COMMUNICATION INTELLIGENCE CORPORATION
275 Shoreline Drive, Suite 500
Redwood Shores, California 94065
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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June 21, 2004
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To the Stockholders of Communication Intelligence Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Communication Intelligence Corporation, a Delaware corporation (the
"Company"), will be held at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood
Shores, California 94065, on June 21, 2004, at 1:00 p.m. Pacific Time, for the
following purposes, all as more fully described in the attached Proxy Statement:
1. To elect five directors to serve until their respective successors are duly
elected and qualified.
2. To ratify the appointment of Stonefield Josephson, Inc. as the Company's
independent accountants for the year ending December 31, 2004.
3. To transact such other business as may properly come before the Annual
Meeting.
The Board of Directors has fixed the close of business on April 28, 2004 as
the record date for the determination of stockholders entitled to notice of, and
to vote on the matters proposed at, the Annual Meeting and any adjournments or
postponements thereof.
YOUR VOTE IS IMPORTANT
EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE PROXY IN THE ENVELOPE PROVIDED SO THAT YOUR
SHARES MAY BE VOTED AT THE ANNUAL MEETING. IF YOU EXECUTE A PROXY, YOU STILL MAY
ATTEND THE ANNUAL MEETING AND VOTE IN PERSON.
Redwood Shores, California By Order of the Board of Directors
May 21, 2004
Guido DiGregorio
Chairman, President and Chief Executive Officer
COMMUNICATION INTELLIGENCE CORPORATION
275 Shoreline Drive, Suite 500
Redwood Shores, California 94065
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
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INTRODUCTION
This Proxy Statement and the accompanying proxy is being furnished to
stockholders of Communication Intelligence Corporation, a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors for the Company's Annual Meeting of Stockholders to be held at the
Hotel Sofitel, 223 Twin Dolphin Drive, Redwood Shores, California 94065, on June
21, 2004, at 1:00 p.m. Pacific Time, and any and all adjournments or
postponements thereof (the "Annual Meeting").
At the Annual Meeting, stockholders of the Company as of the close of
business on April 28, 2004 (the "Record Date") will be asked to consider and
vote upon the following: (i) the election of five directors to serve until their
respective successors are duly elected and qualified (Proposal 1); (ii) the
ratification of the appointment of Stonefield Josephson, Inc. as the Company's
independent accountants for the year ending December 31, 2004 (Proposal 2). This
Proxy Statement and the accompanying proxy, together with a copy of the
Company's Annual Report to Stockholders, are first being mailed or delivered to
stockholders of the Company on or about May 21, 2004.
Representatives of Stonefield Josephson, Inc. are expected to be present at
the Annual Meeting and will be given the opportunity to address the stockholders
if they so desire and will be available to respond to appropriate questions.
WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS IMPORTANT.
ACCORDINGLY, YOU ARE ASKED TO SIGN AND RETURN THE PROXY, REGARDLESS OF THE
NUMBER OF SHARES YOU OWN. SHARES CAN BE VOTED AT THE ANNUAL MEETING ONLY IF THE
HOLDER IS REPRESENTED BY PROXY OR IS PRESENT.
VOTING SECURITIES
We have designated April 28, 2004 as the record date for determining those
stockholders who are entitled to notice of, and to vote at, this meeting.
Accordingly, only holders of record of shares of Common Stock at the close of
business on such date are entitled to notice of and to vote at the Annual
Meeting. At the close of business on the record date, there were approximately
980 beneficial owners of the 100,516,848 outstanding shares of our common stock,
par value $0.01 per share. Each stockholder is entitled to one vote for each
share of our common stock held by that stockholder as of the record date. If a
choice as to the matters coming before the Annual Meeting has been specified by
a stockholder "for," "against" or "abstain" on the proxy, which is duly returned
and properly executed, the shares will be voted accordingly. If no choice is
specified on the returned proxy, the shares will be voted in favor of the
approval of the proposals described in the Notice of Annual Meeting and in this
proxy statement. The presence in person or by proxy of a majority of the total
number of outstanding shares of Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting.
Proxies marked as abstaining will be treated as present for the purpose of
determining whether there is a quorum for the Annual Meeting, but will not be
counted as voting on any matter as to which abstinence is indicated. Thus, an
abstaining vote in the election of directors will have no legal effect on the
outcome as directors are elected by a plurality; however, an abstention as to
any other matter will have the same legal effect as a vote against such matter.
Brokers "non-votes" (i.e., the submission of a proxy by a broker or nominee
specifically indicating the lack of discretionary authority to vote on the
matter) will not be treated as present for purposes of determining whether there
is a quorum for the Annual Meeting unless the broker is given discretion to vote
on at least one matter on the agenda.
1
A stockholder executing a proxy pursuant to this solicitation may revoke
his or her proxy at any time prior to its use by:
o delivery to the Secretary of the Company a signed notice of revocation or a
later-dated, signed proxy; or
o attending the meeting and voting in person.
In order to be effective, all revocations or later-filed proxies must be
delivered to the Company at the address listed above not later than June 21,
2004, 1:00 p.m., local time.
Attendance at the meeting does not in itself constitute the revocation of a
proxy. In addition, if your shares are held in the name of your broker, bank or
other nominee, you must obtain a proxy, executed in your favor, from the holder
of record to be able to vote in person at the meeting.
Approval of Proposal 1 to elect five directors requires the affirmative
vote of holders representing a plurality of the shares of common stock
represented in person or by proxy at the Annual Meeting. Approval of Proposal 2
to ratify the appointment of Stonefield Josephson, Inc. as the Company's
independent accountants for the year ending December 31, 2004 requires the
affirmative vote of holders representing a majority of the shares of common
stock represented in person or by proxy at the Annual Meeting.
Each enclosed proxy gives discretionary authority to the persons named
therein with respect to any amendments or modifications of the Company proposals
and any other matters that may be properly proposed at the Annual Meeting. The
shares represented by all valid non-revoked proxies returned in time to be voted
at the Annual Meeting will be voted in accordance with the instructions marked
therein. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED (i) FOR THE ELECTION OF THE
DIRECTORS NAMED IN THE PROXY AND (ii) FOR THE RATIFICATION OF THE APPOINTMENT OF
STONEFIELD JOSEPHSON, INC. AS INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER
31, 2004. As of the date hereof, the Company is not aware of any such amendment
or modification or other matter to be presented for action at the Annual
Meeting. However, if any other matter properly comes before the Annual Meeting,
the proxies solicited hereby will be exercised in accordance with the reasonable
judgment of the proxyholders named therein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 12, 2004, with respect
to the beneficial ownership of (i) any person known to be the beneficial owner
of more than 5% of any class of voting securities of the Company, (ii) each
director and director nominee of the Company, (iii) each of the current
executive officers of the Company named in the Summary Compensation Table of
this Proxy Statement under the heading "Executive Compensation" and (iv) all
directors and executive officers of the Company as a group.
Common Stock
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Name of Beneficial Owner Number Percent
of Shares of Class
Guido DiGregorio (1)........................ 1,915,909 1.86%
C. B. Sung (2).............................. 1,228,241 1.19%
Louis P. Panetta (3)........................ 153,125 *
Michael Farese (4).......................... 100,000 *
Welch, David E. (5)......................... 50,000 *
Francis V. Dane (6)......................... 282,790 *
All directors and executive officers
as a group (6 persons)...................... 3,730,065 3.63%
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* Less than 1%.
(1) The number of shares of common stock represents 1,915,909 shares of a total
of 1,950,000 shares, which are issuable upon the exercise of stock options
granted to Mr. DiGregorio in January 1999 and February 2002, that are
exercisable within 60 days of May 12, 2004. The business address of Mr.
DiGregorio is 275 Shoreline Drive, Suite 500, Redwood Shores, California
94065. See "Executive Compensation; Option Grants in 2002."
2
(2) The number of shares of common stock includes (a) 1,033,682 shares held by
the Sung Family Trust of which Mr. Sung is a trustee, (b) 3,369 shares held
by the Sung-Kwok Foundation of which Mr. Sung is the Chairman, and (c)
191,190 shares of common stock issuable upon the exercise of stock options
which are exercisable within 60 days of May 12, 2004. Mr. Sung may be
deemed to beneficially own the shares held by the Sung Family Trust and the
Sung-Kwok Foundation. The business address of Mr. Sung is, UNISON Group,
1001 Bayhill Dr., 2nd Floor, San Bruno, California 94066. See "Certain
Relationships and Related Transactions."
(3) The number of shares of common stock represents 153,125 shares, issuable
upon the exercise of options granted on October 30, 2000, May 11, 2001,
June 18, 2001, June 24, 2002 and June 23, 2003, which are exercisable
within 60 days of May 12, 2004. Mr. Panetta's business address is 827 Via
Mirada, Monterey, California 93940. See "Certain Relationships and Related
Transactions."
(4) The number of shares of common stock represents 100,000 shares issuable
upon the exercise of stock options granted to Mr. Farese in February and
June 2002 and June 23, 2003, that are exercisable within 60 days of May 12,
2004. The business address of Mr. Farese is 401 River Oaks Parkway, San
Jose, CA 95134. See "Certain Relationships and Related Transactions."
(5) The number of shares of common stock represent 50,000 shares issuable upon
the exercise of stock options granted to Mr. Welch on March 11, 2004 that
are exercisable within 60 days of May 12, 2004. The business address of Mr.
Welch is 1729 East Otero Avenue, Littleton, CO 80122. See "Certain
Relationships and Related Transactions."
(6) The number of shares of common stock represents (a) 212 shares held by Mr.
Dane and (b) 282,578 shares of a total of 343,943 shares, which are
issuable upon the exercise of stock options granted to Mr. Dane in January
1999, February 2002, and May 2003 that are exercisable within 60 days of
May 12, 2004. The business address of Mr. Dane is 275 Shoreline Drive,
Suite 500, Redwood Shores, California 94065. See "Executive Compensation;
Option Grants in 2002."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and persons who own
more than ten percent of a registered class of the Company's equity securities
to file certain reports with the Securities and Exchange Commission (the "SEC")
regarding ownership of, and transactions in, the Company's securities. These
officers, directors and stockholders are also required by SEC rules to furnish
the Company with copies of all Section 16(a) reports that are filed with the
SEC. Based solely on a review of copies of such forms received by the Company
and written representations received by the Company from certain reporting
persons, the Company believes that for the year ended December 31, 2003 all
Section 16(a) reports required to be filed by the Company's executive officers,
directors and 10% stockholders were filed on a timely basis.
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall consist
of such number of directors, with a minimum of three, as the Board of Directors
may determine from time to time. Currently, the Board has determined that the
authorized number of directors is five (5). The five persons listed below are
the nominees for election as directors at the Annual Meeting. Each director
elected at this Meeting will serve for one (1) year or until his successor is
duly elected and qualified or his earlier resignation, removal or
disqualification.
Unless otherwise instructed, the proxyholders named in the accompanying
proxy will vote the shares represented by proxies received by them for the
election of the five nominees to the Board of Directors named below. In the
event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the shares will be voted for the
election of any nominee designated by the present Board of Directors. The
Company is not aware of any nominee who will be unable or will decline to serve
as a director.
3
Director Nominees
The following table sets forth certain information concerning the
nominees:
Year First Elected
Name Age or Appointed
Guido D. DiGregorio......... 65 1997
Michael Farese.............. 57 2002
Louis P. Panetta............ 54 2000
C. B. Sung.................. 79 1986
David E. Welch.............. 57 2004
The business experience of each of the director nominees for at least the
past five years includes the following:
Guido D. DiGregorio was elected Chairman of the Board in February 2002,
Chief Executive Officer in June 1999 and President in November 1997. From
November 1997 to June 1999, he was also the Company's Chief Operating Officer.
He was a partner in DH Partners, Inc. (a management consultant firm) from 1996
to 1997. Prior to that Mr. DiGregorio was recruited by a number of companies to
reverse trends of financial losses, serving as President and CEO of each of the
following companies: Display Technologies, Inc. (a manufacturer of video data
monitors) from 1994 to 1996, Superior Engineering Corp. (a producer of
factory-built gas fireplaces) from 1991 to 1993, Proxim, Inc. (wireless data
communications) from 1989 to 1991, Maxitron Corp. (a manufacturer of computer
products) from 1986 to 1989 and Exide Electronics (producer of computer power
conditioning products) from 1983 to 1986. From 1966 to 1983, Mr. DiGregorio was
employed by General Electric in various management positions, rising to the
position of General Manager of an industrial automation business.
Michael Farese was elected a director of the Company in February 2002. Mr.
Farese has over thirty years of broad based telecommunications industry
experience including an extensive background in cellular and wireless subscriber
equipment. He has been the President & CEO of WJ Communications, a Silicon
Valley-based manufacturer of innovative broadband communications products for
current and next generation wireless communications networks from March 2002 to
present. Prior to joining WJ Communications, Mr. Farese was President & CEO,
Tropian Inc. from 1999 to 2002. Prior to that he numerous senior management
positions including Vice President & General Manager-Global Personal Networks,
Motorola, Vice President & General Manager-American Business Group, Ericsson,
Vice President, Product Planning & Strategy, Nokia, Executive Director-Business
Systems, ITT and Division Manger-Networks Business Systems, AT&T.
Louis P. Panetta was elected a director of the Company in October 2000.
From November 2001 to September 2003 Mr. Panetta was a member of the Board of
Directors of Active Link. Mr. Panetta was Vice President of Marketing and
Investor Relations with Mobility Concepts, Inc. (a wireless Systems Integrator),
a subsidiary of Active Link Communications from February 2001 to April 2003. Mr.
Panetta was President and Chief Operating Officer of PortableLife.com
(e-commerce products provider) from September 1999 to October 2000 and President
and Chief Executive Officer of Fujitsu Personal Systems (a manufacturer of
computer hardware) from December 1992 to September 1999. From 1995 to 1999, Mr.
Panetta served on the Board of Directors of Fujitsu Personal Systems.
C.B. Sung was elected a director of the Company in 1986. Mr. Sung has been
the Chairman and Chief Executive Officer of Unison Group, Inc. (a multi-national
corporation involved in manufacturing, computer systems, international
investment and trade) since 1986 and Unison Pacific Corporation since 1979. He
also serves on the Board of Directors of several private companies and
non-profit organizations.
David E. Welch was elected a director in March 2004 and will serve as the
financial expert on the Audit Committee. Mr. Welch is the principal of David E.
Welch Consulting, a financial consulting firm, from July 2002 to present. Mr.
Welch has also been Vice President and Chief Financial Officer of American
Millennium Corporation, Inc., a provider of satellite based asset tracking and
reporting equipment, from April 2004 to present. Mr. Welch was Vice President
and Chief Financial Officer of Active Link Communications, a manufacturer of
telecommunications equipment, from 1999 to 2002. Mr. Welch has held positions as
Director of Management Information Systems and Chief information Officer with
Micromedex, Inc and Language Management International from 1995 through 1998.
Mr. Welch is a member of the Board of Directors of Advanced Neutraceuticals,
Inc.
4
Board of Director Meetings and Committees
The Company's affairs are managed under the direction of the Board of
Directors. Members of the Board receive information concerning the Company's
affairs through oral and written reports by management, Board and committee
meetings and other means. The Company's directors generally attend Board of
Directors meetings, committee meetings and informal meetings with management and
others, participate in telephone conversations and have other communications
with management and others regarding the Company's affairs.
Directors of the Company serve until their successors are duly elected and
qualified or until their earlier resignation, removal or disqualification. There
are no family relationships between the Company's directors and executive
officers. For certain relationships between the Company and its directors, see
"Certain Relationships and Related Transactions."
Board Committees
The Company's Board of Directors has four committees as set forth below.
The members of each committee are appointed by the Board of Directors.
Audit Committee. The Audit Committee generally reviews the scope and
results of the audit by the Company's independent auditors, the independent
auditors' letter to the Board of Directors concerning the effectiveness of the
Company's internal financial and accounting controls and the Board of Directors'
response to that letter, if deemed necessary, and reviews the Company's
procedures for establishing and monitoring internal accounting controls. The
members of the Audit Committee are Michael Farese, Louis P. Panetta, C. B. Sung
and David E. Welch. Mr. Welch serves as the Audit Committee's financial expert.
Each member of the Audit Committee is independent as defined under applicable
SEC rules and regulations. The Audit Committee conducted two meetings in the
year ended December 31, 2003 and all members attended the meeting except for Mr.
Welch who was not a board member at that time. The Audit Committee oversees the
annual and quarterly financial reporting process, confirms management's proposal
for the independent auditors, discuses with the auditors their independence from
management and reviews the scope of the annual audit. The Board has adopted an
Audit Committee Charter, a copy of which is attached to this proxy statement as
Appendix A.
Finance Committee. The Finance Committee develops strategies for the
financing and development of the Company and monitors and evaluates progress
toward established objectives. The members of the Finance Committee are Michael
Farese, Louis P. Panetta and C. B. Sung.
Compensation Committee. The Compensation Committee generally reviews
compensation matters with respect to executive and senior management
arrangements and administers the Company's stock option plans. The members of
the Compensation Committee are Michael Farese, Louis P. Panetta and C. B. Sung.
The Board has adopted a Compensation Committee Charter, a copy of which is
attached to this proxy statement as Appendix B.
Nominating Committee. In May 2004, the Company established a Nominating
Committee. The Nominating Committee is responsible for considering and making
recommendations to the Board concerning the appropriate size, functions and
needs of the Board. The members of the Nominating Committee are Michael Farese,
Louis P. Panetta, C. B. Sung and David E. Welch. The Board has adopted a
Nominating Committee Charter, a copy of which is attached to this proxy
statement as Appendix C.
Board and Committee Meetings
During 2003, the Board of Directors held three formal meetings and also
acted by unanimous written consent on eleven occasions. The Committees held
meetings jointly with the formal Board meetings. For the year ended December 31,
2003, each incumbent director participated in all of the formal meetings of the
Board and each Committee on which he served.
Director Compensation
For their services as directors of the Company, all non-employee directors
receive a fee of $1,000 for each Board of Directors meeting attended and
directors are reimbursed for all reasonable out-of-pocket expenses incurred in
connection with attending such meetings. Directors are also eligible to receive
stock options. In June 2003, Michael Farese, Louis Panetta and C. B. Sung were
each granted immediately exercisable non-qualified options to purchase 25,000
shares of common stock at an exercise price of $0.30, which options expire on
June 23, 2010. The Company retains a declining balance repurchase option on the
shares underlying these options for one year from the date of grant.
5
Communications to the Board
The Board of Directors welcomes and encourages stockholders to share their
thoughts regarding the Company. Towards that end, the Board of Directors has
adopted a policy whereby all communications should first be directed to Investor
Relations. Investor Relations will then, for other than routine communications,
distribute a copy of the communication to the Chairman of the Board, the
Chairman of the Audit Committee and the Company's Chief Legal Officer. Based on
the input and decision of these persons, along with the entire board if it is
deemed necessary, the Company will respond to the communications. Stockholders
should not communicate with individual directors unless requested to do so.
Required Affirmative Vote
APPROVAL OF PROPOSAL 1 TO ELECT FIVE DIRECTORS REQUIRES THE AFFIRMATIVE
VOTE OF A PLURALITY OF THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE
ANNUAL MEETING. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES NAMED HEREIN. THE FIVE NOMINEES RECEIVING THE MOST VOTES, EVEN IF LESS
THAN A MAJORITY, WILL BE ELECTED TO THE BOARD OF DIRECTORS.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
In December, 1999, the Company retained Stonefield Josephson, Inc. as its
independent auditors. Prior to the retention of Stonefield Josephson, Inc.,
neither the Company nor any person on its behalf consulted with Stonefield
Josephson, Inc. regarding the application of accounting principles to any
transaction or the types of audit opinion that might be rendered on the
Company's financial statements.
The aggregate fees billed for professional services by Stonefield
Josephson, Inc. in 2003 were approximately $356,000, and in 2002 were $220,000
for the following services:
Audit Fees: Stonefield Josephson, Inc.'s fees in connection with its
quarterly reviews and year end audits for 2003 were approximately $221,000,
and were $148,000 in 2002, which represented approximately 62% and 68% of
the aggregate fees billed by Stonefield Josephson, Inc. in 2003 and 2002,
respectively.
Audit-Related Fees. Stonefield Josephson, Inc. did not bill us for any
assurance and related work in fiscal year 2003 or 2002.
Tax Fees. Stonefield Josephson, Inc. fees in connection with the 2002
federal and state tax returns, which were billed in 2003, were
approximately $3,000, or 1% of the aggregate fees billed for professional
services by Stonefield Josephson, Inc. in 2003. Stonefield Josephson, Inc.
fees in connection with the 2001 federal and state tax returns, which were
billed in 2002, were approximately $7,000, or 3% of the aggregate fees
billed for professional services by Stonefield Josephson, Inc. in 2002.
Financial Information Systems Design and Implementation Fees: There were no
fees incurred in fiscal year 2001 or 2002 for financial information systems
design and implementation services.
All other Fees: Stonefield Josephson, Inc's fees for all other services
provided in 2003 totaled approximately $131,000 or 37% of the aggregate
fees billed by Stonefield Josephson, Inc. in 2003 and related primarily to
preparation of the Registration statement on Form S-1. Stonefield
Josephson, Inc's fees for all other services provided in 2002 totaled
approximately $65,000 or 29% of the aggregate fees billed by Stonefield
Josephson, Inc in 2002 and related primarily to preparation of the 2002
proxy statement, and a Registration statement on Form S-1.
Pre-Approval Policies. It is the policy of the Company not to enter into
any agreement for Stonefield Josephson, Inc. to provide any non-audit
services to us unless (a) the agreement is approved in advance by the Audit
Committee or (b) (i) the aggregate amount of all such non-audit services
constitutes no more than 5% of the total amount we pay to Stonefield
Josephson, Inc. during the fiscal year in which such services are rendered,
(ii) such services were not recognized by the Company as constituting
non-audit services at the time of the engagement of the non-audit services
and (iii) such services are promptly brought to the attention of the Audit
Committee and prior to the completion of the audit were approved by the
Audit Committee or by one or more members of the Audit Committee who are
members of the Board of Directors to whom authority to grant such approvals
has been delegated by the Audit Committee. The Audit Committee will not
6
approve any agreement in advance for non-audit services unless (x) the
procedures and policies are detailed in advance as to such services, (y)
the Audit Committee is informed of such services prior to commencement and
(z) such policies and procedures do not constitute delegation of the Audit
Committee's responsibilities to management under the Securities Exchange
Act of 1934, as amended.
The Audit Committee has considered whether the provision of non-audit
services has impaired the independence of Stonefield Josephson, Inc. and has
concluded that Stonefield Josephson, Inc. is independent under applicable SEC
and Nasdaq rules and regulations.
In 2004, upon recommendation of the Audit Committee, the Board of Directors
appointed Stonefield Josephson, Inc. as its independent accountants for the year
ending December 31, 2004. Stockholders are being asked to ratify the retention
of Stonefield Josephson, Inc. as independent accountants for the year ending
December 31, 2004. Representatives of Stonefield Josephson, Inc. are expected to
be present at the Annual Meeting and will be given the opportunity to make
statements if they so desire and will be available to respond to appropriate
questions.
Required Affirmative Vote
Ratification of the appointment of Stonefield Josephson, Inc. as the
Company's independent accountants for the year ending December 31, 2004 requires
the affirmative vote of a majority of the Shares represented in person or by
proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF STONEFIELD JOSEPHSON, INC. AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2004.
EXECUTIVE OFFICERS
The following table sets forth, as of April 28, 2004, the name and age of
each executive officer of the Company, and all positions and offices of the
Company presently held by each of them.
Name Age Positions Currently Held
Guido D. DiGregorio 65 Chairman of the Board,
Chief Executive Officer and President,
Francis V. Dane 52 Chief Legal Officer,
Secretary and Chief Financial Officer
The business experience of each of the executive officers for at least the
past five years includes the following:
Guido D. DiGregorio - see above.
Francis V. Dane was appointed the Company's Secretary in February of 2002,
its Chief Financial Officer in October 2001, its Human Resources Executive in
September 1998 and he assumed the position of Chief Legal Officer in December of
1997. From 1991 to 1997 he served as a Vice President and Secretary of the
Company, and from 1988 to 1992 as its Chief Financial Officer and Treasurer.
Since July of 2000, Mr. Dane has also been the Secretary and Treasurer of
Genyous, Inc. a biotechnology venture capital and incubation company. From
October 2000 to April 2004, Mr. Dane served as a director of Perceptronix
Medical, Inc. and SpetraVu Medial Inc., two companies focused on developing
improved methods for the early detection of cancer. From October 2000 to June
2003, Mr. Dane was a director of CPC Cancer Prevention Centers Inc., a company
that is developing a comprehensive cancer prevention program based upon the
detection of early stage, non-invasive cancer. Prior to this Mr. Dane spent over
a decade with PricewaterhouseCoopers, his last position was that of Senior
Manager, Entrepreneurial Services Division. Mr. Dane is a member of the State
Bar of California and has earned a CPA certificate from the states of
Connecticut and California.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to the Company's President, regardless of the amount of compensation, and each
executive officer of the Company serving as of December 31, 2003 whose total
annual salary and bonus for 2003 exceeded $100,000 (collectively, the "Named
Executive Officers").
7
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Securities
Other Annual Underlying
Name and Principal Position Year Salary Compensation Options
- --------------------------- ---- ------ ------------ -------
Guido DiGregorio............. 2003 $ 206,250(1) - -
Chairman, President and 2002 $ 213,500(1) - 250,000
2001 $ 180,000 - -
Chief Executive Officer
Francis V. Dane.............. 2003 $ 128,500 - 100,000
Chief Legal Officer, 2002 $ 110,083 - 100,000
Secretary and 2001 $ 20,000(2) - -
Chief Financial Officer
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(1) Mr. DiGregorio's salary was increased in February 2002 to $250,000. Mr.
DiGregorio has deferred approximately $70,000 in salary payments to ease
cash flow requirements. Mr. DiGregorio may resume payment of his full
salary at any time, and payment of deferred amounts may be demanded by Mr.
DiGregorio at any time after December 31, 2003.
(2) Mr. Dane was named as an executive officer as of October 1, 2001.
Option Grants in 2003
On May 7, 2003 Mr. Dane was granted options to purchase 100,000 shares of
the Company's common stock, at an exercise price of $0.33 per share. Twenty five
percent of the options granted vested immediately and the balance of the options
vest pro rata quarterly over three years.
Aggregate Option Exercises in 2003 and Year-End Option Values
The following table sets forth certain information concerning the Named
Executive Officers with respect to the exercise of options in 2003, the number
of shares covered by exercisable and unexercisable stock options at December 31,
2003 and the aggregate value of exercisable and unexercisable "in-the-money"
options at December 31, 2003.
Value of
Number of Securities Unexercised
Underlying Unexercised In-The-Money
Shares Options at Fiscal Options at
Acquired Year-End Fiscal Year-End(1)
On Value Exercisable(E)/ Exercisable(E)/
Name Exercise Realized Unexercisable(U) Unexercisable(U)
Guido DiGregorio.. - $ - 1,881,818(E) $ - (E)(1)
68,182(U) - (U)(1)
Francis V. Dane... - $ - 255,306(E) $ 1,500 (E)(1)
88,637(U) 2,500(U)(1)
- -----------
(1) The value of unexercised in-the-money options was determined by using the
difference between the closing sale price of the common stock on the Nasdaq
Over the Counter Market as of December 31, 2003 ($0.37) and the exercise
price of such options.
1999 Stock Option Plan
The Company's 1999 Plan provides for the granting to the Company's
directors and employees of non-transferable incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-transferable non-statutory stock options
8
("Non-Qualified Options"). A total of 4,000,000 shares of common stock are
authorized for issuance under the 1999 Plan. As of April 28, 2004, options to
purchase an aggregate 2,067,445 shares of common stock were outstanding and
1,864,758 shares remain available for future grants. Unless terminated sooner,
the 1999 Plan will terminate in June 2009.
The 1999 Plan may be administered by the Board of Directors or a committee
of the Board. The Board or such committee has the authority to determine the
terms of the options granted, including the exercise price, number of shares
subject to each option, vesting provisions, if any, and the form of
consideration payable upon exercise. The exercise price of Incentive Options
must be the fair market value of the common stock valued at the date of grant,
and the exercise price of Non-Qualified Options must be at least 85% of the fair
market value of the common stock valued at the date of grant. The expiration
date of Options is determined by the Board or a committee of the Board, but
Options cannot expire later than ten years from the date of grant, and in the
case of Incentive Options granted to 10% stockholders, cannot expire later than
five years from the date of grant. Options have typically been granted with an
expiration date seven years after the date of grant.
If an employee to whom an award has been granted under the 1999 Plan dies
while providing services to the Company, retires from employment with the
Company after attaining his retirement date, or terminates employment with the
Company as a result of permanent and total disability, the restrictions then
applicable to such award shall continue as if the employee had not terminated
employment and such award shall thereafter be exercisable, in whole or in part
by the person to whom it was granted (or by his duly appointed, qualified, and
acting personal representative, his estate, or by a person who acquired the
right to exercise such option by bequest or inheritance from the grantee), in
the manner set forth in the award, at any time within the remaining term of such
award. Except as provided in the preceding paragraph, generally if a person to
whom an option has been granted under the 1999 Plan ceases to be an employee of
the Company, such option shall continue to be exercisable to the same extent
that it was exercisable on the last day on which such person was an employee for
a period of 90 days thereafter, or for such longer period as may be determined
by the Board or a committee, of the Board whereupon such option shall terminate
and shall not thereafter be exercisable.
The Board has the authority to amend or terminate the 1999 Plan, provided
that such action does not impair the rights of any optionee under any option
previously granted under the 1999 Plan, without the consent of such optionee.
1994 Stock Option Plan
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
granting to the Company's directors and employees of Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended and Non-Qualified Options. A total of 6,000,000 shares of common stock
are authorized for issuance under the 1994 Plan. As of April 28, 2004, options
to purchase an aggregate 1,003,025 shares of common stock were outstanding and
680,515 shares remain available for future grants. Unless terminated sooner, the
1994 Plan will terminate in November 2004.
The 1994 Plan may be administered by the Board of Directors or a committee
of the Board. The Board or such committee of the Board has the authority to
determine the terms of the options granted, including the exercise price, number
of shares subject to each option, vesting provisions, if any, and the form of
consideration payable upon exercise. The exercise price of Incentive Options
must be the fair market value of the common stock valued at the date of grant,
and the exercise price on Non-Qualified Options must be at least 85% of the fair
market value of the common stock valued at the date of grant. The expiration
date of Options is determined by the Board or such committee of the Board, but
Options cannot expire later than ten years from the date of grant, and in the
case of Incentive Options granted to 10% stockholders, cannot expire later than
five years from the date of grant. Options have typically been granted with an
expiration date seven years after the date of grant.
If an employee to whom an award has been granted under the 1994 Option Plan
dies while providing services to the Company, retires from employment with the
Company after attaining his retirement date, or terminates employment with the
Company as a result of permanent and total disability, the restrictions then
applicable to such award shall continue as if the employee had not terminated
employment and such award shall thereafter be exercisable, in whole or in part
by the person to whom it was granted (or by his duly appointed, qualified, and
acting personal representative, his estate, or by a person who acquired the
right to exercise such option by bequest or inheritance from the grantee), in
the manner set forth in the award, at any time within the remaining term of such
award. Except as provided in the preceding paragraph, generally if a person to
whom an option has been granted under the 1994 Plan ceases to be an employee of
the Company, such option shall continue to be exercisable to the same extent
that it was exercisable on the last day on which such person was an employee for
a period of 30 days thereafter, or for such longer period as may be determined
by the Board or a committee of the Board, whereupon such option shall terminate
and shall not thereafter be exercisable.
9
The Board has the authority to amend or terminate the 1994 Plan, provided
that such action does not impair the rights of any optionee under any option
previously granted under the 1994 Plan, without the consent of such optionee.
COMPENSATION COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's Chief
Executive Officer and the four other most highly compensated executive officers.
In fulfillment of this requirement, the Compensation Committee has prepared the
following report for inclusion in this Proxy Statement.
Compensation Philosophy and Objectives. The Committees' compensation
philosophy is based upon the belief that the success of the Company results from
the coordinated efforts of all employees working as a team to achieve objectives
of providing superior products and services to the Company's customers and
maximizing the Company's value for the benefit of its stockholders.
The Company's compensation programs are designed to attract, retain and
reward personnel whose individual and team performance contributes significantly
to the short and long-term objectives of the Company. The Company's executive
compensation programs are guided by the following principles, which may also be
considered in making compensation decisions for employees:
o To ensure competitiveness, the Company monitors industry standards and
considers this information when it makes compensation decisions; and
o The compensation of executive officers is affected by individual, team and
overall Company performance. Overall Company performance is based upon
achievement of strategic and operating goals. Such factors include revenues
generated, technology validations, timely product introductions, capturing
market share and preservation of and increases in stockholder value.
Individual and team performance is considered to the extent of whether
departmental goals are achieved within the time and budget constraints of
Company operating plans. Additionally, individual performance is measured,
in part, against the extent to which an individual executive officer is
able to foster team spirit and loyalty and minimize employee turnover.
Methods of Compensation. The key elements of the Company's executive
compensation program consist primarily of base salary and stock options.
The base salaries of the Company's executive officers for 2004 were
established as part of an annual compensation review cycle. In establishing
those salaries, the Compensation Committee considered information about salaries
paid by companies of comparable size in our industry , individual performance,
position and internal comparability considerations. While all of these factors
were considered, the Compensation Committee did not assign specific weights to
any of these factors. Base salary for the Company's executive officers is
generally determined by performance, the combined base salary and annual bonus
for competitive positions in the industry and general market and Company
conditions. Currently, the Company does not have an annual bonus plan.
The Committees believe that the use of stock options as a means of
compensation provide an incentive for executives and aligns their interests with
those of the stockholders. All employees are eligible to receive stock options
under the Company's stock option plans. The long-term, performance-based
compensation of executive officers takes the form of option awards under the
Company's stock option plans, which are designed to align a significant portion
of the executive compensation program with long-term shareholder interests.
These plans permit the granting of several different types of stock-based
awards. The Compensation Committee believes that equity-based compensation
ensures that the Company's executive officers have a continuing stake in the
long-term success of the Company. All options granted by the Company have been
granted with an exercise price equal to the market price of the Company's Common
Stock on the date of grant and, accordingly, will only have value if the
Company's stock price increases. In granting options under the plans, the
Compensation Committee generally takes into account each executive's
responsibilities, relative position in the Company, past grants, and approximate
grants to individuals in similar positions for companies of comparable size in
the software industry.
President and Chief Executive Officer's Compensation. Mr. Guido DiGregorio,
the Chairman of the Board, Chief Executive Officer and President of the Company,
was appointed to the Presidency by the Board of Directors in November 1997, to
the office of Chief Executive in June 1999 and to the Chairmanship in February
2002. The Company does not currently have an employment agreement with Mr.
DiGregorio. Mr. DiGregorio currently receives an annual salary of $250,000. Mr.
DiGregorio has deferred a portion of his salary payments to ease cash flow
requirements. Mr. DiGregorio may resume payment of his full salary at any time
10
and payment of deferred amounts may be demanded by Mr. DiGregorio at any time
after December 31, 2003.
Compensation Committee Interlocks and
Insider Participation In Compensation Decisions
During the fiscal year ended December 31, 2003, there were no employee
directors on the Compensation Committee and no interlocks. On May 13, 2004, the
Board of Directors adopted a Compensation Committee charter, a copy of which is
attached hereto as Exhibit A.
The Compensation Committee
Of the Board of Directors
Michael Farese
Louis P. Panetta
C. B. Sung
AUDIT COMMITTEE REPORT
General. Under the Company's Audit Committee Charter ("Charter"), a copy of
which is attached hereto as Exhibit A, the general purpose of the Audit
Committee is to assist the Board of Directors in the exercise of its fiduciary
responsibility of providing oversight of the Company's financial statements and
the financial reporting processes, internal accounting and financial controls,
the annual independent audit of the Company's financial statements, and other
aspects of the financial management of the Company. The Audit Committee is
appointed by the Board of Directors and is to be comprised of at least three
directors, each of whom shall be independent, as such term is defined under the
listing standards of the Nasdaq Stock Market. All committee members must be
financially literate, or shall become financially literate within a reasonable
period of time after appointment to the Committee. All of the members of the
Company's Audit Committee are independent and Mr. Welch is the committee's
financial expert as such term is defined in applicable regulations and rules.
Responsibilities and Duties. The Company's management is responsible for
preparing the Company's financial statements and the independent auditors are
responsible for auditing those financial statements. The Committee is
responsible for overseeing the conduct of these activities by the Company's
management and the independent auditors. The financial management and the
independent auditors of the Company have more time, knowledge and more detailed
information on the Company than do Committee members. Consequently, in carrying
out its oversight responsibilities, the Committee does not provide any expert or
special assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
The specific duties of the Audit Committee include the following:
1. Select, retain, and, when appropriate, terminate the engagement of the
independent auditor and set the independent auditors' compensation;
2. Pre-approve all permitted non-audit services to be performed by the
independent auditors and establish policies and procedures for the
engagement of the independent auditors to provide permitted non-audit
services;
3. Periodically discuss and review with the independent auditors their
independence from management and the Company and the matters included in
the written disclosures required by the Independence Standards Board,
including whether the provision by the independent auditors of permitted
non-audit services is compatible with independence and obtain and review a
report from the independent auditors describing all relationships between
the independent auditors and the Company;
4. Receive and review: (a) a report by the independent auditors describing the
independent auditors' internal quality-control procedures and any material
issues raised by the most recent internal quality-control review, or peer
review, of the independent auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm, and any
steps taken to deal with any such issues; and (b) other required reports
from the independent auditors;
5. Meet with management and the independent auditors prior to commencement of
the annual audits to review and discuss the planned scope and objectives of
the audit;
11
6. Meet with the independent auditors, with and without management present,
after completion of the annual audit to review and discuss the results of
the examinations of the independent auditors and appropriate analyses of
the financial statements;
7. Review the recommendations of the independent auditors for improving
internal accounting controls and management's responses thereto;
8. Review and discuss (a) the reports of the independent auditors, with and
without management present, as to the state of the Company's financial
reporting systems and procedures, the adequacy of internal accounting and
financial controls, the integrity and competency of the financial and
accounting staff, disclosure controls and procedures, other aspects of the
financial management of the Company and (b) current accounting trends and
developments, and (c) take such action with respect thereto as may be
deemed appropriate;
9. Review the interim financial statements with management and the independent
auditors prior to the filing of the Company's Quarterly Reports on Form
10-Q and discuss the results of the quarterly reviews and any other matters
required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards;
10. Review and discuss with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to stockholders if distributed prior to the
filing of Form 10-K), including the judgment of the independent auditors
about the quality, not just acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures
in the financial statements;
11. Recommend to the Board of Directors, based upon the Committee's review,
whether the financial statements should be included in the annual report on
Form 10-K;
12. Review press releases, as well as Company policies with respect to earnings
press releases, financial information and earnings guidance provided to
analysts and rating agencies and review such releases, information and
guidance for compliance with regulations governing the use of non-Generally
Accepted Accounting Principles financial measures and related disclosure
requirements;
13. Discuss Company policies with respect to risk assessment and risk
management, and review contingent liabilities and risks that may be
material to the Company and major legislative and regulatory developments
that could materially impact the Company's contingent liabilities and
risks;
14. Review (a) the status of compliance with laws, regulations, and internal
procedures, including, without limitation, the Company's policies on
ethical business practices; and (b) the scope and status of systems
designed to promote Company compliance with laws, regulations and internal
procedures, through receiving reports from management, legal counsel and
third parties as determined by the Committee and report on the same to the
Board of Directors;
15. Establish procedures for the confidential and anonymous receipt, retention
and treatment of complaints regarding the Company's accounting, internal
controls, auditing matters and compliance with the Company's ethical
business policies;
16. Establish policies for the hiring of employees and former employees of the
independent auditor;
17. Prepare a report of the Committee each year for inclusion in the Company's
proxy statement in accordance with SEC rules;
18. Review and assess the adequacy of this Charter annually with the Board of
Directors as a whole and report to the Board of Directors any significant
matters as they occur during the year; and
19. Conduct such other duties and undertake such other tasks as may be
appropriate to the overall purposes for the Committee and as may be
assigned from time to time by the Board of Directors consistent with such
purposes.
Specific Audit Committee Actions Related to Review of the Company's Audited
Financial Statements. In discharging its duties, the Audit Committee, among
other actions, has (i) reviewed and discussed the audited financial statements
12
to be included in the company's Annual Report on Form 10-K for the twelve months
ended December 31, 2003 with management, (ii) discussed with the Company's
independent auditors the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standard, AU380) related to such
financial statements, (iii) received the written disclosures and the letter from
the Company's independent accountants required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees) and has discussed with the independent
accountant the independent accountant's independence, (iv) the Audit Committee
has considered whether the provision of service represented under the headings
on "Financial Information Systems Design and Implementation Fees" and "All Other
Fees" as set forth in the table of fees on page eleven is compatible with
maintaining Stonefield Josephson, Inc.'s independence, and (v) based on such
reviews and discussions, the Audit Committee has recommended to the Board of
Directors that the audited financial statements be included in the company's
Annual Report on Form 10-K for the twelve months ended December 31, 2003.
The Audit Committee
Of the Board of Directors
Michael Farese
Louis P. Panetta
C. B. Sung
David E. Welch
13
PERFORMANCE GRAPH
The Securities and Exchange Commission requires the Company to include in
this Proxy Statement a graph comparing the Company's cumulative five-year return
on its common stock with a broad-based stock index and either a nationally
recognized industry index or an index of peer companies selected by the Company.
This performance graph compares the cumulative five-year returns on the common
stock with the Nasdaq Computer and Data Processing Index and the Nasdaq Index.
Since March 14, 2003 the Company's common stock has been traded on the Nasdaq
OTC Bulletin Board.
[OBJECT OMITTED]
Total Return To Stockholders
(Includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
Company / Index Dec99 Dec00 Dec01 Dec02 Dec03
- --------------------------------------------------------------------------------
COMMUNICATION INTELLIGENCE CORP 1000.00 -87.50 -37.94 -45.31 5.71
NASDAQ U.S & FOREIGN INDEX 86.44 -39.57 -21.09 -31.19 50.84
NASDAQ COMPUTER & DATA PROCESSING 119.99 -53.97 -19.47 -31.04 31.74
NDEXED RETURNS
Base Years Ending
Period
Company / Index Dec98 Dec99 Dec00 Dec01 Dec02 Dec03
- --------------------------------------------------------------------------------
COMMUNICATION INTELLIGENCE CORP 100 1100.00 137.50 85.33 46.67 49.33
NASDAQ U.S & FOREIGN INDEX 100 186.44 112.66 88.89 61.17 92.26
NASDAQ COMPUTER & DATA PROCESSING 100 219.99 101.25 81.54 56.23 74.08
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 23, 2003, the Board of Directors granted immediately exercisable
non-qualified stock options to purchase 25,000 shares of common stock to each of
Mr. Farese, Mr. Panetta and Mr. Sung at an exercise price of $0.30 per share and
an expiration date of June 23, 2010. The Company retains a declining balance
repurchase option on the shares underlying the options for one year from the
date of grant.
PROPOSALS OF SECURITY HOLDERS
A stockholder proposal requested to be presented at the Company's next
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices, 275 Shoreline Drive, Suite 500, Redwood Shores, California
94065, no later than January 20, 2005. The Board of Directors will review any
stockholder proposal received in accordance herewith and will determine whether
such proposal is appropriate and satisfies the applicable requirements for
inclusion in the Company's proxy statement for its next Annual Meeting of
Stockholders.
SOLICITATION OF PROXIES
The Company will bear the cost of the Annual Meeting and the solicitation
of proxies related thereto, including the costs relating to printing and mailing
the proxy materials. The Company has retained American Stock Transfer and Trust
Co., the Company's transfer agent, to assist the Company in the solicitation of
proxies. Directors, officers and employees of the Company may make additional
solicitations in person or by telephone in respect to the Meeting.
OTHER MATTERS
The Board of Directors knows of no other matter that may be presented for
action at the Annual Meeting. However, if any other matter properly comes before
the Annual Meeting, the persons named as proxies will vote in accordance with
their judgment in respect to any such matter.
Copies of the Company's Annual Report on Form 10-K, its Quarterly Reports
on Form 10-Q, including any amendments thereto, and the notice of annual meeting
of stockholders, proxy statement and proxies, are available upon written
request, without cost, from the Company's principal executive offices at 275
Shoreline Drive, Suite 500, Redwood Shores, California 94065 (Attention:
Corporate Secretary), Telephone (650) 802-7888.
Stockholders are urged to complete, sign, date and return the enclosed
proxy promptly in the envelope provided, regardless of whether or not they
expect to attend the Annual Meeting. The prompt return of such proxy will assist
the Company in preparing for the Annual Meeting. Your cooperation is greatly
appreciated.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 2003 accompanies this Proxy statement. The Company is
required to file an Annual Report on Form 10-K for its fiscal year ended
December 31, 2003 with the Securities and Exchange Commission (the "SEC"). The
SEC maintains a web site, www.sec.gov, that contains reports, proxy statements,
and certain other information filed electronically by the Company with the SEC.
Shareholders may obtain, free of charge, a copy of the Form 10-K by writing to
Communication Intelligence Corporation, Attn: Corporate Secretary, 275 Shoreline
Drive, Suite 500, Redwood Shores, CA, 94065, or visiting the Company's web site
at www.cic.com.
BY ORDER OF THE BOARD OF DIRECTORS
Guido DiGregorio
Chairman, President and Chief Executive Officer
May 21, 2004
15
APPENDIX A
Communication Intelligence Corporation
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the quality
and integrity of the Corporation's financial reports; the Corporation's systems
of internal controls regarding finance and accounting; and the Corporation's
auditing, accounting and financial reporting processes generally. The Audit
Committee's primary duties and responsibilities are to:
a) Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control systems.
b) Review and appraise the audit efforts of the Corporation's independent
accountants (auditors) and internal accountants.
c) Provide an open avenue of communication among the independent accountants,
financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the responsibilities and duties enumerated in Section III of this
Charter. While the Committee has the responsibilities and duties set forth in
this Charter, it is not the Committee's duty (1) to plan or conduct audits, (2)
to determine that the Corporation's financial statements are complete and
accurate and in accordance with GAAP, which remains the responsibility of the
Corporation's management and independent accountants, or (3) to conduct
investigations, resolve disagreements, if any, between management and the
independent accountants or to assure compliance with laws and regulations.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors. Subject
to the next paragraph, each of the members of the Committee shall be independent
directors, free from any relationship that, in the opinion of the Board, may
interfere with the exercise of his or her independent judgment as a member of
the Committee or independence from management and the Corporation. All members
of the Committee shall be financially literate (or must become financially
literate within a reasonable period of time after his or her appointment), and
at least one member of the Committee shall have accounting or related financial
management expertise.
Notwithstanding the previous paragraph, one non-independent director can
serve on the Audit Committee provided that the Board determines it to be in the
best interests of the Corporation and its shareholders. The Board must disclose
the reasons for determining the necessity of the non-independent director in its
next proxy statement. Current employees or officers, or their immediate family
members may not serve on the Audit Committee under this exemption.
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
A. Review Financial Reports
1. Review and discuss the Corporation's audited financial statements with the
Corporation's management.
2. Review with management and the independent accountants the interim
financial statements prior to filing the 10-Q and publicly releasing
quarterly earnings. The Chair of the Committee may represent the entire
Committee for purposes of this review.
16
B. Independent Accountants
1. Review and recommend to the Board of Directors the engagement of
independent accountants, including approval of their fee and the scope
and timing of their audit of the Corporation's financial statements.
2. Review, with the independent accountants, the accountants' report on
the Corporation's financial statements.
3. Evaluate the performance of the independent accountants; where
appropriate recommend that the Board of Directors replace the
independent accountants and approve any proposed discharge of the
independent accountants.
4. On an annual basis, obtain from the Corporation's independent public
accountants written disclosure delineating all relationships between
such accountants and the Corporation and its affiliates, including the
written disclosure and letter required by Independence Standards
Board, Standard No. 1 ("Independent Discussions with Audit
Committees"), as it may be modified or supplemented.
5. From time to time, as appropriate, actively engage the Corporation's
independent public accountants in a dialogue with respect to any
disclosed relationships or services that may impact the objectivity
and independence of such accountants and recommend to the Board of
Directors appropriate action in response to the outside auditors'
report to satisfy itself of the auditors' independence.
6. Inform the independent accountants that they are ultimately
accountable to the Board of Directors and the Audit Committee, as
representatives of the stockholders.
7. Periodically discuss with the independent accountants, out of the
presence of management:
a) the Corporation's internal controls, including their
recommendations, if any, for improvements in the
Corporation's internal controls and the implementation of
such recommendations;
b) the fullness and accuracy of the Corporation's financial
statements; and;
c) certain other matters required to be discussed by Statement
on Accounting Standards No. 61 ("Communication with Audit
Committees")1, as it may be modified, and information that
would be required to be disclosed by GAAS.
C. Reviewing and Improving Processes
1. Review, with the independent accountants and the Company's
management, policies and procedures with respect to internal
auditing and financial and accounting controls.
2. As part of its job to foster open communication, the Committee
should meet at least annually with the Corporation's management
and the independent accountants in separate executive sessions to
discuss any matters that the Committee or each of these groups
believe should be discussed confidentially.
1 SAS 61 requires independent auditors to communicate certain matters related to
the conduct of an audit to those who have responsibility for oversight of the
financial reporting process, specifically the audit committee. Among the matters
to be communicated to the audit committee are: (1) methods used to account for
significant unusual transactions; (2) the effect of authoritative guidance or
consensus; (3) the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditor's conclusions
regarding the reasonableness of those estimates; and (4) disagreements with
management over the application of accounting principles, the basis for
management's accounting estimates, and the disclosures in the financial
statements.
17
3. In consultation with the independent accountants, review the
integrity and quality of the organization's financial reporting
processes, both internal and external, and the independent
accountant's perception of the Corporation's financial and
accounting personnel.
4. Consider the independent accountants' judgments about the quality
and appropriateness of the Corporation's accounting principles as
applied and significant judgments affecting its financial
reporting.
5. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the
financial statements.
6. Review with the independent accountants and management the extent
to which changes or improvements in financial or accounting
practices, as approved by the Audit Committee, have been
implemented.
7. Consider and recommend to the Board of Directors, if appropriate,
major changes to the Corporation's financial reporting, auditing
and accounting principles and practices as suggested by the
independent accountants or management.
D. Other
1. State in the Audit Committee's Report in the Corporation's Annual
Proxy Statement whether, based on the review and discussions referred
to in items A.1., B.4., B.5. and B.7. above, the Audit Committee
recommended to the Board of Directors that the audited financial
statements be included in the Corporation's Annual Report on Form 10-K
for the last fiscal year.
2. Review and, if appropriate, recommend updates of this Charter
annually.
3. Perform any other activities consistent with this Charter, the
Corporation's By-laws and applicable law, as the Committee or the
Board deems necessary or appropriate.
18
APPENDIX B
Communication Intelligence Corporation
The Compensation Committee Charter
-------------------
Status
The Compensation Committee is a committee of the Board of Directors.
Membership
The Compensation Committee shall consist of three or more directors all of
whom in the judgment of the Board of Directors shall be independent in
accordance with the listing requirements of the principal market or exchange on
which the Company's shares are traded and if no such standards are prescribed,
then in accordance with applicable rules and regulations of the Securities and
Exchange Commission. In addition, a person may serve on the Compensation
Committee only if the Board of Directors determines that he or she (i) is a
"Non-employee Director" for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, and (ii) satisfies the requirements of an "outside
director" for purposes of Section 162(m) of the Internal Revenue Code.
Purpose
The purposes of the Compensation Committee are (i) to discharge the
responsibilities of the Board of Directors relating to compensation of the
Company's CEO and other executives, and (ii) to produce an annual report on
executive compensation for inclusion in the Company's annual proxy statement
that complies with the rules and regulations of the Securities and Exchange
Commission. Except as otherwise required by applicable laws, regulations or
listing standards, all major decisions are considered by the Board of Directors
as a whole.
Duties and Responsibilities
The Compensation Committee is directly responsible for establishing annual
and long-term performance goals and objectives for our elected officers. This
responsibility includes:
1. evaluating the performance of the CEO and other elected officers in light
of the approved performance goals and objectives;
2. setting the compensation of the CEO and other elected officers based upon
the evaluation of the performance of the CEO and the other elected
officers, respectively;
3. making recommendations to the Board of Directors with respect to new
cash-based incentive compensation plans and equity-based compensation
plans; and
4. administering the Company's stock option plans.
In determining the long-term incentive component of the Company's CEO and
other elected officers, the Compensation Committee may consider: (i) the
Company's performance and relative shareholder return; and, (ii) the value of
similar incentive awards to chief executive officers and elected officers at
comparable companies and (iii) the total compensation required to attract and
retain equally qualified executives.
..
The Compensation Committee may, in its sole discretion, employ a
compensation consultant to assist in the evaluation of the compensation of the
Company's CEO or other elected officers. The Compensation Committee shall have
the sole authority to approve the fees and other retention terms with respect to
such a compensation consultant. The Compensation Committee also has the
authority as necessary and appropriate, to consult with other outside advisors
to assist in its duties to the Company.
Meetings
The Compensation Committee shall meet at least annually and at such other
times as it deems necessary to fulfill its responsibilities.
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APPENDIX C
Communication Intelligence Corporation
The Nominating Committee Charter
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Status
The Nominating Committee is a committee of the Board of Directors.
Membership
The Nominating Committee shall consist of directors all of whom in the
judgment of the Board of Directors shall be independent in accordance with the
listing requirements of the principal market or exchange on which the Company's
shares are traded and if no such standards are prescribed, then in accordance
with applicable rules and regulations of the Securities and Exchange Commission.
Responsibilities
The Nominating Committee is responsible for considering and making
recommendations to the Board concerning the appropriate size, functions and
needs of the Board. The Nominating Committee may, at its sole discretion, engage
director search firms and has the sole authority to approve the fees and other
retention terms with respect to any such firms. The Nominating Committee also
has the authority, as necessary and appropriate, to consult with outside
advisors to assist in their duties to the Company. This responsibility includes:
o developing and recommending to the Board the criteria for Board membership.
Criteria should include, among other things, integrity, independence,
diversity of experience, leadership and the ability to exercise sound
judgment;
o considering, recommending and recruiting candidates to fill new positions
on the Board;
o reviewing candidates recommended by shareholders;
o conducting the appropriate and necessary inquiries into the backgrounds and
qualifications of possible candidates; and o recommending the Director
nominees for approval by the Board and the shareholders.
The Committee's additional functions are:
o to consider questions of possible conflicts of interest of Board members
and of the Company's senior executives;
o to monitor and recommend the functions of the various committees of the
Board;
o to recommend members of the committees;
o to advise on changes in Board compensation;
o to make recommendations on the structure of Board meetings;
o to recommend matters for consideration by the Board;
o to consider matters of corporate governance and to review, at least
annually, the Company's nominating principles; and
o to consider, and review periodically, the Company's director qualification
standards.
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