EXHIBIT 10.1
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER. THIS LEGEND SHALL BE ENDORSED UPON
ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE OR ANY SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE.
THIS NOTE IS ENTITLED TO THE BENEFIT OF THAT CERTAIN SECOND AMENDED AND RESTATED
SECURITY AGREEMENT DATED JUNE 19, 2001 BY AND AMONG THE COMPANY AND ITS
SUBSIDIARIES IN FAVOR OF THE PAYEE ("SECURITY AGREEMENT").
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COMMUNICATION INTELLIGENCE CORPORATION
June 19, 2001
No. 1 $3,000,000
CONVERTIBLE NOTE
Communication Intelligence Corporation, a Delaware corporation (the
"COMPANY"), for value received, hereby promises to pay to the order of the
Philip S. Sassower 1996 Charitable Remainder Annuity Trust (the "PAYEE") on June
18, 2004 (the "MATURITY DATE"), the principal sum of Three Million Dollars
($3,000,000) or such lesser principal amount as shall at such time be
outstanding hereunder (the "PRINCIPAL AMOUNT"). Each payment by the Company
pursuant to this Note shall be made without set-off or counterclaim and shall be
made in lawful currency of the United States of America and in immediately
available funds. Interest on this Note shall accrue on the Principal Amount
outstanding from time to time at a rate per annum computed in accordance with
Section 2 hereof, PROVIDED, that after the Maturity Date or upon an Event of
Default, the rate of interest applicable to the unpaid Principal Amount and
accrued interest shall be 4% in excess of that otherwise applicable pursuant to
Section 2 of this Note, but in no event in excess of the Maximum Rate provided
in Section 2B of this Note.
Accrued and unpaid interest shall commence on the date hereof and be
payable (i) quarterly on September 30, December 31, March 31 and June 30, (ii)
upon maturity (whether at the Maturity Date, by acceleration or otherwise) and
(iii) after maturity until paid in full (after as well as before judgment), on
demand. Each of the dates referred to in clauses (i), (ii) and (iii) is
sometimes hereinafter referred to as an "INTEREST PAYMENT DATE." All
computations of interest hereunder shall be made based on the actual number of
days elapsed in a year of 360 days (including the first day but excluding the
last day during which any such Principal Amount is outstanding). The Principal
Amount of this Note together with interest accrued and unpaid
thereon shall be payable on the Maturity Date unless this Note is converted or
prepaid in accordance with Section 6 hereof.
The amount of all repayments of principal, interest rates applicable
thereto and interest accrued thereon shall be recorded on the records of the
Company and, prior to any transfer of, or any action to collect on, this Note
shall be endorsed on this Note. Any such recordation or endorsement shall
constitute PRIMA FACIE evidence of the accuracy of the information so recorded
or endorsed, but the failure to record any such amount or rate shall not limit
or otherwise affect the obligations of the Company hereunder to make payments of
principal or interest when due. All payments by the Company hereunder shall be
applied first to pay any interest which is due, but unpaid, then to reduce the
Principal Amount.
The Company (i) waives presentment, demand, protest or notice of any
kind in connection with this Note and (ii) agrees to pay to the holder hereof,
on demand, all costs and expenses (including reasonable legal fees and expenses)
incurred in connection with the enforcement and collection of this Note.
This Note is being issued in part to refinance the Company's
indebtedness to the Payee pursuant to that certain promissory note of the
Company dated October 20, 1999 in the aggregate principal amount of $1,500,000
(the "PRIOR NOTE"). The Company and the Payee acknowledge and agree that the
aggregate principal amount outstanding under the Prior Note as of the date
hereof is $1,500,000.
1. PREPAYMENT. A. OPTIONAL. The Principal Amount of this Note may be
prepaid in whole or in part by the Company, at its option, prior to the Maturity
Date in accordance with the terms and provisions of Section 6B hereof.
B. MANDATORY. If, prior to the Maturity Date, the Company or any
Subsidiary (as defined in Section 3.C) consummates one or more financings which
provide at least an aggregate of $5 million in gross proceeds, then the Company
shall be required to immediately apply 50% of the gross proceeds received in
excess of $5 million to the Principal Amount under this Note.
2. COMPUTATION OF INTEREST.
A. BASE INTEREST RATE. Except as expressly set forth herein, the
outstanding Principal Amount shall bear interest at the rate per annum equal to
2% over the prime rate publicly announced from time to time by Citibank, N.A. as
its prime rate in effect at its principal office in New York City, with each
such change in interest rate to take effect with the corresponding change in the
prime rate publicly announced by Citibank, N.A.
B. MAXIMUM RATE. In the event that it is determined by final order
of a court or governmental authority that, under the laws relating to usury
applicable to the Company or the indebtedness evidenced by this Note
("APPLICABLE USURY LAWS"), the interest charges and fees payable by the Company
in connection herewith or in connection with any other document or instrument
executed and delivered in connection herewith cause the effective interest rate
applicable to the indebtedness evidenced by this Note to exceed the maximum rate
allowed by law (the "MAXIMUM RATE"), then such interest shall be recalculated
for the period in question and
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any excess over the Maximum Rate paid with respect to such period shall be
credited, without further agreement or notice, to the Principal Amount
outstanding hereunder to reduce said balance by such amount with the same force
and effect as though the Company had specifically designated such extra sums to
be so applied to principal and the Payee had agreed to accept such extra
payment(s) as a premium-free prepayment. All such deemed prepayments shall be
applied to the principal balance payable at maturity.
3. REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants to the Payee as follows:
A. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Note, the Security Agreement and the registration rights agreement
of even date herewith between the Company and the Payee (the "REGISTRATION
RIGHTS AGREEMENT"), and to carry out the transactions contemplated hereby and
thereby. The Company and each Subsidiary (as defined below) are duly qualified
and in good standing in each jurisdiction in which the character or location of
its properties or nature of its business makes such qualification necessary.
B. CAPITALIZATION. The authorized and outstanding capital stock of
the Company is as described in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (the "ANNUAL REPORT") and Quarterly Report on Form
10-Q for the three months ended March 31, 2001 ("QUARTERLY REPORT", and
collectively with the Annual Report, the "SEC DOCUMENTS"). The Company has
heretofore delivered to Payee a true and complete copy of the Annual Report and
the Quarterly Report. Except as set forth in the SEC Documents or as set forth
pursuant to this Note, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) there
is no commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidence of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as provided in the SEC Documents, no person or entity is
entitled to (i) any preemptive or similar right with respect to the issuance of
any capital stock of the Company, or (ii) any rights with respect to the
registration of any capital stock of the Company under the Securities Act.
C. SUBSIDIARIES. On the date hereof, the Company has four
Subsidiaries, CIC Japan, CICI Limited, CICI Limited II and CIC Acquisition Corp.
The only asset of CICI Limited is a 90% interest in a joint venture in the
Peoples Republic of China. As used herein, the term "SUBSIDIARY" shall mean any
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are owned directly or indirectly through one or more
intermediaries, or both, by the Company.
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D. ISSUANCE OF SHARES. The issuance, sale and delivery of the Note
and the shares of the Company's common stock, par value $0.01 per share ("COMMON
STOCK") issuable upon conversion of the Note (the "CONVERSION SHARES") in
accordance with the terms hereof have been duly authorized by all necessary
corporate action on the part of the Company, and the Conversion Shares, when
issued, sold and delivered against payment therefor in accordance with the
provisions of this Note, will be duly and validly issued, fully paid and
nonassessable and will not be issued in violation of any preemptive or similar
rights. The Company will issue the Conversion Shares, upon conversion of the
Note in accordance with the terms hereof, free and clear of all Liens (as
defined in Section 4.B(iii) hereof).
E. AUTHORITY. The execution, delivery and performance by the Company
of the Note, the Security Agreement and the Registration Rights Agreement have
been duly authorized by all necessary corporate action, and this Note, the
Security and the Registration Rights Agreement have been duly executed and
delivered by the Company. This Note, the Security Agreement and the Registration
Rights Agreement constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights in general and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law). The execution,
delivery and performance of this Note, the Security Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby do not and will not violate any provision of law
applicable to the Company or any Subsidiary and do not and will not conflict
with or result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, the certificate of incorporation or bylaws of the
Company or any Subsidiary, or any indenture, lease, agreement or other
instrument to which the Company or any Subsidiary is a party or by which it or
any of its properties or assets is bound, or any decree, judgment, order,
statute, rule or regulation applicable to the Company or any Subsidiary.
F. GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
or any Subsidiary in connection with the execution and delivery of this Note,
the Security Agreement or the Registration Rights Agreement, or the issue, sale
and delivery of the Conversion Shares, or the other transactions contemplated
hereby or thereby, except for (i) such filings as shall have been made prior to
and shall be effective on and as of the date hereof and (ii) such filings to be
made pursuant to the Registration Rights Agreement.
G. LITIGATION. There is no action, suit, proceeding or investigation
pending, or threatened, against the Company or any Subsidiary which questions
the validity of this Note, the Security Agreement or the Registration Rights
Agreement or the right of the Company to execute, deliver and perform either of
the foregoing, or which might result, either individually or in the aggregate,
in any material adverse change in the assets, results of operations, conditions
(financial or otherwise), net worth, business or prospects of the Company and
its Subsidiaries taken as a whole (a "MATERIAL ADVERSE CHANGE").
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H. PROPERTY AND ASSETS. Each of the Company and its Subsidiaries has
good title to all of its properties and assets, including all properties and
assets reflected in the financial statements included with the SEC Documents,
except those disposed of since the date thereof in the ordinary course of
business consistent with past practice, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge, claim
or encumbrance other than those the material terms of which are described in the
SEC Documents.
I. COMPLIANCE. Each of the Company and its Subsidiaries has, in all
material respects, complied with all laws, regulations and orders applicable to
its present and proposed business as described in the SEC Documents and has all
permits, consents, approvals, authorizations, orders, registrations,
qualifications and licenses ("LICENSES") of and from all public, regulatory or
governmental agencies and bodies necessary to own its properties and conduct its
existing and proposed business and is in compliance in all material respects
with such Licenses.
J. FINANCIAL STATEMENTS. The financial statements included in the
SEC Documents present fairly in all material respects the financial position,
results of operations and changes in financial position of the Company as of the
dates and for the periods indicated in conformity with generally accepted
accounting principles consistently applied ("GAAP") during such periods. As of
December 31, 2000, the Company did not have any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency or obligation, whether fixed or
unfixed, liquidated or unliquidated, secured or unsecured, contingent or
otherwise of a kind required by GAAP to be set forth on a financial statement or
in the notes thereto ("LIABILITIES") that were not fully and adequately
reflected on or reserved against the Company's balance sheet at such date
included in the Annual Report (the "BALANCE SHEET"). Except as disclosed in the
Quarterly Report, since December 31, 2000, the Company has not incurred any
Liability, other than Liabilities incurred in the ordinary course of business,
none of which, individually or in the aggregate, are material.
K. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Documents, since December 31, 2000, each of the Company and its Subsidiaries has
conducted its business in the ordinary and usual course consistent with past
practices and has not (i) transferred to any other person, corporation or entity
any Intellectual Property (as hereinafter defined), except for licenses granted
by the Company to third parties in the ordinary course of business consistent
with past practices, (ii) made any loan, advance, capital contribution or
investment in any person or entity, (iii) terminated or amended in any material
respect any material contract to which the Company or such Subsidiary is a party
or by which it is bound, (iv) increased the compensation payable to any employee
of the Company or such Subsidiary except in the ordinary course of business,
consistent with past practice, (v) suffered any material damage, destruction or
other loss (whether or not covered by insurance) affecting its business or
assets, (vi) made any material change in its business policies, (vii) taken any
action or agreed to take any action which, if taken prior to the date hereof,
would have made any representation or warranty herein untrue, or (viii) suffered
any Material Adverse Change.
L. NO DEFAULTS. Neither the Company nor any Subsidiary is in default
and, to the Company's knowledge, no other party is in default, nor does there
exist any event that, with
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notice or lapse of time or both, would constitute a default or give rise to
rights of termination, under any material agreement or other instrument to which
the Company or any Subsidiary is a party or by which it or its properties are
bound. All such agreements and instruments are valid, subsisting in full force
and effect and binding on the parties.
M. INTELLECTUAL PROPERTY. Except as disclosed in the SEC Documents,
the Company owns (or is authorized to use), free and clear of any Liens, all
patents, trademarks, copyrights, service marks, trade secrets, manufacturing and
process know-how, processes, unpatented inventions, technical information,
technology, designs and other intellectual property utilized in the conduct of
its business as described in the Annual Report (the "INTELLECTUAL PROPERTY"). To
the Company's knowledge, the Intellectual Property does not infringe upon the
rights of others.
N. ACCURACY. None of the representations and warranties contained
herein or in the Security Agreement, nor any of the statements made in SEC
Documents contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
O. FULL DISCLOSURE. There is no fact or circumstance which the
Company has not disclosed to Payee in writing that could reasonably be expected
to result in a Material Adverse Change.
4. COVENANTS OF COMPANY
A. AFFIRMATIVE COVENANTS. The Company covenants and agrees that,
so long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4A (it being agreed that these covenants shall apply
equally to each Subsidiary of the Company as if fully set forth herein):
(i) TAXES AND LEVIES. The Company will file when due all
federal, state and local income tax returns and will promptly pay and discharge
all taxes, assessments, and governmental charges or levies imposed upon the
Company or upon its income and profits, or upon any of its property, before the
same shall become delinquent, and will discharge when due all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon any
material properties of the Company or any material part thereof, provided,
HOWEVER, that the Company shall not be required to pay and discharge any such
tax, assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and the Company shall set
aside on its books adequate reserves in accordance with generally accepted
accounting principles ("GAAP") with respect to any such tax, assessment, charge,
levy or claim so contested;
(ii) MAINTENANCE OF EXISTENCE. The Company will do or cause to
be done all things reasonably necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all laws
applicable to the Company;
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(iii) MAINTENANCE OF PROPERTY. The Company will maintain,
preserve, protect and keep its material property used or useful in the conduct
of its business in good repair, working order and condition, and from time to
time make all needful and proper repairs, renewals, replacements and
improvements thereto as shall be reasonably required in the conduct of its
business;
(iv) INSURANCE. The Company will, to the extent necessary for
the operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
(v) BOOKS AND RECORDS. The Company will at all times keep true
and correct in all material respects its books, records and accounts reflecting
all of its business affairs and transactions in accordance with GAAP. Such books
and records shall be open at reasonable times and upon reasonable notice to the
inspection of the Payee or its agents;
(vi) NOTICE OF CERTAIN EVENTS. The Company will give prompt
written notice (with a description in reasonable detail) to the Payee of
(a) the occurrence of any Event of Default (as defined
in Section 5) or any event which, with the giving of notice or the
lapse of time, would constitute an Event of Default;
(b) the occurrence of any litigation, arbitration or
governmental investigation or proceeding not previously disclosed by
the Company to the Payee in writing which has been instituted or, to
the knowledge of the Company, is threatened, against the Company or
to which any of its properties, assets or revenues is subject which,
if adversely determined, would reasonably be expected to result in a
Material Adverse Change;
(c) the occurrence of any event of default or any event
which, with the giving of notice or the lapse of time, would
constitute an event of default under any document or instrument
evidencing or governing any indebtedness of the Company in the
principal amount exceeding $25,000 and the delivery of any notice
effecting the acceleration of any such indebtedness;
(d) any material development which shall occur in any
litigation, arbitration or governmental investigation or proceeding
previously disclosed by the Company to the Payee; and
(e) the occurrence of any other circumstance which has a
reasonable likelihood of resulting in a Material Adverse Change;
(vii) OTHER OBLIGATIONS. The Company will maintain all of its
obligations and agreements material to its business in whatever manner incurred,
including but
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not limited to obligations for borrowed money or for services or goods
purchased, as they become due in accordance with their terms;
(viii) COMPLIANCE WITH LAWS. The Company will comply in all
material respects with all applicable federal, state and local laws, rules,
regulations and orders; and
(ix) LICENSES AND INTELLECTUAL PROPERTY. The Company will
maintain in full force and effect all Licenses and will maintain, preserve and
protect all Intellectual Property necessary to conduct its business.
B. NEGATIVE COVENANTS. The Company covenants and agrees that, so
long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 4B (it being agreed that these prohibitions shall apply
equally to each Subsidiary of the Company as if fully set forth herein):
(i) LIQUIDATION, DISSOLUTION. The Company will not liquidate
or dissolve, consolidate with, or merge into or with, any other corporation or
other entity;
(ii) SALES OF ASSETS. The Company will not sell, transfer,
lease or otherwise dispose of, or grant options, warrants or other rights with
respect to all or a substantial part of its properties or assets to any person
or entity;
(iii) LIENS. The Company will not create, incur, assume or
suffer to exist any mortgage, pledge, hypothecation, assignment, security
interest, encumbrance, lien (statutory or other), preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any
financing lease) (each, a "LIEN") upon any of its property, revenues or assets,
whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable
without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(b) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of
business (1) for sums not overdue or being contested in good faith
by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books or (2)
relating to property of the Company which is not material in value
or is not material to the conduct of the business of the Company;
and
(c) judgment Liens which, to the extent not covered by
insurance, do not exceed $50,000 or which are in existence less than
30 days after the entry thereof or with respect to which execution
has been stayed.
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(iv) REDEMPTIONS. The Company will not redeem or repurchase
any outstanding equity securities of the Company;
(v) TRANSACTIONS WITH AFFILIATES. The Company will not enter
into any transaction, including, without limitation, the purchase, sale, lease
or exchange of property, real or personal, or the rendering of any service, with
any person or entity affiliated with the Company, except upon terms not less
favorable than would be obtained in a comparable arms-length transaction with
any other person or entity not affiliated with the Company;
(vi) INDEBTEDNESS. The Company will not incur, create, assume
or otherwise become obligated in respect of or permit to be outstanding at any
time any Indebtedness (as hereinafter defined), except for Indebtedness which
does not individually or in the aggregate exceed $200,000 at any time. As used
herein, the term "INDEBTEDNESS" shall mean (a) money borrowed by the Company or
any Subsidiary from any person; (b) any indebtedness of the Company or any
Subsidiary arising under leases required to be capitalized under GAAP or
evidenced by a note, bond, debenture or similar instrument; (c) any indebtedness
of the Company or any Subsidiary arising under purchase money obligations or
representing the deferred purchase price of property and services (other than
current trade payables incurred in the ordinary course of the business); and (d)
any liability of the Company or any Subsidiary under any guaranty, letter of
credit, performance credit or other agreement having the effect of assuring a
creditor against loss.
(vii) DIVIDENDS. The Company will not: (a) declare or pay any
dividends (other than dividends payable in capital stock) on, (b) apply any
property or assets of the Company or any Subsidiary to the purchase, redemption
or other retirement of, (c) set apart any sum for the payment of any dividends
on or for the purchase, redemption or other retirement of, or (d) make any other
distribution by reduction of capital or otherwise in respect of, any shares of
any class of capital stock of the Company or any Subsidiary (other than a
wholly-owned Subsidiary).
(viii) INVESTMENTS. The Company will not make any investment
in or capital contribution to, or make or permit to be outstanding any loan,
advance or extension of credit to or purchase, acquire or incur any liability
for the purchase or acquisition of any business, assets or securities of any
person, or entity except (a) loans, advances and extensions of credit on account
of sales on credit in the ordinary course of business, (b) purchases or
acquisitions of assets in the ordinary course of business consistent with past
practice, (c) travel advances in the ordinary course of business to officers and
employees, (d) advances in the ordinary course of business consistent with past
practice to employees or consultants against commissions and (e) temporary cash
investments consisting of investments in prime commercial paper, short-term
investment grade securities or certificates of deposit.
(ix) ACQUISITIONS. The Company will not acquire an interest in
any corporation, partnership, joint venture or similar entity.
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5. EVENTS OF DEFAULT
A. The term "EVENT OF DEFAULT" shall mean any of the events set
forth in this Section 5A:
(i) NON-PAYMENT OF OBLIGATIONS. The Company fails to pay any
principal or interest on this Note when and as the same shall become due and
payable, whether by acceleration or otherwise, for a period of more than three
(3) business days;
(ii) NON-PERFORMANCE OF AFFIRMATIVE COVENANTS. The Company
defaults in the due observance or performance of any covenant set forth in
Section 4A, which default shall continue uncured for 10 days;
(iii) NON-PERFORMANCE OF NEGATIVE COVENANTS. The Company
defaults in the due observance or performance of any covenant set forth in
Section 4B;
(iv) NON-PERFORMANCE OF OTHER OBLIGATIONS. The Company or any
Subsidiary defaults in the due observance or performance of any other material
agreement to be observed or performed by the Company or any Subsidiary, which
default shall continue uncured for 10 days after written notice thereof
specifying such default shall have been given to the Company by the holder of
this Note (or its agent);
(v) BANKRUPTCY INSOLVENCY, ETC. The Company:
(a) becomes insolvent or generally fails or is unable to
pay, or admits in writing its inability to pay, its debts as they
become due;
(b) applies for, consents to, or acquiesces in, the
appointment of a trustee, receiver, sequestrator or other custodian
for the Company or any of its property, or make a general assignment
for the benefit of creditors;
(c) in the absence of such application, consents or
acquiesces in, permits or suffers to exist the appointment of a
trustee, receiver, sequestrator or other custodian for the Company
or for any part of its property, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 30
days; or
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the
Company and, if such case or proceeding is not commenced by the
Company or converted to a voluntary case, such case or proceeding
shall be consented to or acquiesced in by the Company or shall
result in the entry of an order for relief or shall remain for 30
days undismissed.
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(vi) BREACH OF WARRANTY. Any representation or warranty of the
Company contained in this Note or the Security Agreement is or shall be
incorrect in any material respect when made.
(vii) CROSS-ACCELERATION. Any indebtedness for borrowed money
of the Company or any Subsidiary in an aggregate principal amount exceeding
$100,000 (a) shall be duly declared to be or shall become due and payable prior
to the stated maturity thereof, or (b) shall not be paid as and when the same
becomes due and payable, including any applicable grace period.
(viii) JUDGMENTS. A judgment or order for the payment of money
is rendered against the Company or any Subsidiary which, together with all other
such outstanding judgments against the Company and its Subsidiaries (in each
case to the extent not covered by insurance), exceeds an aggregate of $100,000,
shall be rendered against the Company or any Subsidiary and, within 30 days
after entry thereof, such judgment shall not have been vacated, discharged or
otherwise satisfied or execution thereof stayed pending appeal, or, within 30
days after the expiration of any such stay, such judgment shall not have been
discharged or otherwise satisfied.
(ix) CHANGE OF CONTROL. There is a Change of Control (as
defined herein). For purposes hereof, a "CHANGE OF CONTROL" shall mean the
occurrence of any of the following: (a) an acquisition after the date hereof by
an individual or legal entity or "GROUP" (as defined in Rule 13d promulgated
under the Securities Exchange Act of 1934, as amended), other than the Payee, if
in excess of 25% of the voting securities of the Company, (b) the replacement of
more than one-half of the members of the Company's Board of Directors that is
not approved by those individuals who are members of the Board of Directors on
the date hereof, or successors on a continuing Board of Directors, in one or a
series of related transactions, (c) the merger of the Company with or into
another entity where the shareholders of the Company own less than 50% of the
outstanding voting power of the surviving corporation, (d) the consolidation or
sale of all or substantially all of the assets of the Company in one or a series
of related transactions, or (e) the execution by the Company of an agreement
providing for any of the foregoing events.
B. ACTION IF BANKRUPTCY. If any Event of Default described in
clauses (v)(a) through (d) of Section 5A shall occur, the outstanding Principal
Amount of this Note and all other obligations hereunder shall automatically be
and become immediately due and payable, without notice or demand.
C. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in clauses (v)(a) through (d) of
Section 5A) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Payee may, upon written notice to the Company, declare all or
any portion of the outstanding Principal Amount of this Note, together with
interest accrued thereon to be due and payable and any or all other obligations
hereunder to be due and payable, whereupon the full unpaid Principal Amount (or
any portion thereof so demanded), such accrued interest and any and all other
such obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand, or presentment.
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D. REMEDIES. In case any Event of Default shall occur and be
continuing, the Payee may proceed to protect and enforce its rights by a
proceeding seeking the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note or may proceed to enforce the payment of this Note or to enforce any other
legal or equitable rights as such holder shall determine.
6. CONVERSION OF NOTE.
A. OPTIONAL CONVERSION. The Payee shall have the right, at its
option, at any time up to and including the earlier of the Maturity Date or 10
business days after receipt of the Prepayment Notice (as defined below), to
convert all or any portion of the outstanding Principal Amount of this Note into
shares of Common Stock at a price equal to $2.00 per share, subject to
adjustment as provided in 6D below (the "CONVERSION PRICE").
B. OPTIONAL CONVERSION IN LIEU OF PREPAYMENT. In the event the
Company wishes to prepay all or any portion of the Principal Amount prior to the
Maturity Date, the Company shall deliver a notice of prepayment to the Payee,
specifying the Principal Amount it wishes to repay (the "PREPAYMENT NOTICE"), in
which event (i) the Payee shall have the right at any time during the 10
business days after receipt of the Prepayment Notice, in its sole discretion, to
convert all or any portion of the outstanding Principal Amount of this Note into
shares of Common Stock at the Conversion Price, and (ii) thereafter, the Company
may, at any time during the succeeding 10 business days, prepay in whole or in
part the Principal Amount specified in such Prepayment Notice.
C. OPTIONAL CONVERSION. The Payee shall have the right, at its
option, at any time up to and including the Maturity Date, to convert all or any
portion of the outstanding Principal Amount of this Note into shares of Common
Stock at the Conversion Price.
D. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price in effect
at any time and the number of shares of Common Stock issuable upon conversion of
the Note shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(i) DIVIDENDS, DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS AND
RECLASSIFICATIONS. In case the Company shall (a) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (b) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (c) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the applicable Conversion Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the number of shares determined by multiplying
the Conversion Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
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(ii) ISSUANCE OR SALE OF CONVERTIBLE SECURITIES. If, at any
time while this Note is outstanding, the Company issues or sells, or is deemed
to have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to such issuance or
sale, then immediately after such issuance or sale the Conversion Price then in
effect shall be reduced to an amount equal to the consideration per share of
Common Stock in such issuance or sale. If at any time during which this Note is
outstanding the Company grants, issues or sells any rights, warrants or options
for or to purchase Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (collectively, the "CONVERTIBLE
SECURITIES"), and the price per share for which Common Stock is issuable upon
the exercise or conversion of such Convertible Securities is less than the
Conversion Price in effect immediately prior to such grant or issuance, then the
Conversion Price then in effect shall be reduced to an amount equal to the price
per share for which the Common Stock is issuable upon exercise or conversion of
such Convertible Security.
(iii) REORGANIZATION OF THE COMPANY. In case of any
reclassification or capital reorganization, or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or capital reorganization) or in case of
any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the holder of this
Note shall have the right thereafter upon conversion of this Note in accordance
with the provisions of this Section 6, to purchase the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification, capital reorganization, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might have
been received upon conversion of this Note immediately prior to such
reclassification, consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Note. The Company
shall not effect any such consolidation, merger, sale, transfer or other
disposition, unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing or otherwise acquiring
such properties shall assume, by written instrument executed and mailed or
delivered to the holder of this Note at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities, cash or properties as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. The above
provisions of this paragraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers or
other dispositions. Nothing herein shall be construed as to require the consent
of the holder to any such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition.
(iv) OTHER EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 6.D but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
the Company's Board of Directors shall make appropriate adjustment in the
Conversion Price so at to protect the rights of the Payee or its assigns.
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(v) EXCEPTIONS. Notwithstanding anything to the contrary
contained herein, no adjustment shall be made to the Conversion Price in
connection with the issuance, sale or grant of shares of: (A) Common Stock
issued in connection with a stock option plan, (B) Common Stock issued in
connection with non-plan options granted to directors of the Company, which
shall not exceed 250,000 shares in the aggregate or (C) shares of Common Stock
issued upon conversion of this Note.
E. MECHANICS OF CONVERSION. Before the Payee shall be entitled to
convert this Note into Conversion Shares, the Payee shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company, and shall give written notice to the Company at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for the Conversion Shares are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver to the Payee, or to the nominee or nominees of Payee, a certificate or
certificates for the number of Conversion Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
Note to be converted, and the person or persons entitled to receive the
Conversion Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.
F. CASH PAYMENTS. No fractional shares (or scrip representing
fractional shares) of Common Stock shall be issued upon conversion of this Note.
In the event that the conversion of the Principal Amount of this Note would
result in the issuance of a fractional share of Common Stock, the Company shall
pay a cash adjustment in lieu of such fractional share to the holder of this
Note based upon the Conversion Price. Upon the surrender of this Note, accrued
and unpaid interest on the Principal Amount of this Note shall be paid by the
Company to the holder of this Note through the Conversion Date.
G. STAMP TAXES, ETC. The Company shall pay all documentary, stamp
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion of this Note; PROVIDED, HOWEVER, that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the holder of this Note.
H. VALIDITY OF STOCK. All shares of Common Stock which may be
issued upon conversion of this Note shall, upon issuance by the Company in
accordance with the terms of this Note, be validly issued, free from all taxes
and liens with respect to the issuance thereof (other than those created by the
holders), and free from a pre-emptive or similar rights and shall be fully paid
and non-assessable.
I. RESERVATION OF SHARES. The Company covenants and agrees that
it will at all times have authorized and reserved, solely for the purpose of
such possible conversion, out of its authorized but unissued shares, a
sufficient number of shares of its Common Stock to provide for the exercise in
full of the conversion rights contained in this Note.
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J. NOTICE OF CERTAIN TRANSACTIONS. In case at any time:
(i) The Company shall declare any dividend upon, or other
distribution in respect of, its Common Stock; or
(ii) The Company shall offer for subscription to the holders
of its Common Stock any additional shares of stock of any class or any other
securities convertible into shares of stock or any rights to subscribe thereto;
or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all or
substantially all of the assets of the Company, or a consolidation or merger of
the Company with another corporation; or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(v) The Company shall issue any shares of capital stock or any
security convertible into or exercisable or exchanged for shares of capital
stock of the Company,
then, in any one or more of said cases, the Company shall cause to be mailed to
the registered holder of this Note at the earliest practicable time (and, in any
event not less than 20 days before any record date or other date set for
definitive action), written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or such reorganization, reclassification, sale, issuance,
consolidation, merger or dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the kind and amount of the
shares of stock and other securities and property deliverable upon the
conversion of this Note. Such notice shall also specify the date as of which the
holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger or dissolution,
liquidation or winding-up, as the case may be.
7. AMENDMENTS AND WAIVERS.
A. The provisions of this Note may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Company and the Payee.
B. No failure or delay on the part of the Payee in exercising any
power or right under this Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Company in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by the Payee shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent
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transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
C. To the extent that the Company makes a payment or payments to
the Payee, and such payment or payments or any part thereof are subsequently for
any reason invalidated, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all rights
and remedies therefor, shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
D. After any waiver, amendment or supplement under this section
becomes effective, the Company shall mail to the holder of this Note a copy
thereof.
8. MISCELLANEOUS
A. REGISTERED HOLDER. The Company may consider and treat the
person in whose name this Note shall be registered as the absolute owner thereof
for all purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. In case of transfer
of this Note by operation of law, the transferee agrees to notify the Company of
such transfer and of its address, and to submit appropriate evidence regarding
such transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder hereof,
in person or by attorney, on the surrender hereof, duly endorsed. Communications
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the communication.
B. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York shall apply to this Note
and the Company hereby waives any right to stay or dismiss on the basis of FORUM
NON CONVENIENS any action or proceeding brought before the courts of the State
of New York sitting in New York County or of United States of America for the
Southern District of New York and hereby submits to the jurisdiction of such
courts.
C. NOTICES. Unless otherwise provided, all notices required or
permitted under this Note shall be in writing and shall be deemed effectively
given (i) on the day delivered or transmitted to the party to be notified in the
case of notices delivered by hand or by facsimile, (in the event confirmation is
received) (ii) upon confirmed delivery by Federal Express or other nationally
recognized courier service providing next-business-day delivery, or (iii) three
business days after deposit with the United States Postal Service, by registered
or certified mail, postage prepaid and addressed to the party to be notified, in
each case at the address set forth below, or at such other address as such party
may designate by written notice to the other party (provided that notice of
change of address shall be effective upon receipt by the party to whom such
notice is addressed).
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If sent to Payee, notices shall be sent to the following address:
The Philip S. Sassower 1996 Charitable
Remainder Annuity Trust
c/o Mr. Philip Sassower
135 East 57th Street
New York, New York 10022
Tel: (212) 759-1909
Fax: (212) 319-4930
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022-7513
Attn.: Jonathan J. Russo, Esq.
Tel: (212) 702-5700
Fax: (212) 702-5941
If sent to the Company, notices shall be sent to the following
address:
Communication Intelligence Corporation
275 Shoreline Drive
Redwood City, CA 94065-1413
Attn.: President
Tel: (650) 802-7888
Fax: (650) 802-7777
with a copy to:
Communication Intelligence Corporation
275 Shoreline Drive
Redwood City, CA 94065-1413
Attn.: Chief Financial Officer
Tel: (650) 802-7888
Fax: (650) 802-7777
D. WAIVER OF JURY TRIAL. THE PAYEE AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN
17
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING THIS NOTE.
E. EXPENSES. The Company will pay (i) all out-of-pocket expenses
of the Payee in connection with the preparation, execution and delivery of this
Note, the Security Agreement and the Registration Rights Agreement, and the
transactions contemplated hereby and thereby, including reasonable fees and
disbursements of counsel to the Payee, (ii) all out-of-pocket expenses in
connection with the preparation, execution and delivery of any waiver, amendment
or consent by the Payee relating to this Agreement, including reasonable fees
and disbursements of counsel to the Payee, and (iii) all costs of obtaining
performance under this Note, the Security Agreement and the Registration Rights
Agreement by the Company and all costs of collection in respect to this Note,
which costs shall include reasonable counsel fees and expenses.
F. RIGHTS, REMEDIES CUMULATIVE. The rights and remedies of the
Payee under this Note, the Security Agreement and the Registration Rights
Agreement shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have, and no failure or delay by the Payee in exercising any
right shall operate as a waiver of it, nor shall any single or partial exercise
of any power or right preclude its other or further exercise or the exercise of
any other power or right.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer.
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/ Marjorie Bailey
-------------------------------
Name: Marjorie Bailey
Title: Chief Financial Officer
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