-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GyvgQgylr98AAfx76+Zjo6Or8H0vx57DTMnWzLLXxT62pXTB5zNDXNFI+3aQuE4E mBm4xBH28ViI1AeefR0GjA== 0001047469-97-007080.txt : 19971209 0001047469-97-007080.hdr.sgml : 19971209 ACCESSION NUMBER: 0001047469-97-007080 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971113 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971208 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATION INTELLIGENCE CORP CENTRAL INDEX KEY: 0000727634 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 942790442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19301 FILM NUMBER: 97733923 BUSINESS ADDRESS: STREET 1: 275 SHORELINE DR 6TH FL STREET 2: STE 520 CITY: REDWOOD SHORES STATE: CA ZIP: 94065 BUSINESS PHONE: 4158027888 MAIL ADDRESS: STREET 1: 275 SHORELINE DR STREET 2: STE 520 CITY: REDWOOD SHORES STATE: CA ZIP: 94065 8-K 1 8-K COVER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 13, 1997 Communication Intelligence Corporation ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware ---------------------------------------------- (State or other jurisdiction of incorporation) 0-19301 94-2790442 ---------------------- ---------------------------------- (Commission File Number) (I.R.S. Employer Identification No.) 275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 802-7888 Not Applicable ------------------------------------------------------------ (Former name or former address, if changed since last report.) Item 5. Other Events. Financing. Effective as of November 26, 1997, Communication Intelligence Corporation (the "Company") consummated a private placement of 240,000 shares of Series B 5% cumulative convertible preferred stock (the "Series B Preferred"), at a purchase price of $25 per share, and received in consideration therefor $6,000,000 in gross cash proceeds. Each share of Series B Preferred is convertible by the holder into shares of the Company's common stock at any time prior to the Forced Conversion Date (as defined below) pursuant to a conversion formula determined by dividing (i) the sum of $25 multiplied by the number of shares being converted, plus accrued and unpaid dividends thereon and any default payments with respect thereto, by (ii) a conversion price which is equal to the lower of $1.59 per share or the average of the daily closing prices of the Company's common stock for the three consecutive trading days immediately prior to the conversion date. In addition, all outstanding shares of Series B Preferred must be converted by the holders into shares of common stock by November 24, 2000, or at the Company's option, no later than November 24, 2001 (the "Forced Conversion Date"). Under the terms of the Series B Preferred, the holders are entitled to receive, out of assets legally available therefor, cumulative dividends at the rate of $1.25 per share per annum, compounded quarterly, when payable (whether or not declared), payable every three months commencing March 1, 1998. Such dividends are payable in additional shares of Series B Preferred or, at the Company's option, in cash. The Series B Preferred is pari passu in respect to dividend and liquidation rights with the previously established series of 5% cumulative convertible preferred stock (the "Series A Preferred"), issued by the Company in December 1996. Holders of the Series B Preferred have the right to vote with the holders of the Company's common stock and Series A Preferred, combined as one class, for the election of directors and such other matters voted by the holders of the Company's common stock. Each share of Series B Preferred has one vote per share on such matters. In addition, the affirmative vote of holders of 51% of the then outstanding shares of Series B Preferred is required for the consummation of certain business combinations and other extraordinary transactions, amendments or waivers to the Company's certificate of designations or amendments to the Company's organizational documents which may change the rights of the holders of the Series B Preferred. In the event of the Company's liquidation, dissolution or winding up, the holders of the Series B Preferred are entitled to receive, prior and in preference to any distribution of Company assets to the holders of any other class or series of shares ranking junior to the Series B Preferred and on a pari passu basis with the Series A Preferred, $25 per share plus any accrued but unpaid dividends. For a more complete description of the terms of the Series B Preferred, see the Certificate of Designations of the Company filed as Exhibit 10.2 hereto, which is incorporated by reference herein. 2 In connection with and pursuant to the terms of the Company's private placement, Mr. Philip S. Sassower, the Chairman of the Executive and Finance Committees of the Company's Board of Directors and the Co-Chief Executive Officer of the Company, together with a trust pursuant to which he is a trustee, purchased an aggregate of 40,070 shares of Series B Preferred (or approximately 15% of the shares of Series B Preferred sold by the Company) for an aggregate purchase price of $1,001,750. Immediately prior to the consummation of the private placement, as of November 25, 1997, Mr. Sassower beneficially owned approximately 22.03% of the Company's common stock, giving effect to the shares of Common Stock beneficially owned by a limited partnership in which Mr. Sassower is the sole general partner and also a limited partner. In connection with the private placement, the Company entered into a registration rights agreement with the holders of the Series B Preferred which provides that the Company will file a registration statement with the Securities and Exchange Commission relating to the sale of the shares of common stock issuable upon conversion of the Series B Preferred no later than January 9, 1997 and will use its best efforts to cause such registration statement to become effective. For a more complete description of the terms of the registration rights agreement, see the registration rights agreement entered into by the Company and filed as Exhibit 10.3 hereto, which is incorporated by reference herein. Appointment of President. The Company hereby incorporates by reference herein the matters announced with respect to the Company's press release dated November 13, 1997 (such press release is filed as Exhibit 99.1 hereto). Item 7. Financial Statements and Exhibits. (c) Exhibits. The following documents are being filed herewith by the Company as exhibits to this Current Report on Form 8-K. 10.1 Form of Subscription Agreement, dated as of November 25, 1997, between the Company and each subscriber of Series B Preferred. 10.2 Certificate of Designations of the Company with respect to the Series B 5% Cumulative Convertible Preferred Stock. 10.3 Form of Registration Rights Agreement, dated as of November 25, 1997, by and among the Company and the signatories thereto. 99.1 Press release of the Company dated November 13, 1997. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMMUNICATION INTELLIGENCE CORPORATION Date: December 3, 1997 By: /s/ Francis V. Dane --------------------------------------- Name: Francis V. Dane Title: Vice President and Secretary 4 EXHIBIT INDEX Exhibit No. Exhibits Page No. - ----------- -------- -------- 10.1 Form of Subscription Agreement, dated as of November 25, 1997, between the Company and each subscriber of the Series B Preferred. 10.2 Certificate of Designations of the Company with respect to the Series B 5% Cumulative Convertible Preferred Stock. 10.3 Form of Registration Rights Agreement, dated as of November 25, 1997, by and among the Company and the signatories thereto. 99.1 Press release of the Company, dated November 13, 1997. 5 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 FORM OF SUBSCRIPTION AGREEMENT Communication Intelligence Corporation 275 Shoreline Drive Redwood Shores, CA 94065 Gentlemen: 1. Subscription; Purchase Price. (a) Subject to the terms and conditions hereto, the undersigned ( the "Subscriber") hereby agrees to purchase from Communication Intelligence Corporation, a Delaware corporation (the "Company"), that number of shares of Series B 5% Cumulative Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Shares") set forth beneath the Subscriber's name on the signature page hereto (the "Shares"), at the purchase price of $25.00 per Share (the aggregate purchase price for the Shares being purchased by the Subscriber being the "Purchase Price"), subject to the terms and conditions hereto. (b) The Preferred Shares shall have such rights, designations and preferences as set forth in the Company's Certificate of Designations with respect thereto (the "Designation"), substantially in the form attached hereto as Exhibit A. (c) The Preferred Shares will be convertible into shares ("Common Shares") of common stock, par value $0.01, of the Company ("Common Stock"), pursuant to the terms of the Designation, and the Subscribers will have the registration rights with respect to such Common Shares as set forth in that certain Registration Rights Agreement to be entered into between the Company and the Subscribers on the Closing Date, substantially in the form of Exhibit B attached hereto ("Registration Rights Agreement"). (d) Subscriber hereby acknowledges (i) that this subscription agreement (this "Agreement") shall not be deemed to have been accepted by the Company until the Company indicates its acceptance by returning to Subscriber a copy of this Agreement executed by the Company, and (ii) that acceptance by the Company of this Agreement is conditioned upon the information and representations and warranties of Subscriber being complete, true and correct as of the date of Subscriber's execution and as of the date of the Closing (as hereinafter defined). 2. Closing. (a) The closing of the purchase of the Preferred Shares (the "Closing") shall be held at the offices of Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, at 10:00 A.M., New York time, on such date as shall be designated by the Company after it has received and accepted subscriptions, funds and other documentation necessary for the Closing of the purchase from Subscribers of no less than 200,000 Preferred Shares pursuant to the terms hereof (the "Closing Date"). Notwithstanding the foregoing, the Closing Date shall not be later than December 15, 1997 (the "Termination Date") (b) On the Closing Date, against receipt of the Purchase Price from Subscriber, the Company shall deliver to the Subscriber, a share certificate registered in the Subscriber's name and representing the number of Preferred Shares purchased by Subscriber pursuant hereto, which certificate shall bear the legend set forth in Section 5(h)(iv) hereof, together with any legends required under applicable state laws. (c) Prior to the Closing, the Subscriber shall pay the Purchase Price by means of a bank wire transfer of immediately available funds to the following account at Chase Manhattan Bank, N.A., 1211 6th Avenue, New York, NY 10036: Baer Marks & Upham LLP, ABA# 021000021, Account Number 967-111188, Attention: Ms. Andrea Paul or Ms. Gloria Robinson. 3. Acceptance of Subscription. The Subscriber understands and agrees that the Company in its sole discretion reserves the right to accept or reject Subscriber's subscription in whole or in part at any time prior to the Closing Date. If the subscription is rejected by the Company, this Agreement shall thereafter be of no further force or effect. 4. Representations, Warranties and Agreements of Subscriber. The Subscriber hereby acknowledges, represents and warrants to, and agrees with, the Company, on the date hereof and on the Closing Date, as follows: (a) The Subscriber understands that the offering and sale of the Preferred Shares is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Act") by virtue of Section 4(2) of the Act and the provisions of Regulation D promulgated thereunder, and in accordance therewith and in furtherance thereof, the Subscriber represents and warrants and agrees as follows: (i) The Subscriber and/or the Subscriber's adviser(s) has/have received and carefully reviewed the Company's (A) Annual Report on Form 10-K for the year ended December 31, 1996 and (B) Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, June 30, 1997 and September 30, 1997, respectively (collectively, the "Company Reports"), and understands the information contained therein. Subscriber acknowledges and understands that the Company Reports show that the Company has incurred substantial operating losses since its formation, including the periods covered by such reports, and that it has insufficient working capital to continue its planned operations. (ii) The Subscriber acknowledges that the Subscriber, or the Subscriber's attorney, accountant, or adviser(s), has/have had a reasonable opportunity to inspect -2- all documents and records pertaining to this investment (including, without limitation, the Company Reports). (iii) The Subscriber and/or the Subscriber's adviser(s) has/have had a reasonable opportunity to ask questions and receive answers from a person or persons acting on behalf of the Company concerning the offering of the Preferred Shares and all such questions have been answered to the full satisfaction of the Subscriber. (iv) In making a decision to invest in the Preferred Shares, the Subscriber has not relied on any information other than information contained in the Company Reports and in this Agreement. (v) The Subscriber is not subscribing for the Preferred Shares as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person other than a representative of the Company. (vi) If the Subscriber is a natural person, the Subscriber has reached the age of majority in the jurisdiction in which the Subscriber resides; the Subscriber has adequate means of providing for the Subscriber's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the Preferred Shares for an indefinite period of time, has no need for liquidity in such investment, and, at the present time, could afford a complete loss of such investment. (vii) The Subscriber has such knowledge and experience in financial, tax and business matters so as to enable the Subscriber to utilize the information made available to the Subscriber in connection with the offering of the Preferred Shares to evaluate the merits and risks of an investment in the Preferred Shares, and to make an informed investment decision with respect thereto. (viii) The Subscriber is not relying on the Company or any agent of the Company with respect to any legal, tax or economic advice related to an investment in the Preferred Shares. (ix) The Subscriber will not sell or otherwise transfer the Preferred Shares or the Common Shares without registration under the Act and applicable state securities laws, or pursuant to an exemption therefrom. The Preferred Shares and the Common Shares have not been registered under the Act or under the securities laws of any state and, other than as provided in the Registration Rights Agreement, the Company will be under no obligation to so register the Common Shares or Preferred Shares. The Subscriber represents that the Subscriber is purchasing the Preferred Shares for the Subscriber's own account, for investment and not with a view to resale or distribution except in compliance with the Act and applicable state securities laws. -3- (x) The Subscriber recognizes that investment in the Preferred Shares involves substantial risks, including the risk of loss of the entire amount of such investment, and has taken full cognizance of and understands all of the risks related to the purchase of the Preferred Shares. (xi) The Subscriber's overall commitment to investments which are not readily marketable is reasonable in relation to the Subscriber's net worth. (b) The Subscriber is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Act inasmuch as the Subscriber meets the requirements of one or more of the subparagraphs in Section 9(g) hereof as of the date of this Agreement, and if there is any change in such status prior to the Closing Date, the Subscriber will immediately notify the Company in writing. (c) The Subscriber understands that the Preferred Shares are being offered and sold in reliance on a transactional exemption from the registration requirements of Federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgements and understandings of the Subscriber set forth in this Agreement in order to determine the applicability of such exemptions and the suitability of the Subscriber to acquire the Preferred Shares. (d) The Subscriber is purchasing the Preferred Shares for its own account and not with a view to distribution in violation of any securities laws. The Subscriber has no present intention to sell the Preferred Shares and the Subscriber has no present arrangement (whether or not legally binding) to sell the Preferred Shares to or through any person or entity; provided, however, that by making the representations herein, the Subscriber does not agree to hold the Preferred Shares for any minimum or other specific term and reserves the right to dispose of the Preferred Shares at any time in accordance with Federal and state securities laws applicable to such disposition. (e) The Subscriber understands that there is no public trading market for the Preferred Shares, that none is expected to develop, and that the Preferred Shares and Common Shares must be held indefinitely unless such Preferred Shares and Common Shares are registered under the Act or an exemption from registration is available. The Subscriber has been advised or is aware of the provisions of Rule 144 promulgated under the Act. (f) The Subscriber hereby agrees to provide such information and to execute and deliver such documents as the Company may deem reasonably appropriate with regard to the Subscriber's suitability or otherwise in connection with this Agreement. (g) The execution, delivery and performance of this Agreement by the Subscriber (i) will not constitute a default under or conflict with any agreement or instrument to which the Subscriber is a party or by which it or its assets are bound, (ii) will not conflict with or violate any order, judgment, decree, statute, ordinance or regulation applicable to the -4- Subscriber (including, without limitation, any applicable laws relating to permissible legal investments) and (iii) does not require the consent of any person or entity, other than those that will have been obtained prior to the Closing Date. This Agreement has been duly authorized, executed and delivered by the Subscriber and constitutes the valid and binding agreement of the Subscriber enforceable against it in accordance with its terms. (h) The Subscriber has not retained, or otherwise entered into any agreement or understanding with, any broker or finder in connection with the purchase of the Preferred Shares by the Subscriber, and the Company will not incur any liability for any fee, commission or other compensation on account of any such retention, agreement or understanding by the Subscriber. (i) The Subscriber acknowledges that: (i) In making an investment decision, the Subscriber has relied on the Subscriber's own examination of the Company and the disclosure in the Company Reports, including the merits and risks involved. The Preferred Shares have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of the Company Reports or this Agreement. (ii) The Subscriber, if executing this Agreement in a representative or fiduciary capacity, has all requisite power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or other entity for whom the Subscriber is executing this Agreement, and such individual, ward, partnership, trust, estate, corporation, or other entity has all requisite power and authority to enter into this Agreement and make an investment in the Preferred Shares. (iii) The representations, warranties, and agreements of the Subscriber contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date and shall survive the execution and delivery of this Agreement and the purchase of the Preferred Shares. (iv) For as long as is required by applicable laws, the certificate representing the Preferred Shares and the Common Shares shall bear a legend in substantially the following form, together with any legend required by applicable state laws, and the Subscriber shall not transfer any or all of the Preferred Shares, the Common Shares or any interests therein, except in accordance with the terms of such legends: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act") or applicable state securities laws, and may be offered, sold or otherwise transferred only if so registered under the Act and applicable state securities laws or if the holder has delivered to the -5- Company an opinion of counsel, which counsel and opinion shall be reasonably satisfactory to the Company, that an exemption from such registration is available." 5. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber as follows: (a) The Company has been duly organized, is validly existing as a corporation and is in good standing under the laws of its jurisdiction of organization. The Company is duly qualified and in good standing in each jurisdiction in which the character or location of its properties or the nature or conduct of its business makes such qualification necessary, except where the failure to be so qualified or in good standing would not, in the aggregate, have a material adverse effect on the financial condition of the Company. The Company has all requisite power and authority, and all material consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all applicable public, regulatory or governmental agencies and bodies, to own, lease and operate its properties and conduct its business as now being conducted. (b) At September 30, 1997, the capital stock of the Company was as follows: (i) 80,000,000 shares of Common Stock and 10,000,000 shares of preferred stock authorized, (ii) 45,664,427 shares of Common Stock issued and outstanding and 420,000 shares of preferred stock issued and outstanding, and (iii) 28,072,214 shares of Common Stock reserved for issuance upon conversion of outstanding shares of preferred stock and exercise of 20,000,000 outstanding options and warrants. Except as set forth above, there are no outstanding (i) shares of capital stock of the Company, securities of the Company convertible into or exchangeable for shares of capital stock or voting or other securities of the Company, or (ii) options, warrants or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, except as provided in the Designation. There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any securities of the Company. The Preferred Shares, when issued, delivered and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and non-assessable and shall be free and clear of all liens, claims and encumbrances other than those which may be caused by the Subscriber. (c) The Company has full corporate power and authority to enter into this Agreement and the Registration Rights Agreement and to issue and sell the Preferred Shares on the terms and conditions set forth herein. The execution and delivery of this Agreement and the Registration Rights Agreement by the Company and the consummation of the transactions contemplated hereby (i) have been duly and validly authorized and approved by all necessary corporate action on the part of the Company; (ii) will not constitute a default under or conflict with (A) the Company's charter or bylaws or (B) any material agreement or other instrument to which the Company is a party or by which the Company is bound; (iii) will not conflict with -6- or violate any order, judgment, decree, statute, ordinance or regulation applicable to the Company; and (iv) does not require the consent of any person or entity, other than those that will have been obtained prior to the Closing Date. (d) This Agreement and the Registration Rights Agreement have been duly authorized, and when executed and delivered by the Company, will constitute valid and binding obligations of the Company enforceable against it in accordance with their respective terms. (e) The Common Shares issuable upon conversion of the Preferred Shares pursuant to the Designation are duly authorized and reserved for issuance. Upon such conversion of the Preferred Shares by the holder in accordance with the Designation, the Common Shares will be validly issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances. The outstanding Common Stock is currently listed on the NASDAQ Small Cap Market. (f) The Common Stock of the Company is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has filed all reports and other documents required to be filed by it with the Securities and Exchange Commission ("SEC") pursuant to the reporting requirements of the Exchange Act. (g) The Company has previously furnished the Subscriber with true and complete copies of the Company Reports. As of their respective dates, the Company Reports did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Subsequent to September 30, 1997, and except as disclosed in the Company Reports, there has not occurred any material adverse change in the condition (financial or otherwise), results of operations or business of the Company, other than the continuation of previously reported losses and the decrease in working capital. The financial statements of the Company included in the Company Reports have been prepared in accordance with generally accepted accounting principles (except that such financial statements included in the Company's Quarterly Reports on Form 10-Q do not contain all of the information and footnotes required by GAAP). (h) There is no action, suit or proceeding before or by any court or governmental agency now pending, or to the knowledge of the Company threatened, against the Company that would cause a material adverse effect to the condition (financial or otherwise), results of operations or business of the Company or that would adversely affect the consummation of the transactions contemplated by this Agreement. (i) The Company has not retained, or otherwise entered into any agreement or understanding with, any broker or finder in connection with the purchase of Preferred Shares by the Subscriber, and the Subscriber will not incur any liability for any fee, commission or other compensation on account of any such retention, agreement or understanding by the Company. -7- The representations, warranties and agreements of the Company contained herein shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date and shall survive the execution and delivery of this Agreement and the sale of the Preferred Shares. 6. Covenants. (a) Until such time as no Preferred Shares are outstanding or, if earlier, until the Forced Conversion Date, the Company will cause the Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all material respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. Until such time as no Preferred Shares are outstanding or, if earlier, until the Forced Conversion Date, the Company shall, to the extent permitted by the rules of NASDAQ, continue the listing or trading of the Common Stock on the NASDAQ SmallCap Market or any exchange or other market on which the Common Stock is then traded and comply in all material respects with the Company's reporting, filing and other obligations under the bylaws or rules of the applicable exchange or market where the Common Stock is then traded. The Company shall cause the Common Shares to be listed on the NASDAQ SmallCap Market or such other market on which the Common Stock is then trading. (b) The Company shall take all necessary action and proceedings as may be reasonably required by applicable law, rule and regulation, for the legal and valid issuance of the Preferred Shares hereunder and the Common Shares issuable upon conversion thereof. (c) The Company agrees to provide all holders of Preferred Shares with copies of all notices and information, including without limitation notices and proxy statements in connection with any meetings, that are provided to the holders of shares of Common Stock, contemporaneously with the delivery of such notices or information to such Common Stock holders. (d) The Company agrees that the proceeds received by the Company from the sale of the Preferred Shares hereunder shall be used for working capital purposes. (e) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of Common Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares, and if at any time the number of authorized but unissued Common Shares shall not be sufficient to effect the conversion of all the then outstanding Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. -8- (f) Each Subscriber covenants and agrees that if such Subscriber gives a Conversion Notice (as defined in the Designation) pursuant to Section 4(b)(i) under the Designation, then such Subscriber, during the three (3) trading days prior to such Conversion Notice, shall not have sold long any shares of Common Stock. (g) Subscriber covenants and agrees that commencing ten (10) trading days prior to providing the Company with a Conversion Notice (the "Covered Period"), Subscriber will not engage in any short sales, loan any Common Shares to another person, acquire a put option or grant a call option with respect to any Common Shares owned by such Subscriber or its affiliates, or engage in any other sales activity that could have any impact on the market price of the Common Stock of the Company (a "Prohibited Transaction"); provided that any sale of Common Shares by the Subscriber in a privately negotiated transaction made in accordance with the terms of this Subscription Agreement shall not be deemed to be a Prohibited Transaction, so long as the acquirer of the Common Shares in any such transaction agrees in writing with the Company to be bound by the provisions of this Subscription Agreement. In addition, Subscriber shall not encourage or assist any other person to enter into a Prohibited Transaction with respect to the Common Stock during the Covered Period. 7. Termination. This Agreement may be terminated by the Company or the Subscriber, after 10 days' prior written notice to the other party, if the Closing has not occurred by the Termination Date, provided that the failure to so close was not the result of actions of the party seeking termination. In the event of termination of this Agreement, the Purchase Price, together with any accrued interest thereon, shall be returned to Subscriber within five business days. 8. Specific Performance. The parties hereto agree that irreparable harm would occur in the event that the provisions of this Agreement were not performed by the parties, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining the amount of damage that would be suffered by the non-breaching party. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which such party is entitled at law or in equity or otherwise; provided, however, that such party shall have complied with the provisions hereof. 9. Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to principles of conflicts of law. (b) In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute, rule of law or regulation, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified -9- to conform with such statute, rule of law or regulation. Any provision hereof which may prove invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. (c) Each party shall indemnify each other party against any loss, expense or damages (including reasonable attorney's fees but excluding consequential damages) incurred as a result of such parties' breach of any representation, warranty, covenant or agreement in this Agreement. (d) This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one instrument. (e) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing executed by the Company and the Subscriber. (f) All capitalized terms which are used but not otherwise defined herein shall have the meanings given to such terms in the Designation. (g) Subscriber represents and warrants to the Company that it is an "accredited investor" as defined in Regulation D of the Act since it satisfies at least one of the following categories (please check all that apply): _____ A natural person who had individual income of more than $200,000 in each of the most recent two years, or joint income with that person's spouse in excess of $300,000 in each of the most recent two years and who reasonably expects to reach that same income level for the current year. For this purpose, "individual income" means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, (A) increased by the individuals share (and not a spouse's share) of: (i) the amount of any tax exempt interest income received, (ii) amounts contributed to an IRA or Keogh retirement plan, (iii) alimony paid, and (iv) the excluded portion of any long-term capital gains, and (B) adjusted, plus or minus, for any non-cash loss or gain, respectively, reported for federal income; _____ A natural person whose individual net worth is in excess of $1,000,000. For this purpose, "net worth" means the excess of total assets at fair market value, including home and personal property, over total liabilities, provided, however, for the purpose of determining a person's net worth, the principal residence owned by an individual shall be valued at cost, including the cost of improvements, net of current encumbrances upon the property or valued on the basis of a written appraisal used by an institutional -10- lender making a loan secured by the property. For the purposes of this provision, "institutional lender" means a bank, savings and loan association, industrial loan company, credit union, personal property broker or a company whose principal business is as a lender upon loans secured by real property and which has such loans receivable in the amount of $2,000,000 or more. Any person relying on the appraisal value of a principal residence must deliver to the Company, at or prior to the date of execution hereof, a copy of such appraisal; _____ A trust, with total assets in excess of $5,000,000, which is not formed for the purpose of acquiring the Preferred Shares and whose purchase is directed by a person who has such knowledge and experience in financial business matters that such person is capable of evaluating the risks and merits of an investment in the Preferred Shares; _____ An organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, a corporation, a partnership, or a Massachusetts or similar business trust, not formed for the specific purpose of acquiring the Preferred Shares, with total assets in excess of $5,000,000; _____ A bank as defined in Section 3(a)(2) of the Act or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940; a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; or an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of the Employee Retirement Income Security Act of 1974, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess -11- of $5,000,000 or, if the employee benefit plan is a self-directed plan, the investment decision is made solely by persons which are accredited investors; _____ A private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; _____ A director, executive officer or general partner of the Company; or _____ An entity in which all of the equity owners meet the requirements of at least one of the above subparagraphs for accredited investors. [Remainder of page intentionally left blank] -12- IN WITNESS WHEREOF, Subscriber and the Company have executed and dated this Subscription Agreement as of the dates below. COMMUNICATION INTELLIGENCE CORPORATION By: ----------------------------------- Philip S. Sassower Chairman of the Executive Committee INVESTOR: INDIVIDUAL: ______________________________________ (please date below & Name: complete Schedule I) TRUST: Trust Name: (please date below & complete Schedule II) By:___________________________________ Name & Title: PARTNERSHIP: Partnership Name: (please date below & complete Schedule III) By:______________________________________ Name & Title: CORPORATION: Corporation Name: (please date below & complete Schedule IV) By:___________________________________ Name & Title: RETIREMENT PLAN Plan Name: (please date below & complete Schedule V) By:___________________________________ Name & Title: Dated: ____________________, 1997 -13- Schedule I -- FOR INDIVIDUAL SUBSCRIBERS Purchaser's Legal Residence: ________________________________________________________________________ ________________________________________________________________________ Mailing Address (for purposes of notice, etc.): ________________________________________________________________________ ________________________________________________________________________ Citizenship: Subscriber is a citizen of the State of _______________________. Subscriber is not a resident of any other jurisdiction. Telephone Number: ____________________________________ Social Security Number: ____________________________________ Subscription Amount: ___________ Preferred Shares X $25.00 = $_____________________ total purchase price Subscriber acknowledges that the Company will rely on the information provided by Subscriber hereto in order to register the Common Shares and otherwise comply with all applicable state and federal securities laws. Such information shall be deemed to be representations by the Subscriber for purposes of this Agreement. -14- Schedule II -- FOR TRUST SUBSCRIBERS Purchaser's Name: ________________________________________________________________________ Address: ________________________________________________________________________ ________________________________________________________________________ Mailing Address (for purposes of notice, etc.): ________________________________________________________________________ ________________________________________________________________________ Telephone Number: ______________________________ State of Formation: Date of Formation: ______________________________ ____________________________________ Taxpayer Identification Number: ____________________________________ Subscription Amount: ___________ Preferred Shares X $25.00 = $_____________ total purchase price Subscriber acknowledges that the Company will rely on the information provided by Subscriber hereto in order to register the Common Shares and otherwise comply with all applicable state and federal securities laws. Such information shall be deemed to be representations by the Subscriber for purposes of this Agreement. -15- Schedule III -- FOR PARTNERSHIP SUBSCRIBERS Purchaser's Name: ________________________________________________________________________ Purchaser's Principal Place of Business: ________________________________________________________________________ ________________________________________________________________________ Mailing Address (for purposes of notice, etc.): ________________________________________________________________________ ________________________________________________________________________ Telephone Number: ______________________________ State of Formation: Date of Formation: ______________________________ ____________________________________ Taxpayer Identification Number: ____________________________________ Number of Partners: ___________________ Subscription Amount: ___________ Preferred Shares X $25.00 = $_____________ total purchase price Subscriber acknowledges that the Company will rely on the information provided by Subscriber hereto in order to register the Common Shares and otherwise comply with all applicable state and federal securities laws. Such information shall be deemed to be representations by the Subscriber for purposes of this Agreement. -16- Schedule IV -- FOR CORPORATION SUBSCRIBERS Purchaser's Name: ________________________________________________________________________________ Purchaser's Principal Place of Business: ________________________________________________________________________________ ________________________________________________________________________________ Executive Offices (if different): ________________________________________________________________________________ ________________________________________________________________________________ Mailing Address (for purposes of notice, etc.): ________________________________________________________________________________ ________________________________________________________________________________ Telephone Number: _______________________________________ State and Date of Incorporation: ______________________________ Number of Shareholders: ________________ Taxpayer Identification Number: ____________________________________ Subscription Amount: ___________ Preferred Shares X $25.00 = $_____________ total purchase price Subscriber acknowledges that the Company will rely on the information provided by Subscriber hereto in order to register the Common Shares and otherwise comply with all applicable state and federal securities laws. Such information shall be deemed to be representations by the Subscriber for purposes of this Agreement. -17- Schedule V -- FOR RETIREMENT PLAN SUBSCRIBERS Purchaser's Name: ________________________________________________________________________ Address: ________________________________________________________________________ ________________________________________________________________________ Mailing Address (for purposes of notice, etc.): ________________________________________________________________________ ________________________________________________________________________ Telephone Number: ____________________________________ State of Formation: ____________________________________ Date of Formation: ____________________________________ Taxpayer Identification Number: ____________________________________ Subscription Amount: ___________ Preferred Shares X $25.00 = $_____________ total purchase price Subscriber acknowledges that the Company will rely on the information provided by Subscriber hereto in order to register the Common Shares and otherwise comply with all applicable state and federal securities laws. Such information shall be deemed to be representations by the Subscriber for purposes of this Agreement. -18- EX-10.2 3 EXH10.2 EXHIBIT 10.2 CERTIFICATE OF DESIGNATIONS of SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK for COMMUNICATION INTELLIGENCE CORPORATION Communication Intelligence Corporation, a Delaware corporation (the "Corporation"), pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, does hereby make this Certificate of Designations (the "Designation") and does hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Corporation's Amended and Restated Certificate of Incorporation (the "Certificate") the Board of Directors duly adopted the following resolutions, which resolutions remain in full force and effect as of the date hereof: RESOLVED, that pursuant to Article FOURTH of the Certificate, the Board of Directors hereby authorizes the issuance of, and fixes the designation, powers, preferences and rights, and qualifications, limitations and restrictions, of a series of the Corporation's Preferred Stock consisting of 340,000 shares, par value $0.01, to be designated as "Series B 5% Cumulative Convertible Preferred Stock" (the "Preferred Shares"). RESOLVED, that the Preferred Shares shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, be pari passu with the Corporation's series of preferred stock consisting of 600,000 shares, par value $0.01, designated as 5% Cumulative Convertible Preferred Stock (the "Series A Preferred Shares") pursuant to the Certificate of Designations of the Corporation, filed with the Secretary of State of the State of Delaware on December 27, 1996. RESOLVED, that each of the Preferred Shares shall rank equally in all respects and shall be subject to the following terms and provisions: 1. Dividends. (a) Cumulative. The holders of the Preferred Shares shall be entitled to receive out of any assets legally available therefor cumulative dividends at the rate of $1.25 per share per annum compounded quarterly when payable (whether or not declared), payable every three (3) months commencing March 1, 1998 (each March 1, June 1, September 1, and December 1 thereafter and prior to conversion of all Preferred Shares, a ("Dividend Payment Date")), when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on the Common Stock (as defined below) or any other class or series of stock of the Corporation ranking junior to the Preferred Shares. The Preferred Shares shall, with respect to, among other things, dividend rights, be pari passu with the Series A Preferred Shares. Such dividends shall accrue on any given share from the most recent date on which a dividend has been paid with respect to such share, or if no dividends have been paid, from the date of the original issuance of such share, and such dividends shall accrue from day to day whether or not declared, based on the actual number of days elapsed. If at any time dividends on the outstanding Preferred Shares at the rate set forth above shall not have been paid or declared and set apart for payment with respect to all proceeding periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, but without interest, before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon or set apart for shares of Common Stock or any other class or series of stock of the Corporation ranking junior to the Preferred Shares. (b) Cash or PIK. Any dividend payable on the outstanding Preferred Shares may be paid either in cash or, at the option of the Corporation, in additional Preferred Shares (with each Preferred Share valued at $25 per share); provided, however, that if the Corporation shall fail to pay any dividend on a Dividend Payment Date, the amount of such dividend shall be added to the Liquidation Preference (as defined below) for such Preferred Shares. 2. Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Preferred Shares shall be entitled to receive, prior and in preference to the distribution of any assets of the Corporation to the holders of any other class or series of shares ranking junior to the Preferred Shares, and on a pari passu basis with the Series A Preferred Shares, the amount of $25 per share plus any accrued but unpaid dividends (with dividends deemed accrued on a per diem basis through the date of such event even if such event or any distribution is not on a Dividend Payment Date) (the "Liquidation Preference"). 3. Issuance of Preferred Shares. The Preferred Shares shall be issued by the Corporation pursuant to the terms of Subscription Agreements ("Subscription Agreements") to be entered into between the Corporation and the subscribers of the Preferred Shares (the "Subscribers") and holders of the Preferred Shares shall have the rights and benefits of the Registration Rights Agreement ("Registration Rights Agreement") to be entered into between the Corporation and the Subscribers in connection with the Preferred Shares. The 100,000 Preferred Shares authorized and designated hereunder which were not issued by the Corporation pursuant to the Subscription Agreements may only be issued for the purpose of paying stock dividends on the Preferred Shares hereunder. 4. Conversion. On and after the Closing Date (as defined in the Subscription Agreements) each holder of the Preferred Shares shall have the right at any time and from time 2 to time prior to the Forced Conversion Date (as defined below), at the option of such holder, to convert any or all Preferred Shares for such number of fully paid, validly issued and nonassessable shares (the "Common Shares") of common stock, par value $0.01, of the Corporation ("Common Stock), free and clear of any liens, claims or encumbrances, as is determined by dividing (i) the sum of $25.00 times the number of Preferred Shares being converted plus accrued and unpaid dividends thereon up to and including the most recent Dividend Payment Date, plus any default payments owing to such holder on the Conversion Date (the "Conversion Amount"), by (ii) the Conversion Price determined as hereinafter provided in effect on the Conversion Date, on the following terms and conditions: (a) Mechanics of Conversion. To convert Preferred Shares into Common Shares, the holder shall give written notice ("Conversion Notice") to the Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice shall be given to the Corporation at its chief executive offices by hand, by overnight courier, by first class mail, return receipt requested, or by facsimile with confirmation) stating that such holder elects to convert the same and shall state therein the number of shares to be converted and the name or names in which such holder wishes the certificate or certificates for Common Shares to be issued (the date such Conversion Notice is received by the Corporation shall be referred to herein as the "Conversion Date"). Within one (1) trading day after such conversion the holder shall deliver page 2 to Exhibit A hereto indicating the computation of the number of Common Shares to be received and shall surrender the certificate or certificates representing the Preferred Shares being converted, duly endorsed, at the chief executive offices of the Corporation or at the offices of any transfer agent appointed by the Corporation for such shares, provided that the Corporation shall at all times maintain an office or agency in New York City for such purposes. Upon receipt of such Conversion Notice, the Corporation shall issue and deliver to or upon the order of such holder, against delivery of the certificates representing the Preferred Shares which have been so converted, a certificate or certificates for the number of Common Shares to which such holder shall be entitled (with the number of and denomination of such certificates designated by such holder), and the Corporation shall immediately issue and deliver to such holder a certificate or certificates for the number of Preferred Shares which such holder has not yet elected to convert hereunder but which are evidenced in part by the certificate(s) delivered to the Corporation in connection with such Conversion Notice; the Corporation shall effect such issuance within three (3) trading days (as defined in Section 4(b) below) of the Conversion Date and shall transmit the certificates by messenger or overnight delivery service, to reach the address designated by such holder within three (3) trading days after the receipt of such Conversion Notice ("T+3"). In the alternative to physical delivery of certificates for Common Shares, if delivery of the Common Shares pursuant to any conversion hereunder may be effectuated by electronic book-entry through Depository Trust Company ("DTC"), then delivery of Common Shares pursuant to such conversion shall be closed and settled on T+3 by book-entry transfer through DTC, and the Common Shares in connection with such conversion shall be deemed delivered by such book-entry transfer. The parties agree to coordinate with DTC to accomplish this objective. The conversion pursuant to this Section 4 shall be deemed to have been made at 5:00 p.m. (New York time) on the Conversion Date. The person or persons entitled to receive the Common Shares issuable upon such conversion shall be treated for all 3 purposes as the record holder or holders of such Common Shares at the close of business on the Conversion Date. By delivering a Conversion Notice to the Corporation pursuant hereto, each holder represents, warrants, covenants and agrees that such holder has concurrently sold on the Conversion Date all of the Common Shares issued with respect to such conversion. Any breach of this provision shall cause such Conversion Notice to be null and void. (b) Determination of Conversion Price. (A) The Conversion Price shall be equal to the lower of: (i) the Agreed Value (as defined below), net of normal and customary commissions and underwriting or dealer spreads and (ii) the Market Price (as defined below), net of normal and customary commissions and underwriting or dealer spreads. (B) For purposes hereof, the following terms shall have the following meanings: (i) The term "Agreed Value" shall mean $1.59 per share of Common Stock. (ii) The term "Market Price" shall mean the average of the daily Closing Price of the Common Stock for the three (3) consecutive trading days immediately preceding the Conversion Date. (iii) The term the "Closing Price" on any trading day shall mean (A) the closing price of the Common Stock on the New York Stock Exchange or the American Stock Exchange, or (B) if the Common Stock is not listed on the New York Stock Exchange or the American Stock Exchange, the reported Closing Price of the Common Stock on the principal automated securities price quotation system on which sale prices of the Common Stock are reported, or (C) if the Common Stock is not listed on such stock exchange and sale prices of the Common Stock are not reported on an automated quotation system, the mean of the final bid and ask prices for the Common Stock as reported by National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and ask quotations for the Common Stock on at least five of the ten preceding trading days. If none of the foregoing provisions are applicable, the "Market Price" of the Common Stock on the Conversion Date will be the fair market value of the Common Stock on that day as determined in good faith by the Board of Directors of the Corporation. (iv) The term "trading day" means (x) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, a day on which there is trading on such stock exchange, (y) if the Common Stock is not listed on either of such stock exchanges but sale prices of the Common Stock are reported on an automated quotation system, a day on which trading is reported on the principal automated quotation system on which sales of the Common Stock are reported, or (z) if the foregoing provisions are inapplicable, a day on which quotations are reported by National Quotation Bureau Incorporated. 4 (C) In the event that during any period commencing on the Closing Date and ending on the earlier of the Forced Conversion Date (as hereinbelow defined) or the Conversion Date with respect to each outstanding Preferred Share, the Corporation shall declare or pay any dividend with respect to the Common Stock payable in Common Stock or in rights to acquire Common Stock, or shall effect a stock split or reverse stock split, or a combination, consolidation or reclassification of the Common Stock, then the Conversion Price shall be proportionately decreased or increased, as appropriate, to give effect to such event. (c) Distributions. In the event the Corporation shall at any time or from time to time issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation or any of its direct or indirect subsidiaries other than additional Common Shares, then in each such event, in addition to the number of shares of Common Stock receivable upon conversion, provision shall be made so that the holders of Preferred Shares shall receive, upon the conversion thereof, the securities of the Corporation or such subsidiary which they would have received had they been the owners on the date of such event of the number of Common Shares issuable to them upon conversion. The Corporation shall, upon the written request at any time of any holder of Preferred Shares, furnish or cause to be furnished to such holder a certificate prepared by the Corporation setting forth the number of other securities and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Shares with respect to each share of Common Stock received upon such conversion. (d) Notice of Record Date. In the event of any fixing by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any security or right convertible into or entitling the holder thereof to receive additional Common Shares, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Shares at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be fixed for the purpose of such dividend, distribution, security or right and the amount and character of such dividend, distribution, security or right. (e) Issue Taxes. The Corporation shall pay any and all issue and stamp taxes, excluding any income, franchise or similar taxes, that may be payable in respect of any issue or delivery of Common Shares on conversion of Preferred Shares pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (f) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Common Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares, and if at any time the number of authorized but unissued Common 5 Shares shall not be sufficient to effect the conversion of all the then outstanding Preferred Shares, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purpose. (g) Fractional Shares. No fractional shares shall be issued upon the conversion of any Preferred Shares. All Common Shares (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the Market Price of such fraction on the applicable Conversion Date. (h) Reorganization or Merger. In case of any reorganization or any reclassification of the capital stock of the Corporation or any consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation to any other person, then, as part of such reorganization, consolidation, merger or sale, if the holders of Common Shares receive any publicly traded securities as part or all of the consideration for such reorganization, consolidation, merger or sale, then provision shall be made such that each Preferred Share shall thereafter be convertible into such new securities at a conversion price which places the holders of Preferred Shares in an economically equivalent position as they would have been if not for such event. In addition to the foregoing, if the holders of Common Shares receive any non-publicly traded securities or other property or cash as part or all of the consideration for such reorganization, consolidation, merger or sale, then such distribution shall be treated as a distribution under Section 4(c) above and such Section shall govern such distribution. So long as any Preferred Shares are outstanding, the Corporation agrees that there shall be no such reorganization, consolidation, merger or sale unless an appropriate adjustment of the conversion price and other provisions contained herein is agreed to in writing in advance by the Board of Directors of the Corporation and a majority in interest of the holders of the outstanding Preferred Shares (which agreement will not be unreasonably withheld), provided that such consent shall not be required if (i) such reorganization, consolidation, merger or sale places such holders in the equivalent position as they would have been if not for such event and (ii) the surviving entity and the entity into whose securities the Preferred Shares are then convertible in connection with such reorganization, consolidation, merger or sale are in compliance with all the material provisions of this Designation, the Registration Rights Agreement and the Subscription Agreement as if such agreements and documents were applicable to such entities and their securities (including, without limitation, that the applicable securities into which the Preferred Shares are convertible are authorized and available for conversion, registered, and listed and traded on the applicable exchanges and/or markets). (i) Change in Control. If at any time (a) there occurs any consolidation or merger of the Corporation with or into any other corporation or other entity or 6 person (whether or not the Corporation is the surviving corporation), or any other corporate reorganization or transaction or series of related transactions in which in excess of 50% of the Corporation's voting power is transferred through a merger, consolidation, tender offer or similar transaction, (b) in excess of 50% of the Corporation's Board of Directors consists of directors not nominated by the prior Board of Directors of the Corporation, or (c) any person (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), together with its affiliates and associates (as such terms are defined in Rule 405 under the Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act without regard to the 60-day exercise period) in excess of 50% of the Corporation's voting power (the events in the foregoing clauses (a), (b) and (c) each referred to as a "Change in Control Transaction"), then the Corporation shall provide all holders of Preferred Shares with 30 days' prior notice of such transaction. The Corporation further agrees that it shall not agree, nor consent to, nor enter into any transaction or series of transactions as a result of which the Common Shares would cease to be publicly traded unless agreed to in writing in advance by the Board of Directors of the Corporation and a majority in interest of the holders of the then outstanding Preferred Shares. (j) Forced Conversion. Subject to the following sentence, each holder of Preferred Shares shall convert, on the third (3rd) anniversary of the Closing Date ("Forced Conversion Date"), all Preferred Shares then held by such holder. Notwithstanding the preceding sentence, no holder of Preferred Shares shall be obligated to convert any Preferred Shares then held by such holder on the Forced Conversion Date if the Corporation has provided such holder with 30 days prior written notice that the Forced Conversion Date has been extended, in which event the Forced Conversion Date shall be that date set by the Corporation, which shall be no later than the fourth (4th) anniversary of the Closing Date. (k) Limitations on Holder's Right to Convert. (i) Notwithstanding anything to the contrary contained herein, no Preferred Share may be converted by a holder to the extent that, after giving effect to Common Shares to be issued pursuant to a Conversion Notice, the total number of Common Shares deemed beneficially owned by such holder, together with all Common Shares deemed beneficially owned by the holder's "affiliates" as defined in Rule 144 of the Act, would exceed 4.9% of the total issued and outstanding shares of the Corporation's Common Stock, provided that each holder shall have the right to avoid this restriction, in whole or in part, immediately in the case of a pending Change in Control Transaction and in any other case upon 61 days prior notice to the Corporation. The delivery of a Conversion Notice by any holder shall be deemed a representation by such holder that it is in compliance with this paragraph. A transferee of the Preferred Shares shall not be bound by this provision unless it expressly agrees to be so bound. The term "deemed beneficially owned" as used in this Designation shall exclude shares that might otherwise be deemed beneficially owned by reason of the convertibility of the Preferred Shares. (l) Certificate for Conversion Price Adjustment. The Corporation shall, upon the written request at any time of any holder of Preferred Shares, furnish or cause to be 7 furnished to such holder a certificate prepared by the Corporation setting forth any adjustments or readjustments of the Conversion Price pursuant to this Section 4. (m) Specific Enforcement. The Corporation agrees that irreparable damage would occur in the event that any of the provisions of this Designation were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the holders of Preferred Shares shall be entitled to specific performance, injunctive relief or other equitable remedies to prevent or cure breaches of the provisions of the provisions of this Designation and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy, to which any of them may be entitled under agreement, at law or in equity. 5. Voting Rights. (a) In addition to the voting rights provided in Section 5(b) below, the holders of Preferred Shares shall have the right, together with the holders of Common Stock, to vote in the election of directors and upon each other matter coming before any meeting of the holders of Common Stock, on the basis of one vote for each Preferred Share held, and the holders of Preferred Shares and the holders of Common Stock shall vote together as if they were one class on such matters. (b) The affirmative vote of fifty-one percent (51%) of the then outstanding Preferred Shares shall be necessary for (i) any amendment of this Certificate of Designations, (ii) any amendment to the Corporation's Certificate of Incorporation or by-laws that may amend or change any of the rights, preferences, or privileges of the Preferred Shares (iii) any waiver of a default in payment of dividends on the Preferred Shares, and (iv) any reorganization or reclassification of the capital stock of the Corporation, any consolidation or merger of the Corporation with or into any other corporation or corporations, or any sale of all or substantially all of the assets of the Corporation that would have an adverse effect on any of the rights, preferences, or privileges of the Preferred Shares. 6. Notices. The Corporation shall distribute to the holders of Preferred Shares copies of all notices, materials, annual and quarterly reports, proxy statements, information statements and any other documents distributed generally by the Corporation to the holders of shares of Common Stock of the Corporation. 7. Replacement Certificates. The certificate(s) representing the Preferred Shares held by any holder of Preferred Shares may be exchanged by such holder at any time and from time to time for certificates with different denominations representing an equal aggregate 8 number of Preferred Shares, as reasonably requested by such holder, upon surrendering the same. No service charge will be made for such registration or transfer or exchange. Dated as of: November 25, 1997 COMMUNICATION INTELLIGENCE CORPORATION By: /s/Philip S. Sassower ------------------------------ Name: Philip S. Sassower Title: Chief Executive Officer 9 EXHIBIT A (To be Executed by Holder in order to Convert Preferred Shares) CONVERSION NOTICE FOR SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK The undersigned, as a holder ("Holder") of shares of Series B 5% Cumulative Convertible Preferred Stock ("Preferred Shares") of Communication Intelligence Corporation (the "Corporation"), hereby irrevocably elects to convert _______ Preferred Shares for shares ("Common Shares") of common stock, par value $0.01 per share (the "Common Stock"), of the Corporation according to the terms and provisions of the Corporation's Certificate of Designations for the Preferred Shares. The undersigned hereby requests that share certificates for the Common Stock to be issued pursuant to this Conversion Notice be issued in the name of, and delivered to, the Holder as indicated below. No fee will be charged to the Holder of Preferred Shares for any conversion. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Certificate of Designations. Conversion Date: ------------------------- Conversion Information: NAME OF HOLDER: ---------------------- By: ----------------------------------- (Print) Name: (Print) Title: (Print) Address of Holder: --------------------------------------- --------------------------------------- Issue Common Stock to: ---------------- at: ----------------------------------- ----------------------------------- SIGNATURE GUARANTEED BY: - --------------------------------- THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE. Page 1 of Conversion Notice Page 2 to Conversion Notice dated for: ----------------- ----------------------- (Conversion Date) (Name of Holder) COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED Number of Preferred Shares converted: shares --------- A. Number of Preferred Shares converted x $25 $ ----------- B. Number of Preferred Shares converted x accrued and unpaid dividends up to the most recent Dividend Payment Date $ ----------- C. Default Payments due Holders $ ----------- Total dollar amount converted (total of A + B + C) $ ----------- ----------- ----------- Conversion Price (determined pursuant to Section 4(b)(i) of the Certificate of Designations) $ ----------- Number of Common Shares = Total dollar amount converted = $ ----------------------------- ----------- Conversion Price $----------- If the conversion is not being settled by DTC, please issue and deliver ___ certificate(s) for Common Shares in the following amount(s): - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- If the Holder is receiving certificate(s) for Preferred Shares upon the conversion, please issue and deliver ___ certificate(s) for Preferred Shares in the following amounts: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EX-10.3 4 EXH10.3 EXHIBIT 10.3 COMMUNICATION INTELLIGENCE CORPORATION FORM OF REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of November 25, 1997, is made by and among Communication Intelligence Corporation, a Delaware corporation (the "Company"), and those parties listed on the signature page hereto (the "Purchasers"). R E C I T A L S WHEREAS, pursuant to the terms of Subscription Agreements between the Company and the Purchasers (the "Subscription Agreements"), the Purchasers have purchased from the Company on the date hereof 240,000 shares of Series B 5% Cumulative Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Preferred Shares"); and WHEREAS, the Preferred Shares are convertible into shares (the "Common Shares") of the Company's common stock, par value $0.01, pursuant to the terms and provisions set forth in the Certificate of Designations (the "Designation") for such Preferred Shares; and WHEREAS, as further inducement for the Purchasers to purchase the Preferred Shares from the Company, the Company desires to undertake to register the Common Shares, under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations thereunder, in accordance with, and subject to, the terms hereof; NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions herein the Purchasers and the Company covenant and agree, upon the terms and subject to the conditions set forth herein, as follows: 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Subscription Agreement or the Designation. As used in this Agreement, the following terms shall have the following respective meanings: (a) "Closing" and "Closing Date" shall have the meanings ascribed to such terms in the Subscription Agreement. (b) "Holder" and "Holders" shall include a Purchaser or the Purchasers, respectively, and any transferee of the Preferred Shares or Common Shares or Registrable Securities which have not been sold to the public to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement. (c) "Registrable Securities" shall mean: (i) the Common Shares issued to each Holder or its permitted transferee or designee upon conversion of the Preferred Shares or upon any stock split, stock dividend, recapitalization or similar event with respect to such Common Shares; (ii) any securities issued or issuable to each Holder upon the exchange or conversion of any Preferred Shares or Common Shares; (iii) any other security of the Company issued as a dividend or other distribution with respect to, in exchange for or in replacement of Registrable Securities. (d) The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. (e) "SEC" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 2. Holders' Registration. (a) Obligation For Registration. Within 45 days of the Closing Date (as defined in the Subscription Agreements), the Company shall prepare and file a Registration Statement on Form S-3 with the SEC to register the public sale of the Registrable Securities by the Holders under the Securities Act. The Company shall use its best efforts to (i) cause such Registration Statement to become effective under the Securities Act within 180 days of the Closing Date; and (ii) keep such Registration Statement continuously effective until the earlier of the Forced Conversion Date or the date on which none of the Preferred Shares are outstanding. Each Holder shall notify the Company in writing within ten (10) days after the sale of the last of its Registrable Securities to enable the Company to determine when its obligation to continue effectiveness of the Registration Statement terminates. (b) Notice of Registration. Within fifteen (15) days prior to the proposed filing date of the Registration Statement referred to in Section 2(a), the Company shall give written notice to the Holders of its intention to file the Registration Statement, which notice shall state that the Holders shall have five days from the receipt of such notice to notify the Company of an election not to have such Holder's Registrable Securities included in the Registration Statement. Within five days after the receipt of such notice, each Holder shall notify the Company if it elects not to have its Registrable Securities included in the Registration Statement. In such event, the Company shall have no further obligations to such Holder under this Agreement. The right of any Holder to have Registrable Securities included in the Registration Statement pursuant to this Section 2 shall -2- be conditioned upon such Holder's compliance in all material respects with all of the terms and provisions of this Agreement. (c) Additional Registration. If the Holders become entitled, pursuant to an event described in clause (iii) of the definition of Registrable Securities, to receive any securities in respect of Registrable Securities that were already included in a Registration Statement, subsequent to the date such Registration Statement is declared effective, and the Company is unable under the securities laws to add such securities to the then effective Registration Statement, the Company shall promptly file, in accordance with the procedures more particularly set forth in Section 2 hereof, an additional Registration Statement with respect to any such new Registrable Securities. The Company shall use its best efforts to (i) cause any such additional Registration Statement, when filed, to become effective under the Securities Act; and (ii) keep such additional Registration Statement effective during the period described in clause (ii) of Section 2(a). (d) Default Payment. (i) In the event that such Registration Statement described in Section 2(a) has not been declared effective within 180 days from the Closing Date, then CIC shall pay to each Holder a default payment in an amount equal to two and one-half percent (2.5%) of the Liquidation Preference for the Preferred Shares held by such Holder for each 30-day period from and after the 180th day following the Closing Date during any part of which such Registration Statement is not effective (ii) All default payments required to be made in connection with the above provision shall be paid by the tenth (10th) day of each calendar month, in additional Preferred Shares (with each new Preferred Share valued at $25 per share) or, at the Company's option, in cash. (iii) The Company acknowledges that any failure, refusal or inability by it to meet its obligations under this Section 2 will cause the Holders to suffer damages in an amount that will be difficult to ascertain, including, without limitation, damages resulting from the loss of liquidity in the Registrable Securities and the additional investment risk in holding the Registrable Securities, whether or not such Holders ultimately achieve the return on investment contemplated in the Designation. Accordingly, the parties agree that it is appropriate to include in this Agreement the foregoing provision for default payments in order to compensate the Holders for such damages. The parties acknowledge and agree that the default payment provision set forth above represents the parties' good faith effort to quantify such damages and, as such, agree that the form and amount of such default payment is reasonable and will not constitute a penalty. The default payment provided for above is in addition to and not in lieu or limitation of any other rights the Holders may have at law, in equity or under the terms of the Designation, the Subscription Agreement or this Agreement, including without limitation the right to specific performance. Each Holder shall be entitled to specific performance of any and all obligations of the Company in connection with the registration rights of the Holders hereunder. -3- 3. Obligations of the Company. In connection with the registration of the Registrable Securities pursuant to Section 2 of this Agreement, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a Registration Statement with respect to all Registrable Securities included therein, and use its best efforts to cause the Registration Statement to become effective as soon as reasonably possible after such filing, and to keep the Registration Statement effective for the period specified in Section 2 hereof, which Registration Statement shall not contain during such period any untrue statement of a material fact or omit to state during such period a material fact required to be stated therein or necessary to make the statements therein not misleading. (b) Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective for the period specified in Section 2 hereof and as may be required by the Securities Act, and during such period to comply in all material respects with the provisions of the Securities Act with respect to the Registration Statement. (c) Furnish promptly to each Holder whose Registrable Securities are included in the Registration Statement such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by such Holder. (d) Use reasonable efforts to register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders and prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements and to take such other actions as may be necessary to maintain such registration and qualification in effect at all times during which it has agreed to use its best efforts to keep a Registration Statement effective under the Securities Act pursuant to the terms of this Agreement, and to take all other actions necessary or advisable to enable the disposition of such securities in such jurisdictions, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process, to subject itself to general taxation in any such states or jurisdictions or to make any change in its charter or bylaws which the Board of Directors determines to be contrary to the best interest of the Company and its shareholders. (e) Notify the Holders who hold Registrable Securities being sold of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company shall promptly amend or supplement the Registration Statement to correct any such untrue statement of a material fact or omission of a material fact. -4- (f) Notify the Holders who hold Registrable Securities being sold of the issuance by the SEC or any state securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. (g) Furnish to the Holders, on the effective date of the Registration Statement, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given in such an offering, addressed to the Company, on which the Holders shall be permitted to rely (and a copy of which shall be delivered to the Holders). (h) Make available for inspection by the Holders (provided that all of such persons agree to be bound by confidentiality agreements acceptable to the Company), all pertinent financial and other records, corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such party in connection with the Registration Statement. (i) Use its best efforts to cause the Registrable Securities being sold to be listed on the NASDAQ SmallCap Market or any other market or exchange on which the Company's Common Stock is then traded. (j) Take all actions reasonably necessary to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold pursuant to the Registration Statement and to enable such certificates to be in such denominations and registered in such names as the Holders of the Registrable Securities being sold. (k) Take all other actions reasonably necessary to expedite and facilitate disposition by the Holders of the Registrable Securities being sold pursuant to the Registration Statement. 4. Obligations of the Holders. In connection with the registration of the Registrable Securities, the Holders covenant and agree to the following: (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to each Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended methods of disposition of such securities as shall be reasonably required to effect the registration of the Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. The Company shall notify each Holder of the information the Company requires from each such Holder if it elects to have any of his Registrable Securities included in the Registration Statement. -5- (b) Each Holder by his purchase of the Preferred Shares agrees to cooperate with the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Holder has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement. (c) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e), such Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) and, if so requested in writing by the Company, such Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of such destruction) all copies, other than the permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities at the time of receipt of such notice. 5. Expenses of Registration. All expenses incurred in connection with registration, filings or qualifications required pursuant to Sections 2 and 3, including, without limitation, all registration, listing, filing and qualification fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be liable for all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for Holders. 6. Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will indemnify and hold each Holder, its partners and their respective directors, officers, employees and representatives, and each person who controls any such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "1934 Act") (each such person being referred to as an "Indemnified Person") harmless from and against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or allegation thereof based upon information furnished in writing to the Company by such Indemnified Person for use therein. Notwithstanding the foregoing, the Company shall not be obligated to so indemnify any such Holder, officer, director or controlling person with respect to any loss, claim, damage, liability or expense arising out of the failure by such person to comply with the prospectus delivery requirements under the Securities Act and the rules and regulations thereunder. -6- (b) If any action or proceeding (including any governmental investigation) shall be brought, threatened or asserted against any Indemnified Person in respect of which indemnity may be sought from the Company, such Indemnified Person shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including employment of counsel and the payment of all expenses related thereto. Any such Indemnified Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Company has agreed to pay such fees and expenses; or (ii) the Company shall have failed to assume the defense of such action or proceeding and employ counsel in such action or proceeding; or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both such Indemnified Person and the Company, and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Person which are different from or additional to those available to the Company (in which case, if such Indemnified Person notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company will not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Person); provided, however, that the Company will not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Persons, which firm shall be designated in writing by a majority in interest of such Indemnified Persons. The Company shall not be liable for any default judgment caused by any Indemnified Person or settlement of any such action or proceeding or confession of judgment without its prior written consent, but if settled with its written consent (which consent shall not be unreasonably withheld), or if there be a final judgment (other than such default judgment) for the plaintiff in any such action or proceeding, the Company agrees to indemnify and hold harmless such Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Subject to the following sentence, if the Company agrees to a settlement of an action or proceeding against an Indemnified Person which does not involve any finding or admission of liability or wrongdoing on the part of the Indemnified Person and stands ready, willing and able to pay such settlement and the Indemnified Person refuses to settle, then the Indemnified Person shall continue the defense at its own expense and the Company shall be responsible to indemnify only the lesser of the amount of the settlement accepted by the Company or the cost of the final disposition of the claim. The Company will not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder unless such settlement, compromise, consent or termination includes an express unconditional release of all Indemnified Persons from all liability arising out of such action, claim, suit or proceeding. (c) Each Holder, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors and officers, and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the 1934 Act, to the same extent as the indemnity from the Company to each Indemnified Person set forth in Section 6(a), but only (i) with respect to untrue statements, alleged untrue -7- statements, omissions or alleged omissions relating to such Holder or an Indemnified Person who is such by reason of such person's relationship to such Holder, furnished in writing by such Holder or such person to the Company for use in the Registration Statement or the Prospectus, or any amendment or supplement thereto; and (ii) with respect to any failure by such Holder to comply with the prospectus delivery requirements under the Securities Act and the rules and regulations thereunder. In case any action or proceeding shall be brought against the Company or its officers or directors or any such controlling person in respect of which indemnity may be sought against a Holder under the provisions of this Section 6(c), such Holder shall have the rights and duties given to the Company and each of the Company or its directors or its officers or its controlling persons shall have the rights and duties given to each Holder and other Indemnified Persons, under the terms of Section 6(b) above. Notwithstanding anything contained herein, no Holder shall be liable for an amount which is greater than the proceeds received by such Holder from the sale of Registrable Securities. (d) If the indemnification provided for under Section 6(a) or Section 6(c) hereof is unavailable to an indemnified party thereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the applicable Holders on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the applicable Holders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or information supplied by the applicable Holder in writing for use in the Registration Statement, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Subsection 11(f) of the Securities Act) or of gross negligence, willful misconduct or bad faith shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation, gross negligence, willful, misconduct or bad faith. Notwithstanding anything contained herein, no Holder shall be liable for an amount which is greater than the proceeds received by such Holder from the sale of Registrable Securities. 7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of SEC Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration, the Company agrees to timely file with the SEC all reports and documents required to be filed by it under the Securities Act and the 1934 Act and the rules and regulations promulgated thereunder, and to furnish to each Holder (upon request), so long as such Holder owns any Registrable Securities, a copy of the most recent annual or quarterly report of the Company, such other reports and documents filed by the Company with the SEC, and such other information as -8- may be reasonably requested in availing the Holders of any rule or regulation of the SEC which permits the selling of any such securities without registration. 8. Assignments of Registration Rights. The rights of a Holder pursuant to this Agreement may be assigned by a Holder to transferees or assignees of Registrable Securities provided that (i) the Company is furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) the transfer or assignment of such Registrable Securities has been made in compliance with the Securities Act and applicable state securities laws and, immediately following such transfer or assignment, the further disposition of such Registrable Securities is restricted under the Securities Act; and (iii) the notice provided in this Section 8 contains a written agreement by the transferee or assignee to be bound by the terms and provisions of this Agreement as if such transferee were a signatory hereto . 9. Miscellaneous. (a) Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered or sent by registered mail, return receipt requested, addressed (i) if to the Company, at 275 Shoreline Drive, Suite 520, Redwood Shores, California 94065, Attention: President, with a copy to Donald J. Bezahler, Esq., Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022; or (ii) if to a Holder, at the address set forth on the signature pages of the Subscription Agreements, or at such other address as any such party furnishes by notice given in accordance with this Section 9. (b) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, will not operate as a waiver thereof. (c) This Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law applied in such State. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. (d) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing executed by the Company and a majority of the Holders. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Holders and the Company. -9- (e) Any person or entity is deemed to be a Holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall be entitled to act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (f) This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one instrument. (g) The parties hereto agree that irreparable harm would occur to the Holders in the event that any of the provisions of this Agreement were not performed by the Company, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining the amount of damage that would be suffered by the Holders in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly agreed that the Holders shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the Holders and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which the Holders are entitled at law or in equity or otherwise. [Remainder of page intentionally left blank] -10- IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed on its behalf as of the date first set forth above. COMMUNICATION INTELLIGENCE CORPORATION By:_______________________________________ Name: Philip S. Sassower Title: Chairman of the Executive Committee INVESTORS: INDIVIDUAL: ______________________________________ Address:___________________ Name: ___________________________ TRUST: Trust Name: Address:___________________ ___________________________ By:___________________________________ Name & Title: PARTNERSHIP: Partnership Name: Address:___________________ ___________________________ By:______________________________________ Name & Title: CORPORATION: Corporation Name: Address:___________________ ___________________________ By:___________________________________ Name & Title: RETIREMENT PLAN Plan Name: Address:___________________ ___________________________ By:___________________________________ Name & Title: -11- EX-99.1 5 EXHIBIT 99.1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE COMMUNICATION INTELLIGENCE CORPORATION 275 Shoreline Drive, Suite 500 Contact: Redwood Shores, CA 94065 Maurice Boucher Telephone: 650-802-7888 Director, Investor Relations Fax: 650-802-7777 650-631-7888 http//www.cic.com. mboucher@cic.com COMMUNICATION INTELLIGENCE CORPORATION APPOINTS NEW PRESIDENT AND C.O.O. AND FORMS THE OFFICE OF CHIEF EXECUTIVE REDWOOD SHORES, CA, November 13, 1997 (Nasdaq: CICI) Communication Intelligence Corporation (CIC) announced today that Mr. Guido DiGregorio has been appointed as President and Chief Operating Officer (COO) of the Company and the Office of Chief Executive has been formed. Mr. DiGregorio has also been appointed a member of CIC's Board of Directors and to the Executive Committee of that Board. Mr. DiGregorio brings to CIC a record of success in achieving profitability consistent with positioning organizations for growth. After fifteen years at General Electric, where he rose to the position of General Manager - -Industrial Automation, representing a $125 million annual business, he served as President of several high technology companies in a variety of industries, including wireless data communications and software. In addition, CIC has formed the Office of Chief Executive (OCE). The OCE will have primary responsibility in managing long-term corporate policy and strategic initiatives. It will be comprised of Mr. James Dao and Mr. Philip Sassower. Mr. Dao will continue his role as Chairman of the Board of CIC in addition to his primary focus of expanding the Company's activities in China. "CIC is pleased to have attracted such a talented and successful person as our new President," said Mr. James Dao, Chairman of CIC. He added, "As the markets for our products and technology become more established and grow, it is important to continuously strengthen and expand our management team. We look forward to Mr. DiGregorio's valuable contribution to CIC's development." Mr. Philip Sassower, Chairman of the Executive and Finance Committees of CIC's Board of Directors, said, "Mr. DiGregorio has the ideal skill set to enable CIC to focus on specific market opportunities with the goal of achieving near-term profitability." The Company Communication Intelligence Corporation develops, markets, and licenses natural input computer technology - products that use pen and image for input. Founded in 1981, CIC is a leading supplier of pen computing software products to hardware manufacturers throughout the world. The Company's products include Handwriter-Registered Trademark- Recognition System and Jot-TM- handwriting recognition solutions. In addition, CIC developed the SigCheck-TM- dynamic signature verification software which facilitates reliable user authentication over computer networks. CIC also markets the Handwriter-Registered Trademark- family of peripheral input devices, enabling users to have pen computing capabilities on their desktop and laptop personal computers. CIC is headquartered in Redwood Shores, California, and has subsidiaries in Japan and China. CIC's stock is publicly traded on Nasdaq, symbol CICI. More information about CIC and its products can be obtained on the Internet: http://www.cic.com Note: All company and product names used herein are trademarks or registered trademarks of their respective owners. PR#220 -----END PRIVACY-ENHANCED MESSAGE-----