Exhibit 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
December 31, 1996 between Communication Intelligence Corporation, a Delaware
corporation with offices at 275 Shoreline Drive, Redwood Shores, California
94065 ("CIC"), and each of the entities listed under "Investors" on the
signature page hereto (each an "Investor" and collectively the "Investors"),
each with offices at the address listed under such Investor's name on Schedule I
hereto.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Preferred Stock Investment Agreement
by and between CIC and the Investors (the "Investment Agreement"), CIC has
agreed to sell and issue to the Investors, and the Investors have agreed to
purchase from CIC, an aggregate of 450,000 shares, par value $0.01, of CIC's 5%
Cumulative Convertible Preferred Stock (the "Preferred Shares") on the terms and
conditions set forth therein;
WHEREAS, the Investment Agreement contemplates that the Preferred
Shares will be convertible into shares ("Common Shares") of common stock, par
value $0.01, of CIC ("Common Stock") pursuant to the terms and conditions set
forth in the Certificate of Designations (the "Designation") for such Preferred
Shares; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Investment Agreement, CIC has agreed
to provide the Investors with certain registration rights with respect to the
Common Shares and certain other rights and remedies with respect to the
Preferred Shares as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Investment Agreement and this Agreement, CIC and the Investors agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed thereto in the Investment
Agreement or the Designation. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in the Investment Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Liquidation Preference" shall have the meaning ascribed to such term
in the Designation. For clarification purposes, "Liquidation Preference"
hereunder shall include any accrued and unpaid dividends on the Preferred Shares
on a per diem basis through the date of any event for which default payments are
payable pursuant to Section 2(b) below and thereafter.
"Registrable Securities" shall mean: (i) the Common Shares issued to
each Holder or its permitted transferee or designee upon conversion of the
Preferred Shares or upon any stock split, stock dividend, recapitalization or
similar event with respect to such Common Shares; (ii) any securities issued or
issuable to each Holder upon the exchange or conversion of any Preferred Shares
or Common Shares; (iii) any other security of CIC issued as a dividend or other
distribution with respect to, in exchange of or in replacement of Registrable
Securities; and the Common Shares issued pursuant to the exercise of the
warrants delivered to the Placement Agent as described in Section 3.4 of the
Investment Agreement.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by CIC
in connection with each Holder's registration rights under this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for CIC, blue sky fees and expenses,
reasonable fees and disbursements of counsel to Holders (using a single counsel
selected by a majority in interest of the Holders) for a "due diligence"
examination of CIC and review of the Registration Statement and related
documents, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of CIC,
which shall be paid in any event by CIC).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
"Holder" and "Holders" shall include an Investor or the Investors,
respectively, and any transferee of the Preferred Shares or Common Shares or
Registrable Securities which have not been sold to the public to whom the
registration rights conferred by this Agreement have been transferred in
compliance with this Agreement.
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
2. REGISTRATION REQUIREMENTS. CIC shall use its best efforts to
effect the registration of the Registrable Securities (including without
limitation the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holder. Such best efforts by CIC shall
include the following:
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(a) CIC shall, as expeditiously as reasonably possible after the
Closing Date:
(i) Prepare and file a registration statement with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3 under
the Securities Act (or in the event that CIC is ineligible to use such
form, such other form as CIC is eligible to use under the Securities Act)
covering the Registrable Securities ("Registration Statement") by March 31,
1997. Thereafter CIC shall use its best efforts to cause such Registration
Statement and other filings to be declared effective prior to 180 days
following the Closing Date. CIC shall provide Holders reasonable
opportunity to review any such Registration Statement or amendment or
supplement thereto prior to filing.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement and notify the Holders of
the filing and effectiveness of such Registration Statement and any
amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the Act, copies of
the Registration Statement, any amendment or supplement thereto and any
documents incorporated by reference therein and such other documents as
such Holder may reasonably require in order to facilitate the disposition
of Registrable Securities owned by such Holder.
(iv) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by each Holder; provided that CIC shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(v) Notify each Holder immediately of the happening of any
event as a result of which the prospectus (including any supplements
thereto or thereof) included in such Registration Statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and use its best efforts to promptly update and/or correct such
prospectus.
(vi) Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. CIC shall use its best
efforts to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time.
(vii) Permit a single firm of counsel, designated as
Holders' counsel by a majority of the Registrable Securities included in
the Registration Statement, to review the Registration Statement and all
amendments and supplements thereto within
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a reasonable period of time prior to each filing, and shall not file any
document in a form to which such counsel reasonably objects.
(viii) Use its best efforts to list the Registrable
Securities covered by such Registration Statement with any securities
exchange(s) and/or markets on which the Common Stock is then listed and
prepare and file any required filings with the National Association of
Securities Dealers, Inc. or any exchange or market where the Common Shares
are traded.
(b) (i) CIC agrees that it shall file the Registration
Statement complying with the requirements of this Agreement by March 31,
1997 and shall use its best efforts to cause such Registration Statement to
become effective within 180 days from the Closing Date. In the event that
such Registration Statement has not been declared effective within 180 days
from the Closing Date, then CIC shall pay to each Holder a default payment
in an amount equal to three percent (3%) of the Liquidation Preference for
the Preferred Shares held by such Holder for each 30-day period from and
after the 180th day following the Closing Date during any part of which
such Registration Statement is not effective.
(ii) In the event that CIC fails, refuses or is unable to
cause the Registrable Securities covered by the Registration Statement to
be listed with the securities exchange(s) and markets on which the Common
Stock is then traded and the NASDAQ Small Capitalization Market or the
National Market at all times during the period ("Listing Period") from the
Conversion Commencement Date (subject to acceleration pursuant to Section 4
of the Designation) until the date which is the last day of the 13th fiscal
month following the Closing Date (provided that such date shall be deferred
1.5 days for each day that there is no Effective Registration after the
Conversion Commencement Date), then CIC shall pay to each Holder a default
payment in an amount equal to three percent (3%) of the Liquidation
Preference for the Preferred Shares held by such Holder for each 30-day
period during the Listing Period from and after such failure, refusal or
inability to so list the Registrable Securities until the Registrable
Securities are so listed.
(iii) In the event any Holder's ability to sell
Registrable Securities under the Registration Statement is suspended for
more that sixty (60) days in the aggregate ("Suspension Grace Period") or
if any Holder's ability to sell Registrable Securities under the
Registration Statement is suspended at any time during the 12th or 13th
fiscal month following the Closing Date, including without limitation by
reason of any suspension or stop order with respect to the Registration
Statement or the fact that an event has occurred as a result of which the
prospectus (including any supplements thereto) included in such
Registration Statement then in effect includes an untrue statement of
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, then CIC shall pay to each Holder a
default payment in an amount equal to three percent (3%) of the Liquidation
Preference for the Preferred Shares held by such Holder for each 30-day
period from and after the last day of the Suspension Grace Period or during
the 12th or 13th fiscal month following the Closing Date, as the case may
be, until such suspension no longer exists.
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(iv) In the event that CIC does not have a sufficient number
of Common Shares available to satisfy CIC's obligations to any Holder upon
receipt of a Conversion Notice (as defined in the Designation) or is
otherwise unable to issue such Common Shares (including without limitation
by reason of the limit described in Section 11 below) in accordance with
the terms of the Designation for any reason after receipt of a Conversion
Notice, then CIC shall pay to each Holder a default payment in an amount
equal to three percent (3%) of the Liquidation Preference for the Preferred
Shares held by such Holder for each 30-day period from and after the
Conversion Date (as defined in the Designation) that CIC fails or refuses
to issue Common Shares in accordance with the terms thereof.
(v) Each default payment provided for in the foregoing
clauses (i) through (iv) shall be in addition to each other default
payment; provided, however, that in no event shall CIC be obligated to pay
to any Holder default payments in an aggregate amount greater than three
percent (3%) of the Liquidation Preference for the Preferred Shares held by
such Holder for any 30-day period. All default payments required to be
made in connection with the above provisions shall be paid in cash by the
tenth (10th) day of each calendar month (which payments shall be pro rata
on a per diem basis for any period of less than 30 days); provided,
however, that in the event of the circumstance described in clause (i)
above, CIC may pay the default payments due for the first 60 days under
such clause in additional Preferred Shares (with each new Preferred Share
valued at $25 per share) instead of in cash. In the event that CIC fails
or refuses to pay any default payment when due, at any Holder's request and
option CIC shall purchase all or a portion of the Preferred Shares held by
such Holder (with default payments accruing through the date of such
purchase), within five (5) days of such request, at a purchase price equal
to the Premium Redemption Price (as defined below), provided that such
Holder may revoke such request at any time prior to receipt of such payment
of such purchase price. Until such time as the CIC purchases such
Preferred Shares at the request of such Holder pursuant to the preceding
sentence, the default payment amounts due shall accrue interest at the
lower of 38.65% per annum or the highest rate permitted by law, and at any
Holder's request and option CIC shall pay such amount in additional
Preferred Shares (with each new Preferred Share valued at $25 per share) or
by adding and including the amount of such default payment to the
Conversion Amount and the Liquidation Preference) instead of in cash.
(vi) CIC acknowledges that any failure, refusal or inability
by CIC described in the foregoing clauses (i) through (iv) will cause the
Holders to suffer damages in an amount that will be difficult to ascertain,
including without limitation damages resulting from the loss of liquidity
in the Registrable Securities and the additional investment risk in holding
the Registrable Securities, whether or not such Holders ultimately achieve
the return on investment contemplated in the Designation. Accordingly, the
parties agree that it is appropriate to include in this Agreement the
foregoing provisions for default payments in order to compensate the
Holders for such damages. The parties acknowledge and agree that the
default payments set forth above represent the parties' good faith effort
to quantify such damages and, as such, agree that the form and amount of
such default payments are reasonable and will not constitute a penalty.
The default payments provided for above are in addition to and not in lieu
or limitation of any other rights the Holders may have at law, in equity or
under the terms
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of the Designation, the Investment Agreement or this Agreement, including
without limitation the right to specific performance. Each Holder shall be
entitled to specific performance of any and all obligations of CIC in
connection with the registration rights of the Holders hereunder. In the
event of any of the circumstances described in the foregoing clauses (i)
through (iv) above, then the Forced Conversion Date (as defined in the
Designation) shall be deferred by 1.5 days for each day that any of the
circumstances in clauses (i), (ii), (iii) (without regard to the
applicability of the Suspension Grace Period), or (iv) exist. In addition
to and without in any way limiting the foregoing, CIC agrees that in the
event that (A) any failure, refusal or inability by CIC described in the
clauses (ii) and (iii) of this Section 2(b) is not cured within sixty (60)
days of such event or (B) the Registration Statement has not been declared
effective by the 13th month following the Closing Date, then at the option
of each Holder and to the extent such Holder so elects, CIC shall redeem
the Preferred Shares and/or Common Shares held by such Holder, in whole or
in part, as follows: (i) in the case of Preferred Shares, such shares
shall be redeemed at a redemption price per share equal to the Premium
Redemption Price (as defined below); and (ii) in the case of Common Shares
issued to such Holder pursuant to conversion of Preferred Shares, such
shares shall be redeemed at a redemption price per share equal to 1.3865
times the dollar amount which is the product of (x) the number of shares so
to be redeemed pursuant to this paragraph, and (y) the closing market price
on the principal trading market or exchange of CIC's Common Stock on the
date of such redemption; provided, however, that such Holder may revoke
such request at any time prior to receipt of such payment of such
redemption price. Default payments shall no longer accrue on Preferred
Shares after such shares have been redeemed by CIC pursuant to the
foregoing provision.
(vii) In the event any Holder at any time is unable to
convert any Preferred Shares under the Designation due to an insufficient
number of Common Shares available for any reason, then at any time
thereafter at the request of any Holder pursuant to a redemption notice,
CIC promptly shall purchase from such Holder, at a purchase price equal to
the "Premium Redemption Price", the number of Preferred Shares equal to
such Holder's pro rata share of the "Deficiency", as such terms are defined
below; provided, however, if within three (3) business days of such
redemption notice CIC delivers to such Holder a notice stating that CIC
will have a sufficient number of Common Shares available for conversion of
all outstanding Preferred Shares within ten (10) business days, then CIC
shall not be required to redeem such Preferred Shares pursuant to this
Section unless CIC shall fail to have a sufficient number of Common Shares
available for conversion of all outstanding Preferred Shares after such ten
(10) business day period. Notwithstanding the foregoing, in the event any
Holder delivers a Conversion Notice and CIC is unable to convert any
Preferred Shares under the Designation due to an insufficient number of
Common Shares available for any reason, CIC promptly shall purchase from
such Holder, at a purchase price equal to the Premium Redemption Price, the
number of Preferred Shares requested to be converted in such Conversion
Notice which are not so converted. The "Premium Redemption Price" is equal
to 1.3865 (i.e., 1 DIVIDED BY .72125) times the following: the sum of $25
times the number of Preferred Shares which cannot be converted plus accrued
and unpaid dividends thereon (with dividends deemed accrued on a per diem
basis through the date of such purchase even if such date is not a Dividend
Payment Date (as defined in the Designation)) plus any default payments
owing to such Holder pursuant to this Agreement. The "Deficiency"
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shall be equal to the number of Preferred Shares that would not be able to
be converted for Common Shares, due to an insufficient number of Common
Shares available, if all the outstanding Preferred Shares were submitted
for conversion at the Conversion Price set forth in the Designation as of
the date such Deficiency is determined.
(viii) In the event CIC becomes obligated to make default
payments on Preferred Shares hereunder in cash, then once per month during
any such period in which CIC is obligated to make such cash payments, CIC
may, by written notice ("PIK Notice") to all the Holders of Preferred
Shares, request that CIC either, at each Holder's option (i) be permitted
to pay such default payments to such Holder in additional Preferred Shares
(with each new Preferred Share valued at $25 per share) instead of in cash
for the following thirty (30) day period, or (ii) have the right to
repurchase such Preferred Shares at the Premium Redemption Price. Such PIK
Notice shall be delivered to all the Holders at least ten (10) days before
the default payment for any such month is due. Each Holder shall respond
to such PIK Notice at least five (5) days before such payment is due by
selecting clause (i) or (ii) above, provided that if any Holder fails to
respond to such PIK Notice by such time, such Holder shall be deemed to
have selected clause (i) above. In the event any Holder selects clause
(ii) above, then the repurchase of the Preferred Shares contemplated by
this paragraph shall occur on the date in which the default payment is due
for such month. In the event any Holder selects clause (i) above (whether
by responding or failing to respond to the PIK Notice), then CIC shall
issue and deliver to such Holder the requisite number of additional
Preferred Shares constituting such default payment on the date in which the
default payment is due for such month.
(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder(s) shall so advise CIC. Any
such underwriting may only be administered by investment bankers reasonably
satisfactory to CIC. CIC shall only be obligated to permit one underwritten
offering, which offering shall be determined by a seventy-five percent (75%)
majority-in-interest of the Holders.
(d) CIC shall enter into such customary agreements for secondary
offerings (including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions reasonably
requested by the Holders in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities are to be sold in an underwritten offering:
(i) make such representations and warranties to the Holders
and the underwriter or underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of
independent counsel to CIC, on and dated as of the effective day (or in the
case of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the Registration
Statement, and within ninety (90) days following the end of each fiscal
year thereafter, which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory
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to the Holders and the underwriter(s), if any, and their counsel and
covering, without limitation, such matters as the due authorization and
issuance of the securities being registered and compliance with securities
laws by CIC in connection with the authorization, issuance and registration
thereof and other matters that are customarily given to underwriters in
underwritten offerings, addressed to the Holders and each underwriter, if
any; such counsel shall have undertaken in each such opinion delivered
pursuant to the preceding sentence to update the same during each such
fiscal year so that such updates received by the Holders during such year,
if any, shall have been reasonably satisfactory to such Holders. CIC
hereby covenants and agrees to advise such counsel of any and all factual
matters which might pertain to any such update or as to which such an
update may be so required, and such counsel may rely upon such advice in
providing any such update. In the absence of such advice from CIC, any
such update shall be provided to and upon such counsel's best knowledge
insofar as and to the extent such update depends upon a factual matter.
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each fiscal year
following a year during which CIC's independent certified public
accountants shall have reviewed any of CIC's books or records, a "comfort"
letter from CIC's independent certified public accountants addressed to the
Holders and each underwriter, if any, stating that such accountants are
independent public accountants within the meaning of the Securities Act and
the applicable published rules and regulations thereunder, and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of the independent certified public
accountants delivered in connection with secondary offerings, subject to
the receipt by such accountants of a representation letter from the Holders
reasonably acceptable to such accountants to enable such accountants to
issue a comfort letter to the Holders in a non-underwritten offering; such
accountants shall have undertaken in each such letter to update the same
during each such fiscal year in which such books or records are being
reviewed so that each such letter shall remain current, correct and
complete throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the Holders.
(iv) if an underwriting agreement is entered into, the same
shall include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten offerings;
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of the Registrable Securities being
sold or the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any; and
(vi) deliver to the Holders on the effective day (or in the
case of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the Registration
Statement, and at the beginning of each fiscal quarter thereafter, a
certificate in form and substance as shall be reasonably satisfactory to
the Holders, executed by an executive officer of CIC and to the effect that
all the
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representations and warranties of CIC contained in the Investment Agreement
are still true and correct except as disclosed in such certificate; CIC
shall, as to each such certificate delivered at the beginning of each
fiscal quarter, update or cause to be updated each such certificate during
such quarter so that it shall remain current, complete and correct
throughout such quarter; and such updates received by the Holders during
such quarter, if any, shall have been reasonably satisfactory to the
Holders.
(e) CIC shall make available for inspection by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of CIC
and review of any Registration Statement, all SEC Documents (as defined in the
Investment Agreement) filed subsequent to the Closing, pertinent corporate
documents and properties of CIC, and cause CIC's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, CIC may suspend the use of
any prospectus used in connection with the Registration Statement only (i) in
the event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission, or (ii) in the event such a suspension
is required by the underwriter in a bona fide, underwritten primary public
offering, provided that such suspension or suspensions under the foregoing
clauses (i) and (ii) shall not in the aggregate exceed sixty (60) days. CIC
will use its best efforts to cause such suspension to terminate at the earliest
possible date.
(g) CIC shall file a Registration Statement with respect to any
newly authorized and/or reserved shares within five (5) business days of any
shareholders meeting authorizing same and shall use its best efforts to cause
such Registration Statement to become effective within sixty (60) days of such
shareholders meeting. If the Holders become entitled, pursuant to an event
described in clause (iii) of the definition of Registrable Securities, to
receive any securities in respect of Registrable Securities that were already
included in a Registration Statement, subsequent to the date such Registration
Statement is declared effective, and CIC is unable under the securities laws to
add such securities to the then effective Registration Statement, CIC shall
promptly file, in accordance with the procedures set forth herein, an additional
Registration Statement with respect to such newly Registrable Securities. CIC
shall use its best efforts to (i) cause any such additional Registration
Statement, when filed, to become effective under the Securities Act, and (ii)
keep such additional Registration Statement effective during the period
described in Section 5 below. All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities, including without limitation the provisions
providing for default payments contained herein.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by CIC, and all Selling Expenses of a
Holder shall be borne by such Holder.
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4. REGISTRATION ON FORM S-3. CIC shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms, or in the event that CIC is ineligible to use such form, such form as CIC
is eligible to use under the Securities Act.
5. REGISTRATION PERIOD. In the case of the registration effected by
CIC pursuant to this Agreement, CIC will use its best efforts to keep such
registration effective until all the Holders have completed the sales or
distribution described in the Registration Statement relating thereto or, if
earlier, until such Registerable Securities may be sold under Rule 144(k)
(provided that CIC's transfer agent has accepted an instruction from CIC to such
effect).
6. INDEMNIFICATION.
(a) CIC INDEMNITY. CIC will indemnify each Holder, each of its
officers, directors and partners, and each person controlling each Holder,
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder, any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by CIC of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to CIC and relating to action or inaction required of CIC in connection with any
such registration, qualification or compliance, and will reimburse each Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that CIC will not be liable in any such case to a Holder to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to CIC by such Holder or the underwriter (if any) therefor and stated
to be specifically for use therein. The indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of CIC (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify CIC, each of its directors, officers, partners, and each underwriter,
if any, of CIC's securities covered by such a registration statement, each
person who controls CIC or such underwriter within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person
controlling such other Holder(s) against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and will reimburse CIC and such other Holder(s) and their directors,
officers and partners, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or
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alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to CIC by such Holder and stated to be specifically for
use therein, and provided that the maximum amount for which such Holder shall be
liable under this indemnity shall not exceed the net proceeds received by such
Holder from the sale of the Registrable Securities. The indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any such claims, losses, damages or liabilities if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under
this Article (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to provide notice. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
7. CONTRIBUTION. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between CIC on the one hand and any Holder on the other, in such
proportion as is appropriate to reflect the relative fault of CIC and of such
Holder in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of CIC on the one hand and of any Holder on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by CIC or by
such Holder.
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In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
CIC and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
8. SURVIVAL. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of CIC referred to in
Section 2(d)(i) shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement or the Investment Agreement or any
underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of CIC, and (iii) the consummation of the
sale or successive resales of the Registrable Securities.
9. INFORMATION BY HOLDERS. Each Holder shall furnish to CIC such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as CIC may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement. The intended method or methods of disposition
and/or sale (Plan of Distribution) of such securities as so provided by such
Investor shall be included without alteration in the Registration Statement
covering the Registrable Securities and shall not be changed without written
consent of such Holder.
10. CHANGE IN CONTROL TRANSACTION. Prior to the Restrictive Covenant
Termination Date (as defined in the Investment Agreement), in the event CIC
desires to effect a Change in Control Transaction (as defined in the
Designation) at any time (whether occurring before or after the Preferred Shares
become convertible), the closing of such transaction shall be conditioned upon
the prior purchase and redemption by CIC of, and payment for, at the request of
any Holder, all (or such portion requested by such Holder) of the outstanding
Preferred Shares held by such Holder at a purchase price equal to the Premium
Redemption Price. CIC shall provide all Holders of Preferred Shares with 30
days' prior notice of any such transaction, and such notice shall be deemed an
offer to redeem the Preferred Shares pursuant to this paragraph.
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11. NASDAQ LIMIT ON STOCK ISSUANCES. In the event that CIC is unable
to issue any Common Shares upon conversion of Preferred Shares under the
Designation due to the rules or regulations of any market or exchange regulator
for the market or exchange on which the Common Shares are then trading, CIC
shall, at the request of any Holder promptly following such determination,
purchase such Preferred Shares of such Holder which cannot be converted at a
purchase price equal to the Premium Redemption Price.
12. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Common Shares held by any Investor (or then Holder) may be exchanged by such
Investor (or such Holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Common
Shares, as reasonably requested by such Investor (or such Holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
13. TRANSFER OR ASSIGNMENT. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
CIC under this Agreement to cause CIC to register Registrable Securities may be
transferred or assigned (in whole or in part) to a transferee or assignee of not
less than 5,000 Preferred Shares, and all other rights granted to the Investors
by CIC hereunder may be transferred or assigned to any transferee or assignee of
any Preferred Shares (regardless of the number of Preferred Shares transferred);
provided in each case that CIC must be given written notice by the such Investor
at the time of or within a reasonable time after said transfer or assignment,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned; and provided further that the transferee or assignee of such rights
agrees in writing to be bound by the registration and exchange provisions of
this Agreement.
14. MISCELLANEOUS.
(a) REMEDIES. CIC and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) JURISDICTION. CIC and each of the Investors (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court, the New York State courts and other courts of the United States sitting
in New York County, New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. CIC and each of the Investors consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process
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and notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
(c) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
actual receipt of such mailing. The addresses for such communications shall be:
to CIC: Communication Intelligence Corporation
275 Shoreline Drive
Redwood Shores, California 94065
Fax: (415) 802-7888
Attn: Frank Dane, Vice President and
Secretary
with copies to: Donald J. Bezahler, Esq.
Baer, Marks & Upham LLP
805 Third Avenue, 20th Floor
New York, New York 10022
Fax: (212) 702-5941;5810
to the Investors: To each Investor at the address and/or fax
number set forth on Schedule I of this
Agreement.
with copies to: Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Fax: (212) 986-8866
Attn: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
(d) INDEMNITY. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) WAIVERS. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. The representations and warranties and the agreements and
covenants of CIC and each Investor contained herein shall survive the Closing.
Notwithstanding anything contained herein, CIC's obligation to pay default
payments hereunder may be waived from time to time in whole or in part by the
affirmative vote of a seventy-five percent (75%) majority-in-interest of the
holders of Preferred Shares, provided, however, that holders of Preferred Shares
who are affiliates of CIC (and CIC itself) shall not participate in such
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vote and the Preferred Shares of such holders shall be disregarded and deemed
not to be outstanding.
(f) EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(g) PUBLICITY. CIC agrees that it will not disclose, and will not
include in any public announcement, the name of any Investor without its
consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
(h) ENTIRE AGREEMENT. This Agreement, together with the Investment
Agreement and the Designation and the agreements and documents contemplated
hereby and thereby, contains the entire understanding and agreement of the
parties, and may not be modified or terminated except by a written agreement
signed by both parties.
(i) GOVERNING LAW; CONSENT OF JURISDICTION. This Agreement and the
validity and performance of the terms hereof shall be governed by and construed
in accordance with the laws of the State of New York, except to the extent that
the law of Delaware regulates CIC's issuance of securities.
(j) SEVERABILITY. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
(k) TITLES. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CIC:
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/James Dao
-----------------------------------------------
Name: James Dao
Title: Chief Executive Officer
INVESTORS:
ANVIL INVESTMENT PARTNERS, L.P.
By: Anvil Investors, Inc., as general partner
By: /s/Mark S. Zucker
------------------------------------------
Name: Mark S. Zucker
Title: President
OTATO LIMITED PARTNERSHIP
By: /s/Richard M. Cayne
-----------------------------------------------
Name: Richard M. Cayne
Its: General Counsel for OTA Grand Cayman
General Partner of OTATO Limited Partnership
PRAIRIE PATH CORPORATION
By: /s/Cathleen S. McKinzie
-----------------------------------------------
Name: Cathleen S. McKinzie
Title: Vice President
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GLOBAL BERMUDA LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
---------------------------------------------
Name: Richard J. Emmerich
Title: President
MERCED PARTNERS LIMITED PARTNERSHIP
By: Global Capital Management, Inc.,
Its: General Partner
By: /s/Richard J. Emmerich
------------------------------------------
Name: Richard J. Emmerich
Title: President
LAKESHORE INTERNATIONAL LTD.
By: Global Capital Management, Inc.
Its: Investment Manager
By: /s/Richard J. Emmerich
-----------------------------------------
Name: Richard J. Emmerich
Title: Director
ELLIOTT ASSOCIATES, L.P.
By: /s/Paul E. Singer
-----------------------------------------------
Name: Paul E. Singer
Its: General Partner
WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as Attorney-In-Fact
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By: /s/Paul E. Singer
------------------------------------------
Name: Paul E. Singer
Its: President
JMG CAPITAL PARTNERS, L.P.
By: /s/Jonathan Glaser
-----------------------------------------------
Name: Jonathan Glaser
Its: General Partner
RAVICH REVOCABLE TRUST OF 1989
By: /s/Jess Ravich
-----------------------------------------------
Name: Jess Ravich
Its: Trustee
NAVESINK INVESTMENT FUND LDC
By: /s/John Burke
-----------------------------------------------
Name: John Burke
Title: Managing Member
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.P., as General Partner
By: /s/Stephen Feinberg
------------------------------------------
Name: Stephen Feinberg
Title: General Partner
CERBERUS INTERNATIONAL, LTD
By: /s/Stephen Feinberg
-----------------------------------------------
Name: Stephen Feinberg
Title: Investment Advisor
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