directors or any committees thereof in a nonvoting observer capacity. The
Borrower shall give each Phoenix representative notice of such meetings and
copies of all minutes, consents and other materials (financial or otherwise)
provided in connection therewith, concurrently with those provided at any time
to its Board of Directors or any committees thereof, and in the same manner;
provided
, however, that
the Borrower may exclude any Phoenix representatives from access to any material
or meeting, or a portion thereof, if the Borrower
believes,
upon advice of counsel, that such exclusion is reasonably necessary to preserve
the attorney-client privilege. The Borrower shall promptly reimburse Phoenix’s
representatives for all reasonable costs and expenses, including travel
expenses, incurred in connection with attendance and observation of such
meetings. All such information provided under this Section shall be considered
confidential and provided to such Phoenix representatives pursuant to the
Bi-Lateral Non-disclosure Agreement, dated as of April 1, 2009, between the
Borrower and Phoenix.”
“2.12
Additional Authorized Common
Stock
. The Borrower shall, by not later than May 29, 2009,
take all necessary steps required in connection with the holding of its annual
meeting of shareholders, including (a) the filing with the SEC of the Borrower’s
definitive proxy statement with a proposal to increase its authorized Common
Stock by a number of shares as shall be sufficient to fully reserve shares of
Common Stock for issuance upon exercise of any Warrants (including any
Additional Warrants that may be issued in the event of the Borrower’s election
to make payments in kind in accordance with the terms of this Agreement), and
(b) the mailing of all applicable proxy materials to the Borrower’s
shareholders. The Borrower shall, by not later than June 30, 2009, obtain
shareholder approval of such increase in its authorized Common Stock, and,
within one (1) Business Day of such approval, take all requisite actions
(including the filing of an amendment to its certificate of incorporation and/or
other organizational documents, if applicable, with the Secretary of State of
the State of Delaware) to effect such increase in its authorized Common
Stock.”
3.10
Amendment to Section 6.1(c)
of Original Credit Agreement
.
Section 6.1(c)
of the
Original Credit Agreement is hereby amended by the addition of the references to
“
Section 2.9
”,
“
Section 2.10
”,
“
Section 2.11
”
and “
Section
2.12
” after the reference to “
Section 2.6
” and
before the reference to “
Section 3
” in
Section 6.1(c)
of the
Original Credit Agreement.
3.11
Amendment to Section 6.3 of
Original Credit Agreement
.
Section 6.3
of the
Original Credit Agreement is hereby amended and restated in its entirety to read
as follows:
“6.3
Rights of Collection
.
Without limiting the other rights and remedies of the Lenders or the Collateral
Agent set forth in
Section 6
and
notwithstanding anything to the contrary contained in any other Loan Document,
upon the occurrence and during the continuation of any Event of Default, unless
and until such Event of Default is cured or waived by the Majority Lenders, the
Collateral Agent may (i) exercise all of its rights and remedies under this
Agreement, the other Loan Documents and Applicable Law and (ii) at any time and
from time to time, take all other actions, including, but not limited to,
collection, realization and foreclosure on any or all of the
Collateral.”
3.12
Amendment to Section 8.8(a)
of Original Credit Agreement
.
Section 8.8(a)
of the
Original Credit Agreement is hereby amended by the addition of the following
proviso at the end of such Section:
“;
provided
, however, that
Section 2.11
may not
be amended, modified or waived without the written concurrence of the Majority
Lenders and the prior written consent of Phoenix.”
3.13
Amendments to Section 9.2 of
Original Credit Agreement
.
Section 9.2
of the
Original Credit Agreement is hereby amended by the addition, after the notice
information for Goodman, of notice information for the Additional Lenders as
follows:
“If to Kendu Partners or MDNH Partners,
L.P.:
c/o Engmann Options
220 Bush St., Suite 950
San Francisco, California
94104
Facsimile: (415)
781-4641”.
Section 9.2
of the
Original Credit Agreement is further amended by the replacement of the address
for copies of notices sent to the Collateral Agent with the
following:
“Pillsbury
Winthrop Shaw Pittman LLP
1540
Broadway
New
York, New York 10036
Attn:
Jonathan J. Russo, Esq.
Facsimile:
(212) 858-1500”.
SECTION
4. REPRESENTATIONS
AND WARRANTIES
The
Borrower represents and warrants to the Lenders and the Collateral Agent that,
except as set forth on the Bring-Down Disclosure Schedule attached hereto as
Annex A
(the
“
Bring-Down Disclosure
Schedule
”), all representations and warranties contained in the Original
Credit Agreement and in the Pledge and Security Agreement are true and correct
in all respects at and as of the date hereof as if made on the date hereof;
provided
, however,
that, for the purpose of the representations and warranties made by the Borrower
under this
Section
4
, the references in the Original Credit Agreement to the schedules in
the Disclosure Schedule attached to the Original Credit Agreement shall be
deemed to be the references to the schedules in the Bring-Down Disclosure
Schedule. The Borrower further represents and warrants to the Lenders and the
Collateral Agent that (a) no Default has occurred, or will occur, before and
after giving effect to the transactions contemplated by this Amendment
Agreement, (b) the Borrower and its Subsidiaries do not have outstanding, as of
the date hereof, and will not have after giving effect to the Loans made on the
date hereof, any Indebtedness for borrowed money or Contingent Obligations
except as set forth in
Schedule 4(b)
hereto,
(c) the Grantors (under and as defined in the Pledge and Security Agreement) did
not have on the Closing Date, and do not have on the date hereof, (i) any
property in which the grant of the security interest contemplated by
Section 2
of the
Pledge and Security Agreement is prohibited by any Requirements of Law (as
defined in the Pledge and Security Agreement) of a Governmental Authority
or
requires a consent not obtained of any Governmental Authority pursuant to such
Requirement of Law or (ii) any property that is evidenced or constituted by any
contract, license, agreement, instrument or other document prohibiting the grant
of the security interest contemplated by
Section 2
of the
Pledge and Security Agreement or providing that such grant constitutes a breach
or default under, or results in the termination of or requires any consent not
obtained under, such contract, license, agreement, instrument or other document
(or, in the case of any Investment Property, Pledged Stock or Pledged Note, any
applicable shareholder or similar agreement prohibiting the grant of such
security interest or providing that such grant constitutes a breach or default
under, or results in the termination of or requires any consent not obtained
under, such shareholder or similar agreement), except to the extent that such
Requirement of Law or the term in such contract, license, agreement, instrument
or other document (or, with respect to any Investment Property, Pledged Stock or
Pledged Note, such shareholder or similar agreement) providing for such
prohibition, breach, default or termination or requiring such consent is
ineffective under Applicable Law, and except as set forth in
Schedule 4(c)
hereto
and (d) the Borrower maintains the same insurance coverage with the same
carriers as Borrower had on the Closing Date. Based solely on the
representations made to Phoenix, the Collateral Agent, on behalf of Phoenix,
represents to the Borrower that the holders of the Additional Warrants issued on
the Additional Closing Date are “accredited investors” as such term is defined
in the Securities Act of 1933, as amended.
SECTION
5. CONDITIONS
PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT AGREEMENT AND MAKING OF LOANS ON
DATE OF THIS AMENDMENT AGREEMENT
The
effectiveness of this Amendment Agreement and the obligations of the Lenders to
make the Loans on the date of this Amendment Agreement are subject to
satisfaction, in sole determination by the Collateral Agent, of all of the
conditions set forth below.
5.1
Cancellation of Notes and
Initial Warrants Issued on Closing Date; Issuance of Replacement Notes and
Initial Warrants
. The Notes and the Initial Warrants
issued to the Lenders on the Closing Date shall have been cancelled, and Notes
in the form of
Exhibit
1.1(a)
hereto and Initial Warrants in the form of
Exhibit 1.9
hereto,
in each case with respect to the Loans made on the Closing Date and the date
hereof, shall have been issued to the Lenders.
5.2
Issuance of Agent
Warrants
. The Agent Warrants for 3,947,917 shares of Common
Stock of the Borrower shall have been issued to the Collateral Agent, in
substantially the form of
Exhibit 1.9
hereto.
5.3
Amendment to Registration
Rights Agreement
. The Registration Rights Agreement, dated as of June 5,
2008, shall have been amended to provide for registration of the Borrower’s
Common Stock issuable upon exercise of the Warrants upon demand for registration
by the holders of the majority of such Common Stock, such amendment to be in
form and substance satisfactory to the Collateral Agent (the “
Registration Rights Agreement
Amendment
”).
5.4
Executed Documents
.
The replacement Notes and the Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, this Amendment Agreement, the Registration Rights Agreement
Amendment, and all other documents and instruments contemplated hereby and
thereby shall have been duly authorized and executed by each of the parties
thereto in form and substance satisfactory to the Collateral Agent, and the
Borrower shall have delivered sufficient original counterparts thereof to the
Collateral Agent.
5.5
Lien
Priority.
The Security Interests in favor of the Collateral
Agent and the Lenders pursuant to the Loan Documents shall be valid and
perfected first priority Liens on the Collateral, subject to no Liens other than
Permitted Encumbrances.
5.6
No
Litigation.
No action, suit, proceeding, claim or
dispute shall have been brought or otherwise have arisen at law, in equity, in
arbitration or by or before any Governmental Authority or arbitrator against the
Borrower or any of its Subsidiaries or any of their respective
assets.
5.7
Fees and
Expenses.
The Collateral Agent shall have been paid a
fee of Twenty-Two Thousand Dollars ($22,000) in connection with this Amendment
Agreement, and all fees and expenses payable pursuant to
Section 1.4
of the
Original Credit Agreement shall have been paid in full.
5.8
Closing Certificates;
Opinions.
(a)
Officer's
Certificate.
The Collateral Agent shall have received a
certificate from the chief executive officer or chief financial officer of the
Borrower in form and substance reasonably satisfactory to the Collateral Agent,
to the effect that, except as set forth in the Bring-Down Disclosure Schedule,
all representations and warranties of the Borrower contained in this Amendment
Agreement and the Original Credit Agreement are true, correct and complete; that
neither the Borrower nor any of its Subsidiaries is in violation of any of the
covenants contained in the Original Credit Agreement; that, before and after
giving effect to the transactions contemplated by this Amendment Agreement, no
Default or Event of Default has occurred and is continuing; that the Borrower
has satisfied each of the closing conditions to be satisfied hereby; that the
Borrower and its Subsidiaries have filed all required tax returns and owe no
delinquent taxes.
(b)
Certificate of Secretary of
Borrower.
he Collateral Agent shall have received a
certificate of the secretary or assistant secretary of the Borrower certifying
as to the incumbency and genuineness of the signature of each officer of the
Borrower executing any document in connection with the transactions contemplated
hereby and certifying that attached thereto is (i) a true and complete copy of
the certificate of incorporation of the Borrower, and all amendments thereto
including the Certificate of Designations of the Series A Preferred Stock,
certified by the appropriate Governmental Authority in its jurisdiction of
incorporation; (ii) a true and complete copy of the certificate of incorporation
of CIC Acquisition Corp., a Delaware corporation, and all amendments thereto,
certified by the appropriate Governmental Authority in its jurisdiction of
incorporation, and a true and complete copy of the articles of association of
Communication Intelligence Computer Corporation, Ltd., and all amendments
thereto, as on file as of the date
hereof in
the People's Republic of China and which is in full force and effect on the date
hereof; (iii) a true and complete copy of the bylaws of the Borrower as in
effect on the date of such certification; (iv) a true and complete copy of
resolutions duly adopted by the Board of Directors of the Borrower authorizing
the Loans made on the date hereof, the execution, delivery and performance of
this Amendment Agreement, the Registration Rights Agreement Amendment, the
replacement Notes and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, and the other documents relating hereto or thereto; (v) a
true and complete copy of each of the Borrower's insurance policies, as in
effect on the date of such certification; and (vi) true, complete and correct
copies of certificates of insurance for each of the Borrower's insurance
policies, except for its directors and officers insurance policy, each showing
the Collateral Agent as an additional insured and/or loss
payee.
(c)
Certificates of Good
Standing.
The Collateral Agent shall have received
certificates as of a recent date of the good standing of the Borrower under the
laws of its jurisdiction of incorporation and the State of
California.
(d)
Opinions of
Counsel.
The Collateral Agent shall have received favorable
opinions of counsel to the Borrower addressed to the Collateral Agent and the
Lenders with respect to the Borrower covering such matters as requested by the
Collateral Agent or the Lenders, including, without limitation, this Amendment
Agreement, the Registration Rights Agreement Amendment, the replacement Notes
and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, and the other documents relating hereto or thereto, the
Security Interest, due authorization and other corporate matters, local laws and
choice of laws issues and which are reasonably satisfactory in form and
substance to the Collateral Agent and the Lenders.
5.9
Collateral
. The
Collateral Agent shall have received the results of Lien searches of all filings
made against each of the Borrower and its Subsidiaries under the Uniform
Commercial Code (and local tax and judgment filing offices) as in effect in any
jurisdiction in which any of its respective assets are located, indicating,
among other things, that the assets of the Borrower and its Subsidiaries and the
stock of the Borrower and its Subsidiaries are free and clear of any Liens,
except for Permitted Encumbrances.
5.10
Insurance
. The
Collateral Agent shall have received certificates of insurance in the form
required under
Section
2.2(b)
of the Original Credit Agreement and the Security Documents and
otherwise in form and substance reasonably satisfactory to the Collateral
Agent.
5.11
Consents
. The
Borrower shall have delivered to the Collateral Agent all necessary approvals,
authorizations and consents, if any, of all Persons, Governmental Authorities,
and courts having jurisdiction with respect to the execution and delivery of
this Amendment Agreement, the Registration Rights Agreement Amendment, the
replacement Notes and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants,
and the
other documents relating hereto or thereto, the granting of the Security
Interest and all such approvals shall be in form and substance satisfactory to
the Collateral Agent.
5.12
No Injunction,
Etc
. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
Governmental Authority or arbitrator challenging or seeking to enjoin, restrain
or prohibit, or to obtain substantial damages in respect of, or which is related
to or arises out of this Amendment Agreement, the Registration Rights Agreement
Amendment, the replacement Notes and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, and the other documents relating hereto or thereto, or the
consummation of the transactions contemplated hereby or thereby, or which, as
determined by the Lenders in their reasonable discretion, would make it
inadvisable to consummate such transactions. No order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any Governmental Authority or arbitrator preventing such transactions shall be
in effect. The making of the Loans on the date hereof and the consummation of
such transactions shall not be prohibited by any Applicable Law or other legal
requirement and shall not subject any Lender to any penalty or, in its
reasonable judgment, any other liability or onerous condition under any
Applicable Law.
5.13
Proceedings and
Documents
. All opinions, certificates and other
instruments and all proceedings in connection with the transactions contemplated
by this Amendment Agreement, the Registration Rights Agreement Amendment, the
replacement Notes and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, and the other documents relating hereto or thereto shall be
reasonably satisfactory in form and substance to the Collateral Agent. The
Collateral Agent shall have received copies of all other instruments and other
evidence as the Lenders may reasonably request, in form and substance reasonably
satisfactory to the Collateral Agent, with respect to the transactions
contemplated by this Amendment Agreement, the Registration Rights Agreement
Amendment, the replacement Notes and Initial Warrants issued pursuant to
Section 5.1
hereof,
the Agent Warrants, and the other documents relating hereto or thereto and the
taking of all actions in connection herewith or therewith. The Collateral Agent
shall have received such other agreements (including, without limitation,
deposit account control agreements), instruments, approvals, opinions,
certificates and other documents as the Collateral Agent may reasonably request
in connection with such transactions and actions, all in form and substance
satisfactory to the Collateral Agent, in its sole discretion.
SECTION
6. EFFECTIVENESS
OF AMENDMENTS
The
amendments to the Original Credit Agreement contained in this Amendment
Agreement shall become effective on and as of the date of the satisfaction of
the conditions precedent set forth in
Section 5
hereof.
From and after such date, each reference in the Original Credit Agreement
(including the schedules and exhibits thereto) to the “Agreement”, or any like
expression referring to the Original Credit Agreement, shall be deemed to refer
to the Original Credit Agreement as amended by this Amendment Agreement. The
Original Credit Agreement, other than as amended hereby, shall remain unchanged
and in full force and effect.
SECTION
7. MISCELLANEOUS
7.1
Severability
. The
invalidity, illegality, or unenforceability in any jurisdiction of any provision
of this Amendment Agreement shall not affect or impair the remaining provisions
in this Amendment Agreement or any such invalid, unenforceable or illegal
provision in any jurisdiction in which it is not invalid, unenforceable or
illegal.
7.2
Headings
. Sections
and Section headings in this Amendment Agreement are included herein for
convenience of reference only and shall not constitute a part of this Amendment
Agreement for any other purposes or be given substantive effect.
7.3
Applicable
Law
. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT REQUIRE OR PERMIT
APPLICATION OF THE LAWS OF ANY OTHER STATE OR JURISDICTION (OTHER THAN SECTION
5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
7.4
Consent to Jurisdiction and
Service of Process
.
(a) THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL COURT OR
STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, HAVING SUBJECT MATTER
JURISDICTION OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AMENDMENT AGREEMENT. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT,
PERSONAL JURISDICTION OF ANY SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDERS TO BRING PROCEEDINGS
AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
(b) THE
BORROWER HEREBY AGREES THAT SERVICE OF THE SUMMONS AND COMPLAINT AND ALL OTHER
PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, A COPY OF SUCH
PROCESS TO THE BORROWER AT THE ADDRESS TO WHICH NOTICES TO THE BORROWER ARE THEN
TO BE SENT PURSUANT TO
SECTION 9.2
OF THE
ORIGINAL CREDIT AGREEMENT AND THAT PERSONAL SERVICE OF PROCESS SHALL NOT BE
REQUIRED. NOTHING HEREIN SHALL BE CONSTRUED TO PROHIBIT SERVICE OF PROCESS BY
ANY OTHER METHOD PERMITTED BY LAW.
7.5
Waiver of Jury
Trial
. THE LENDERS, THE BORROWER AND THE COLLATERAL AGENT
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT AGREEMENT OR ANY DEALINGS
BETWEEN OR AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS AMENDMENT AGREEMENT
AND ANY RELATIONSHIP THAT IS BEING ESTABLISHED AMONG ANY OF THEM. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE LENDERS, THE BORROWER
AND THE COLLATERAL AGENT ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AMENDMENT AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE LENDERS, THE BORROWER
AND THE COLLATERAL AGENT FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS
AMENDMENT AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
7.6
Counterparts
. This
Amendment Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same
instrument.
SECTION
8. ACCESSION
OF ADDITIONAL LENDERS TO ORIGINAL CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT
AGREEMENT
By acknowledging and agreeing to this
Amendment Agreement, which acknowledgement and agreement shall be evidenced by
the signatures of the Additional Lenders below, the Additional Lenders agree to
accede to the Original Credit Agreement, as amended by this Amendment Agreement,
and to be bound by all terms and conditions set forth in the Original Credit
Agreement, as amended by this Amendment Agreement.
[
Signatures
follow
.]
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be
duly executed by their respective officers as of the day and year first above
written.
BORROWER:
|
COMMUNICATION INTELLIGENCE
CORPORATION
By:
/s/ Francis V.
Dane
Name: Francis V.
Dane
Title: Chief
Financial Officer
|
MAJORITY
LENDERS:
|
PHOENIX
VENTURE FUND LLC
By:
SG Phoenix Ventures LLC,
its
Managing Member
By:
/s/ Andrea
Goren
Name: Andrea
Goren
Title: Member
|
|
/
s/
Michael
Engmann
MICHAEL
ENGMANN
|
COLLATERAL
AGENT:
|
SG
PHOENIX LLC
By:
/s/ Andrea
Goren
Name: Andrea
Goren
Title: Member
|
ACKNOWLEDGED
AND AGREED TO:
ADDITIONAL
LENDERS:
|
KENDU
PARTNERS COMPANY
By:
/s/ Michael W.
Engmann
Name:
Michael W. Engmann
Title: General
Partner
|
|
MDNH
PARTNERS L.P.
By:
/s/ Michael W.
Engmann
Name:
Michael W. Engmann
Title: General
Partner
|
Annex
A
BRING-DOWN DISCLOSURE
SCHEDULE
[To be
provided by the Borrower.]
Schedule
1.1(a)
COMMUNICATION INTELLIGENCE
CORPORATION
LOANS
I. Loans
made on Closing Date (total: $3,637,500)
Michael
Engmann
|
$450,000,
plus $28,125 in interest due as of May 31, 2008
|
Ronald
Goodman
|
$150,000,
plus $9,375 in interest due as of May 31, 2008
|
Phoenix
Venture Fund LLC
|
$3,000,000
|
II. Loans
made on Additional Closing Date (total: $1,100,000)
Michael
Engmann
|
$100,000
|
Phoenix
Venture Fund LLC
|
$850,000
|
Kendu
Partners Company
|
$100,000
|
MDNH
Partners L.P.
|
$50,000
|
Schedule
4(b)
INDEBTEDNESS FOR BORROWED
MONEY AND CONTINGENT OBLIGATIONS
|
Principal
|
Interest
|
Basso
Multi-Strategy Holding Fund, Ltd.
|
$ 35,000
|
$ 1,371
|
Phoenix
Ventures Fund LLC
|
$
3,059,178
|
$
40,110
|
Michael
Engmann
|
$ 487,556
|
$ 6,392
|
Ron
Goodman
|
$ 162,519
|
$ 2,131
|
Schedule
4(c)
DOCUMENTS PROHIBITING GRANT
OF SECURITY INTEREST
[To be
provided by the Borrower.]
Exhibit
1.1(a)
FORM OF
NOTE
Exhibit
1.2(b)-1
FORM OF ADDITIONAL
NOTE
Exhibit
1.2(b)-2
FORM OF ADDITIONAL
WARRANT
Exhibit
1.9
FORM OF
WARRANT
EXHIBIT 10.47
AMENDMENT NO. 1 TO
THE REGISTRATION RIGHTS
AGREEMENT
This
AMENDMENT NO. 1 TO
THE REGISTRATION RIGHTS AGREEMENT
(this “
Amendment
Agreement
”), entered into as of May 28, 2009, to the Registration Rights
Agreement dated as of June 5, 2008 (as amended, restated, supplemented or
otherwise modified from time to time, including all exhibits and schedules
thereto, the “
Registration
Rights Agreement
”), by and among Communication Intelligence Corporation,
a Delaware corporation (the “
Company
”), and the investors
signatory thereto (each an “
Existing Investor
” and
collectively, the “
Existing
Investors
”).
R E C I T A L
S
:
WHEREAS
, the Company and the
Existing Investors desire to amend the Registration Rights Agreement to, among
other things, allow for the addition as parties to the Registration Rights
Agreement of the additional investors listed on the signature pages hereto (such
additional investors, collectively, the “
Additional Investors
”, and
each such additional investor, individually, an “
Additional Investor
”; the
Additional Investors and the Existing Investors are herein collectively referred
to as the “
Investors
”);
WHEREAS
,
Section 8(g)
of the
Registration Rights Agreement provides that amendments to the Registration
Rights Agreement may only become effective with the written concurrence of the
Company and the Holders of no less than a majority in interest of the then
outstanding Registrable Securities;
WHEREAS
, Holders of a majority
in interest of the outstanding Registrable Securities under the Registration
Rights Agreement consent to the amendments contained herein and, upon execution
of this Amendment Agreement by the Company and such Holders, the requirements of
Section 8(g)
of
the Registration Rights Agreement will be satisfied; and
WHEREAS
, the Additional
Investors desire to become parties to the Registration Rights Agreement, as
amended by this Amendment Agreement.
NOW, THEREFORE
, in
consideration of the premises and the agreements, provisions and covenants
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree, as
follows:
1.
Definitions in this
Amendment Agreement
. Except as otherwise defined in this
Amendment Agreement (including the preamble and the recitals hereof),
capitalized terms are used herein with the meanings ascribed to such terms in
the Registration Rights Agreement and/or the Purchase Agreement.
2.
Consent of Required Holders
to Amendments to Registration Rights Agreement
. The Holders of
a majority in interest of the outstanding Registrable Securities hereby consent
to the amendments to the Registration Rights Agreement contained in this
Amendment Agreement and acknowledge that, upon execution of this Amendment
Agreement by such Holders, the requirements of
Section 8(g)
of the
Registration Rights Agreement will be satisfied.
3.
Amendment to the Preliminary
Statement of the Registration Rights Agreement
. The
Registration Rights Agreement is hereby amended by deleting the Preliminary
Statement in their entirety and inserting in lieu thereof the
following:
“This
Agreement is made pursuant to the Securities Purchase Agreement, dated as June
5, 2008, among the Company and the investors identified on the signature pages
thereto (the
“Purchase
Agreement”
), the Credit Agreement, dated as of June 5, 2008, among the
Company and the lenders signatory thereto, as amended by Amendment No. 1, dated
as of May 28, 2009 (collectively, as the same may be further amended, modified,
supplemented or amended and restated from time to time, the
“Credit Agreement”
), and other
Transaction Documents pursuant to which the Company will effect a Debt
Refinancing.”
4.
Amendment to Definition of
“Effectiveness Date” in the Registration Rights Agreement
. The
definition of “
Effectiveness
Date
” in
Section 1
of the Registration Rights Agreement is hereby amended and restated
in its entirety to read as follows:
“
“Effectiveness Date”
means (a)
with respect to the Registration Statement required to be filed under
Section 2(a)
, the
earlier of (i) the 150
th
day
following the Closing, and (ii) the fifth Trading Day following the date on
which the Company is notified by the Commission that such Registration Statement
will not be reviewed or is no longer subject to further review and comments; (b)
with respect to a Registration Statement required to be filed under
Section 2(b)
, the
earlier of: (i) the 90
th
day
following the applicable Filing Date, and (ii) the fifth Trading Day following
the date on which the Company is notified by the Commission that the
Registration Statement will not be reviewed or is no longer subject to further
review and comments; and (c) with respect to a Registration Statement required
to be filed under
Section 2(c)
, the
earlier of: (i) the 120
th
day
following the applicable Filing Date, and (ii) the fifth Trading Day following
the date on which the Company is notified by the Commission that the
Registration Statement will not be reviewed or is no longer subject to further
review and comments.”
5.
Amendment to Definition of
“Filing Date” in the Registration Rights Agreement
. The
definition of “
Filing
Date
” in
Section 1
of the Registration Rights Agreement is hereby amended and restated
in its entirety to read as follows:
“
“Filing Date”
means (a) with
respect to the Registration Statement required to be filed under
Section 2(a)
, the
earlier of (i) two (2) Business Days following the filing of the Company’s
Quarterly Report on Form 10-Q for the three and six months ending June 30,
2008, and (ii) August 18, 2008; (b) with respect to a Registration Statement
required to be filed under
Section 2(b)
, the
30
th
day following the date on which Holders of a majority of the Registrable
Securities request that the Company register the resale of Common Stock on
Form S-3; and (c) with respect to a Registration Statement required to be
filed under
Section
2(c)
, the 30
th
day
following the date on which Holders of a majority of the Registrable Securities
request that the Company register the resale of Common Stock on Form S-1;
provided, however, that with respect to a Registration Statement required to be
filed under
Section
2(c)
, if the request that the Company register the resale of Common Stock
on Form S-1 is received at such time when the Company is precluded from filing a
Registration Statement with its current audited financial statements or such
financial statements would become non-conforming due to their age during the
review process of such Registration Statement, then the Company shall not
be
obligated to file any such Registration Statement until the 15
th
day
following the release of the Company’s audited financial statements for the most
recently completed fiscal year. Notwithstanding anything to the
contrary herein, the Company shall not be required to prepare audited financial
statements to be filed in connection with such Registration Statement for any
period year except for a fiscal year ending December 31.”
6.
Amendment to Definition of
“Investors” in the Registration Rights Agreement
. The
definition of “
Investors
” in the Registration
Rights Agreement shall include the Additional Investors.
7.
Amendment to Definition of
“Registration Statement” in the Registration Rights
Agreement
. The definition of “
Registration Statement
” in
Section 1
of the Registration Rights Agreement is hereby amended and restated
in its entirety to read as follows:
“
“Registration Statement”
means
the registration statement required to be filed in accordance with
Section 2(a)
,
Section 2(b)
,
Section 2(c)
or
Section 8(e)
,
including (in each case) the Prospectus, amendments and supplements to such
registration statements or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference therein.”
8.
Amendment to Definition of
“Selling Holder Questionnaire” in the Registration Rights
Agreement
. The definition of “
Selling Holder Questionnaire
”
in
Section 1
of the Registration Rights Agreement is hereby amended and restated
in its entirety to read as follows:
“
“Selling Holder Questionnaire”
has the meaning set forth in
Section
2(d)
.”
9.
Amendment to Definition of
“Warrant” in the Registration Rights Agreement
. The definition
of “
Warrant
” in
Section 1
of the Registration Rights Agreement is hereby amended and restated
in its entirety to read as follows:
“
“Warrants”
means the warrants
(other than the Additional Warrants) to purchase from the Company shares of
Company Common Stock issued pursuant to the Credit Agreement, including, without
limitation, the warrants to purchase from the Company shares of Company Common
Stock issued pursuant to Amendment No. 1 to the Credit Agreement.”
10.
Addition of Certain
Definition to Registration Rights Agreement
. The following
definition is hereby added to
Section 1
of the
Registration Rights Agreement:
“
“Amendment No. 1”
means that
certain Amendment No. 1 to the Registration Rights Agreement, dated as of May
28, 2009, among the Company and the Holders of a majority of the Registrable
Securities, as acknowledged and agreed to by the additional investors listed on
the signatures pages thereto.”
11.
Amendment of Section 2(c)
and Addition of New Subsection Section 2(d) of the Registration Rights
Agreement
.
Section 2(c)
of
the
|
Registration
Rights Agreement is hereby amended and restated in its entirety and
Section 2(d)
is
inserted in the Registration Rights Agreement as
follows:
|
“(c) The
Company shall, promptly upon the request of the Holders of a majority of the
Registrable Securities, prepare and file with the Commission no later than the
Filing Date a Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415,
on Form S-1 (or on such other form appropriate for such
purpose). Such Registration Statement shall contain (except if
otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) the “Plan of Distribution”
attached hereto as
Exhibit
A
. The Company shall use its reasonable best efforts to cause
such Registration Statement to be declared effective under the Securities Act as
soon as possible but, in any event, no later than its Effectiveness Date, and
shall use its reasonable best efforts to keep the Registration Statement
continuously effective under the Securities Act during the entire Effectiveness
Period. By 5:00 p.m. (New York City time) on the Business Day
immediately following the Effective Date of such Registration Statement, the
Company shall file with the Commission in accordance with Rule 424 under the
Securities Act the final Prospectus to be used in connection with sales pursuant
to such Registration Statement (whether or not such filing is technically
required under such Rule).
(d) Each
Holder agrees to furnish to the Company a completed Questionnaire in the form
attached to this Agreement as
Exhibit B
(a
“Selling Holder
Questionnaire”
). The Company shall not be required to include
in a Registration Statement the Registrable Securities of a Holder who fails to
furnish to the Company a fully completed Selling Holder Questionnaire at least
two Trading Days prior to the Filing Date (subject to the requirements set forth
in
Section
4(a)
).”
12.
Amendment to Section 3(a) of
the Registration Rights Agreement
. Section 3(a) is hereby
amended by deleting the terms “Filing Deadline” and “Effectiveness Deadline” in
the first sentence of Section 3(a) and inserting the terms “Filing Date” and
“Effectiveness Date”, respectively, in lieu thereof. Section 3(a) is
hereby further amended by inserting the following sentences at the end in
Section 3(a):
“Notwithstanding
anything to the contrary stated herein, the Company shall not be required to pay
Registration Delay Payments or otherwise be liable for any amount to Holders if
the Commission limits the number of Registrable Securities that may be included
on any Registration Statement filed under the terms of this
Agreement. If the Commission limits the Registrable Securities that
may be included on any Registration Statement, the Registrable Securities that
will be included on such Registration Statement shall be allocated pro rata
among all of the holders of Registrable Securities that requested Registrable
Securities held by them be included in such registration, based on the amount of
such Registrable Securities originally requested to be included by a Holder in
comparison to the aggregate amount of such Registrable Securities requested to
be included on such Registration Statement by all such Holders.”
13.
Amendment to Section 4(j) of
the Registration Rights Agreement
. Section 4(j) is hereby
amended and restated in its entirety to read as follows:
“In
conjunction with the filing of the Registration Statement or sales thereunder,
the Company will make any filings as may be required to be made with FINRA via
the COBRADesk system.”
14.
Amendment to Section 8(h) of
the Registration Rights Agreement
. Section 8(h) is hereby
amended by deleting the addresses for notice “If to a Investor” in its entirety
and inserting in lieu thereof the following:
“If
to an Investor:
|
To
the address set forth under such Investor's name on the
|
signature
pages hereto and to Amendment No.
1.
|
|
With
a copy to:
|
Pillsbury
Winthrop Shaw Pittman LLP
|
|
Facsimile: (212)
858-1500
|
|
Attn: Jonathan
J. Russo, Esq.”
|
15.
Effectiveness of
Amendments
. The amendments to the Registration Rights
Agreement contained in this Amendment Agreement shall become effective on and as
of the date hereof. From and after such date, each reference in the
Registration Rights Agreement (including the schedules and exhibits thereto) to
the “Agreement”, or any like expression referring to the Registration Rights
Agreement, shall be deemed to refer to the Registration Rights Agreement as
amended by this Amendment Agreement. The Registration Rights
Agreement, other than as amended hereby, shall remain unchanged and in full
force and effect.
16.
Applicable
Law
. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED BY AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT REQUIRE OR PERMIT
APPLICATION OF THE LAWS OF ANY OTHER STATE OR JURISDICTION (OTHER THAN SECTION
5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
17.
Counterparts;
Effectiveness
. This Amendment Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which counterparts together shall constitute but one and the same
instrument.
18.
Accession of Additional
Investors to Registration Rights Agreement as Amended by this Amendment
Agreement
. By acknowledging and agreeing to this Amendment
Agreement, which acknowledgement and agreement shall be evidenced by the
signatures of the Additional Investors below, the Additional Investors agree to
accede to the Registration Rights Agreement, as amended by this Amendment
Agreement, and to be bound by all of the terms and provisions set forth in the
Registration Rights Agreement, as amended by this Amendment Agreement and shall
have the rights, and be subject to the obligations, of an Investor.
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES TO FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be
duly executed by their respective officers as of the day and year first above
written.
COMPANY:
|
COMMUNICATION INTELLIGENCE
CORPORATION
By:
/s/ Francis V.
Dane
Name: Francis
V. Dane
Title:Chief
Financial Officer
|
EXISTING
INVESTORS:
|
PHOENIX
VENTURE FUND LLC
By:
SG Phoenix Ventures LLC,
its
Managing Member
By:
/s/ Andrea
Goren
Name: Andrea
Goren
Title: Member
|
|
/s/ Michael
Engmann
MICHAEL
ENGMANN
|
ACKNOWLEDGED
AND AGREED TO:
ADDITIONAL
INVESTOR:
|
KENDU
PARTNERS COMPANY
By:
/s/ Michael W.
Engmann
Name:
Michael W. Engmann
Title:
General Partner
ADDRESS
FOR NOTICE
c/o:
Street:
City/State/Zip:
Attention:
Tel:
Fax:
Email:
|
ACKNOWLEDGED
AND AGREED TO:
|
MDNH
PARTNERS L.P.
By:
/s/ Michael W.
Engmann
Name:
Michael W. Engmann
Title:
General Partner
ADDRESS
FOR NOTICE
Street:
City/State/Zip:
Attention:
Tel:
Fax:
Email:
|
EXHIBIT
10.48
COMMUNICATION
INTELLIGENCE CORPORATION
275
Shoreline Drive, Suite 500
Redwood
Shores, CA 94065
May 28,
2009
SG
Phoenix LLC
110
East 59
th
Street, Suite 1901
New
York, NY 10022
|
|
Re:
Salary Reduction Plan for
Executive Officers of Communication Intelligence Corporation under Amendment No.
1 to Credit Agreement, dated May 28, 2009
Gentlemen,
Reference
is made to that certain Amendment No. 1 to Credit Agreement, dated as of
May 28, 2009, by and among Communication Intelligence Corporation (the
“
Company
”), and
Phoenix Venture Fund LLC (“
Phoenix
”), Michael
Engmann (“
Engmann
”), the
Additional Lenders (as that term is defined in Amendment No. 1 to Credit
Agreement) and SG Phoenix LLC, as the Collateral Agent (“
Amendment No. 1
”) to
the Credit Agreement dated as of June 5, 2008, by and among the Company,
Phoenix, Engmann, Ronald Goodman and the Collateral Agent (together with
Amendment No. 1, the “
Agreemen
t”). Any
capitalized terms used but not otherwise defined herein shall have the same
meanings ascribed to such terms in the Agreement.
Pursuant
to Section 2.9 of the Agreement, the Company covenants and agrees to implement,
commencing with the first pay period subsequent to the Additional Closing Date,
the salary reduction plan for the Company’s executive officers proposed by the
Company and as agreed to by the Company and the Collateral Agent as set forth on
Exhibit A
attached hereto, which, when taken together with the salary reduction plan for
employees, provides for the achievement of at least a 13% aggregate reduction in
salaries for the Company’s executive officers and
employees. The agreement set forth herein is a valid and
binding obligation of the Company, enforceable in accordance with the terms
hereof and is an additional provision of Section 2.9 of the Agreement as if the
terms hereof were set forth fully in the Agreement.
This
side letter may be executed in multiple counterparts, each of which shall be
deemed to be an original, but all such separate counterparts shall together
constitute but one and the same instrument. Delivery of a counterpart
hereof by facsimile transmission or by e-mail transmission shall be as effective
as delivery of a manually executed counterpart hereof.
This letter shall be governed by, and
construed in accordance with, the laws of the State of New York excluding that
body of law relating to conflicts of law.
[
Remainder of the Page Intentionally
Left Blank
]
Please
indicate your agreement and acceptance of the terms and conditions of this
letter agreement by executing this letter agreement in the designated space
below and returning a signed copy.
Very
truly yours,
Communication
Intelligence Corporation
By:__________________________
Name:
Francis V. Dane
Title: Chief
Financial Officer
[Signature
page to Side Letter]
EXHIBIT
A
SALARY
REDUCTION PLAN
DEPT.
|
LAST
NAME
|
FIRST
NAME
|
CURRENT
ANNUAL
$
|
AFTER
REDUCTION $
|
REDUCTION
$
|
REDUCTION
%
|
2
|
DiGregorio
|
Guido
|
285,000.00
|
200,000.00
|
85,000.00
|
30%
|
4
|
Davis
|
Russell
|
165,000.00
|
148,500.00
|
16,500.00
|
10%
|
2
|
Dane
|
Francis
|
160,000.00
|
136,000.00
|
24,000.00
|
15%
|
|
|
|
610,000.00
|
484,500.00
|
125,500.00
|
|
-A
-
EXHIBIT
31.1
CERTIFICATION
Pursuant to
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Guido
DiGregorio, certify that:
1.
|
I have reviewed
this
Quarterly R
eport on Form 10-Q of Communication Intelligence
Corporation;
|
2.
|
Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this
report;
|
3.
|
Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
report;
|
4.
|
The registrant’s other certifying
officer
(
s
)
and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e))
and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))
for the registrant and
have:
|
a
.
|
Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being
prepared;
|
b.
|
Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
|
d.
|
Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the
case of an annual report)
that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
|
5.
|
The registrant’s other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing
the equivalent functions):
|
a.
|
All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information;
and
|
b.
|
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
Date: August 7,
2009
/s/ Guido
DiGregorio
Chairman
and Chief Executive Officer
(Principal
Executive Officer of Registrant)
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Francis V. Dane, certify that:
1.
|
I have reviewed
this
Quarterly R
eport on Form 10-Q of Communication Intelligence
Corporation;
|
2.
|
Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this
report;
|
3.
|
Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
report;
|
4.
|
The registrant’s other certifying
officer
(
s
)
and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and
have:
|
a
.
|
Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being
prepared;
|
b.
|
Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
|
d.
|
Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the
case of an annual report)
that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
|
5.
|
The registrant’s other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing
the equivalent functions):
|
a.
|
All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information;
and
|
b.
|
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
Date: August
7, 2009
/s/ Francis V. Dane
Chief Financial Officer
(Principal
Financial Officer of Registrant)
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Communication Intelligence Corporation
(the “Company”) on Form 10-Q for the quarter and six month period
ended June 30, 2009, as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), I, Guido DiGregorio, Chairman and Chief Executive
Officer, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes Oxley Act of 2002, that to the best of my
knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
August 7,
2009
By:
/s/Guido
DiGregorio
Chairman
and Chief Executive Officer
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Communication Intelligence Corporation
(the “Company”) on Form 10-Q for the quarter and six month period ended
June 30, 2009, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Francis V. Dane, Principal Financial Officer, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002, that to the best of my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
August 7,
2009
By:
/s/Francis V.
Dane
Chief
Financial Officer