EXHIBIT 10.2
CERTIFICATE OF DESIGNATIONS
of
SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
for
COMMUNICATION INTELLIGENCE CORPORATION
Communication Intelligence Corporation, a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designations (the "Designation") and does hereby state and certify that pursuant
to the authority expressly vested in the Board of Directors of the Corporation
by the Corporation's Amended and Restated Certificate of Incorporation (the
"Certificate") the Board of Directors duly adopted the following resolutions,
which resolutions remain in full force and effect as of the date hereof:
RESOLVED, that pursuant to Article FOURTH of the Certificate, the Board of
Directors hereby authorizes the issuance of, and fixes the designation, powers,
preferences and rights, and qualifications, limitations and restrictions, of a
series of the Corporation's Preferred Stock consisting of 340,000 shares, par
value $0.01, to be designated as "Series B 5% Cumulative Convertible Preferred
Stock" (the "Preferred Shares").
RESOLVED, that the Preferred Shares shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, be pari passu with the
Corporation's series of preferred stock consisting of 600,000 shares, par value
$0.01, designated as 5% Cumulative Convertible Preferred Stock (the "Series A
Preferred Shares") pursuant to the Certificate of Designations of the
Corporation, filed with the Secretary of State of the State of Delaware on
December 27, 1996.
RESOLVED, that each of the Preferred Shares shall rank equally in all
respects and shall be subject to the following terms and provisions:
1. Dividends.
(a) Cumulative. The holders of the Preferred Shares shall be
entitled to receive out of any assets legally available therefor cumulative
dividends at the rate of $1.25 per share per annum compounded quarterly when
payable (whether or not declared), payable every three (3) months commencing
March 1, 1998 (each March 1, June 1, September 1, and
December 1 thereafter and prior to conversion of all Preferred Shares, a
("Dividend Payment Date")), when and as declared by the Board of Directors, in
preference and priority to any payment of any dividend on the Common Stock
(as defined below) or any other class or series of stock of the Corporation
ranking junior to the Preferred Shares. The Preferred Shares shall, with
respect to, among other things, dividend rights, be pari passu with the
Series A Preferred Shares. Such dividends shall accrue on any given share
from the most recent date on which a dividend has been paid with respect to
such share, or if no dividends have been paid, from the date of the original
issuance of such share, and such dividends shall accrue from day to day
whether or not declared, based on the actual number of days elapsed. If at
any time dividends on the outstanding Preferred Shares at the rate set forth
above shall not have been paid or declared and set apart for payment with
respect to all proceeding periods, the amount of the deficiency shall be
fully paid or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for shares of Common Stock or any other
class or series of stock of the Corporation ranking junior to the Preferred
Shares.
(b) Cash or PIK. Any dividend payable on the outstanding Preferred
Shares may be paid either in cash or, at the option of the Corporation, in
additional Preferred Shares (with each Preferred Share valued at $25 per share);
provided, however, that if the Corporation shall fail to pay any dividend on a
Dividend Payment Date, the amount of such dividend shall be added to the
Liquidation Preference (as defined below) for such Preferred Shares.
2. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Preferred Shares shall be entitled to receive, prior and in preference to
the distribution of any assets of the Corporation to the holders of any other
class or series of shares ranking junior to the Preferred Shares, and on a pari
passu basis with the Series A Preferred Shares, the amount of $25 per share plus
any accrued but unpaid dividends (with dividends deemed accrued on a per diem
basis through the date of such event even if such event or any distribution is
not on a Dividend Payment Date) (the "Liquidation Preference").
3. Issuance of Preferred Shares. The Preferred Shares shall be issued by
the Corporation pursuant to the terms of Subscription Agreements ("Subscription
Agreements") to be entered into between the Corporation and the subscribers of
the Preferred Shares (the "Subscribers") and holders of the Preferred Shares
shall have the rights and benefits of the Registration Rights Agreement
("Registration Rights Agreement") to be entered into between the Corporation and
the Subscribers in connection with the Preferred Shares. The 100,000 Preferred
Shares authorized and designated hereunder which were not issued by the
Corporation pursuant to the Subscription Agreements may only be issued for the
purpose of paying stock dividends on the Preferred Shares hereunder.
4. Conversion. On and after the Closing Date (as defined in the
Subscription Agreements) each holder of the Preferred Shares shall have the
right at any time and from time
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to time prior to the Forced Conversion Date (as defined below), at the option
of such holder, to convert any or all Preferred Shares for such number of
fully paid, validly issued and nonassessable shares (the "Common Shares") of
common stock, par value $0.01, of the Corporation ("Common Stock), free and
clear of any liens, claims or encumbrances, as is determined by dividing (i)
the sum of $25.00 times the number of Preferred Shares being converted plus
accrued and unpaid dividends thereon up to and including the most recent
Dividend Payment Date, plus any default payments owing to such holder on the
Conversion Date (the "Conversion Amount"), by (ii) the Conversion Price
determined as hereinafter provided in effect on the Conversion Date, on the
following terms and conditions:
(a) Mechanics of Conversion. To convert Preferred Shares into Common
Shares, the holder shall give written notice ("Conversion Notice") to the
Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice
shall be given to the Corporation at its chief executive offices by hand, by
overnight courier, by first class mail, return receipt requested, or by
facsimile with confirmation) stating that such holder elects to convert the same
and shall state therein the number of shares to be converted and the name or
names in which such holder wishes the certificate or certificates for Common
Shares to be issued (the date such Conversion Notice is received by the
Corporation shall be referred to herein as the "Conversion Date"). Within one
(1) trading day after such conversion the holder shall deliver page 2 to
Exhibit A hereto indicating the computation of the number of Common Shares to be
received and shall surrender the certificate or certificates representing the
Preferred Shares being converted, duly endorsed, at the chief executive offices
of the Corporation or at the offices of any transfer agent appointed by the
Corporation for such shares, provided that the Corporation shall at all times
maintain an office or agency in New York City for such purposes. Upon receipt
of such Conversion Notice, the Corporation shall issue and deliver to or upon
the order of such holder, against delivery of the certificates representing the
Preferred Shares which have been so converted, a certificate or certificates for
the number of Common Shares to which such holder shall be entitled (with the
number of and denomination of such certificates designated by such holder), and
the Corporation shall immediately issue and deliver to such holder a certificate
or certificates for the number of Preferred Shares which such holder has not yet
elected to convert hereunder but which are evidenced in part by the
certificate(s) delivered to the Corporation in connection with such Conversion
Notice; the Corporation shall effect such issuance within three (3) trading days
(as defined in Section 4(b) below) of the Conversion Date and shall transmit the
certificates by messenger or overnight delivery service, to reach the address
designated by such holder within three (3) trading days after the receipt of
such Conversion Notice ("T+3"). In the alternative to physical delivery of
certificates for Common Shares, if delivery of the Common Shares pursuant to any
conversion hereunder may be effectuated by electronic book-entry through
Depository Trust Company ("DTC"), then delivery of Common Shares pursuant to
such conversion shall be closed and settled on T+3 by book-entry transfer
through DTC, and the Common Shares in connection with such conversion shall be
deemed delivered by such book-entry transfer. The parties agree to coordinate
with DTC to accomplish this objective. The conversion pursuant to this
Section 4 shall be deemed to have been made at 5:00 p.m. (New York time) on the
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all
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purposes as the record holder or holders of such Common Shares at the close
of business on the Conversion Date. By delivering a Conversion Notice to the
Corporation pursuant hereto, each holder represents, warrants, covenants and
agrees that such holder has concurrently sold on the Conversion Date all of
the Common Shares issued with respect to such conversion. Any breach of this
provision shall cause such Conversion Notice to be null and void.
(b) Determination of Conversion Price.
(A) The Conversion Price shall be equal to the lower of: (i) the Agreed
Value (as defined below), net of normal and customary commissions and
underwriting or dealer spreads and (ii) the Market Price (as defined below), net
of normal and customary commissions and underwriting or dealer spreads.
(B) For purposes hereof, the following terms shall have the following
meanings:
(i) The term "Agreed Value" shall mean $1.59 per share of Common
Stock.
(ii) The term "Market Price" shall mean the average of the daily
Closing Price of the Common Stock for the three (3) consecutive trading days
immediately preceding the Conversion Date.
(iii) The term the "Closing Price" on any trading day shall
mean (A) the closing price of the Common Stock on the New York Stock Exchange or
the American Stock Exchange, or (B) if the Common Stock is not listed on the New
York Stock Exchange or the American Stock Exchange, the reported Closing Price
of the Common Stock on the principal automated securities price quotation system
on which sale prices of the Common Stock are reported, or (C) if the Common
Stock is not listed on such stock exchange and sale prices of the Common Stock
are not reported on an automated quotation system, the mean of the final bid and
ask prices for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and ask
quotations for the Common Stock on at least five of the ten preceding trading
days. If none of the foregoing provisions are applicable, the "Market Price" of
the Common Stock on the Conversion Date will be the fair market value of the
Common Stock on that day as determined in good faith by the Board of Directors
of the Corporation.
(iv) The term "trading day" means (x) if the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange, a day on
which there is trading on such stock exchange, (y) if the Common Stock is not
listed on either of such stock exchanges but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
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(C) In the event that during any period commencing on the Closing Date and
ending on the earlier of the Forced Conversion Date (as hereinbelow defined) or
the Conversion Date with respect to each outstanding Preferred Share, the
Corporation shall declare or pay any dividend with respect to the Common Stock
payable in Common Stock or in rights to acquire Common Stock, or shall effect a
stock split or reverse stock split, or a combination, consolidation or
reclassification of the Common Stock, then the Conversion Price shall be
proportionately decreased or increased, as appropriate, to give effect to such
event.
(c) Distributions. In the event the Corporation shall at any time or
from time to time issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation or any of its direct or indirect subsidiaries
other than additional Common Shares, then in each such event, in addition to the
number of shares of Common Stock receivable upon conversion, provision shall be
made so that the holders of Preferred Shares shall receive, upon the conversion
thereof, the securities of the Corporation or such subsidiary which they would
have received had they been the owners on the date of such event of the number
of Common Shares issuable to them upon conversion. The Corporation shall, upon
the written request at any time of any holder of Preferred Shares, furnish or
cause to be furnished to such holder a certificate prepared by the Corporation
setting forth the number of other securities and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Shares with respect to each share of Common Stock received upon such conversion.
(d) Notice of Record Date. In the event of any fixing by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Shares at least 10 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be fixed for the purpose of such dividend, distribution, security
or right and the amount and character of such dividend, distribution, security
or right.
(e) Issue Taxes. The Corporation shall pay any and all issue and
stamp taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of Common Shares on conversion of
Preferred Shares pursuant hereto; provided, however, that the Corporation shall
not be obligated to pay any transfer taxes resulting from any transfer requested
by any holder in connection with any such conversion.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of its Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Preferred Shares, and if
at any time the number of authorized but unissued Common
5
Shares shall not be sufficient to effect the conversion of all the then
outstanding Preferred Shares, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose.
(g) Fractional Shares. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the Market Price of such fraction on the applicable Conversion
Date.
(h) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person, then, as part of such reorganization, consolidation, merger or sale, if
the holders of Common Shares receive any publicly traded securities as part or
all of the consideration for such reorganization, consolidation, merger or sale,
then provision shall be made such that each Preferred Share shall thereafter be
convertible into such new securities at a conversion price which places the
holders of Preferred Shares in an economically equivalent position as they would
have been if not for such event. In addition to the foregoing, if the holders
of Common Shares receive any non-publicly traded securities or other property or
cash as part or all of the consideration for such reorganization, consolidation,
merger or sale, then such distribution shall be treated as a distribution under
Section 4(c) above and such Section shall govern such distribution. So long as
any Preferred Shares are outstanding, the Corporation agrees that there shall be
no such reorganization, consolidation, merger or sale unless an appropriate
adjustment of the conversion price and other provisions contained herein is
agreed to in writing in advance by the Board of Directors of the Corporation and
a majority in interest of the holders of the outstanding Preferred Shares (which
agreement will not be unreasonably withheld), provided that such consent shall
not be required if (i) such reorganization, consolidation, merger or sale places
such holders in the equivalent position as they would have been if not for such
event and (ii) the surviving entity and the entity into whose securities the
Preferred Shares are then convertible in connection with such reorganization,
consolidation, merger or sale are in compliance with all the material provisions
of this Designation, the Registration Rights Agreement and the Subscription
Agreement as if such agreements and documents were applicable to such entities
and their securities (including, without limitation, that the applicable
securities into which the Preferred Shares are convertible are authorized and
available for conversion, registered, and listed and traded on the applicable
exchanges and/or markets).
(i) Change in Control. If at any time (a) there occurs any
consolidation or merger of the Corporation with or into any other corporation
or other entity or
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person (whether or not the Corporation is the surviving corporation), or any
other corporate reorganization or transaction or series of related
transactions in which in excess of 50% of the Corporation's voting power is
transferred through a merger, consolidation, tender offer or similar
transaction, (b) in excess of 50% of the Corporation's Board of Directors
consists of directors not nominated by the prior Board of Directors of the
Corporation, or (c) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is
deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act
without regard to the 60-day exercise period) in excess of 50% of the
Corporation's voting power (the events in the foregoing clauses (a), (b) and
(c) each referred to as a "Change in Control Transaction"), then the
Corporation shall provide all holders of Preferred Shares with 30 days' prior
notice of such transaction. The Corporation further agrees that it shall not
agree, nor consent to, nor enter into any transaction or series of
transactions as a result of which the Common Shares would cease to be
publicly traded unless agreed to in writing in advance by the Board of
Directors of the Corporation and a majority in interest of the holders of the
then outstanding Preferred Shares.
(j) Forced Conversion. Subject to the following sentence, each
holder of Preferred Shares shall convert, on the third (3rd) anniversary of the
Closing Date ("Forced Conversion Date"), all Preferred Shares then held by such
holder. Notwithstanding the preceding sentence, no holder of Preferred Shares
shall be obligated to convert any Preferred Shares then held by such holder on
the Forced Conversion Date if the Corporation has provided such holder with 30
days prior written notice that the Forced Conversion Date has been extended, in
which event the Forced Conversion Date shall be that date set by the
Corporation, which shall be no later than the fourth (4th) anniversary of the
Closing Date.
(k) Limitations on Holder's Right to Convert. (i) Notwithstanding
anything to the contrary contained herein, no Preferred Share may be converted
by a holder to the extent that, after giving effect to Common Shares to be
issued pursuant to a Conversion Notice, the total number of Common Shares deemed
beneficially owned by such holder, together with all Common Shares deemed
beneficially owned by the holder's "affiliates" as defined in Rule 144 of the
Act, would exceed 4.9% of the total issued and outstanding shares of the
Corporation's Common Stock, provided that each holder shall have the right to
avoid this restriction, in whole or in part, immediately in the case of a
pending Change in Control Transaction and in any other case upon 61 days prior
notice to the Corporation. The delivery of a Conversion Notice by any holder
shall be deemed a representation by such holder that it is in compliance with
this paragraph. A transferee of the Preferred Shares shall not be bound by this
provision unless it expressly agrees to be so bound. The term "deemed
beneficially owned" as used in this Designation shall exclude shares that might
otherwise be deemed beneficially owned by reason of the convertibility of the
Preferred Shares.
(l) Certificate for Conversion Price Adjustment. The Corporation
shall, upon the written request at any time of any holder of Preferred Shares,
furnish or cause to be
7
furnished to such holder a certificate prepared by the Corporation setting
forth any adjustments or readjustments of the Conversion Price pursuant to
this Section 4.
(m) Specific Enforcement. The Corporation agrees that irreparable
damage would occur in the event that any of the provisions of this Designation
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the holders of Preferred Shares shall
be entitled to specific performance, injunctive relief or other equitable
remedies to prevent or cure breaches of the provisions of the provisions of this
Designation and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy, to which any of them may be entitled
under agreement, at law or in equity.
5. Voting Rights.
(a) In addition to the voting rights provided in Section 5(b) below,
the holders of Preferred Shares shall have the right, together with the holders
of Common Stock, to vote in the election of directors and upon each other matter
coming before any meeting of the holders of Common Stock, on the basis of one
vote for each Preferred Share held, and the holders of Preferred Shares and the
holders of Common Stock shall vote together as if they were one class on such
matters.
(b) The affirmative vote of fifty-one percent (51%) of the then
outstanding Preferred Shares shall be necessary for (i) any amendment of this
Certificate of Designations, (ii) any amendment to the Corporation's Certificate
of Incorporation or by-laws that may amend or change any of the rights,
preferences, or privileges of the Preferred Shares (iii) any waiver of a default
in payment of dividends on the Preferred Shares, and (iv) any reorganization or
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into any other corporation or corporations, or
any sale of all or substantially all of the assets of the Corporation that would
have an adverse effect on any of the rights, preferences, or privileges of the
Preferred Shares.
6. Notices. The Corporation shall distribute to the holders of Preferred
Shares copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
by the Corporation to the holders of shares of Common Stock of the Corporation.
7. Replacement Certificates. The certificate(s) representing the
Preferred Shares held by any holder of Preferred Shares may be exchanged by such
holder at any time and from time to time for certificates with different
denominations representing an equal aggregate
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number of Preferred Shares, as reasonably requested by such holder, upon
surrendering the same. No service charge will be made for such registration
or transfer or exchange.
Dated as of: November 25, 1997
COMMUNICATION INTELLIGENCE CORPORATION
By: /s/Philip S. Sassower
------------------------------
Name: Philip S. Sassower
Title: Chief Executive Officer
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EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of Series B 5% Cumulative
Convertible Preferred Stock ("Preferred Shares") of Communication Intelligence
Corporation (the "Corporation"), hereby irrevocably elects to convert _______
Preferred Shares for shares ("Common Shares") of common stock, par value $0.01
per share (the "Common Stock"), of the Corporation according to the terms and
provisions of the Corporation's Certificate of Designations for the Preferred
Shares. The undersigned hereby requests that share certificates for the Common
Stock to be issued pursuant to this Conversion Notice be issued in the name of,
and delivered to, the Holder as indicated below. No fee will be charged to the
Holder of Preferred Shares for any conversion. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the
Certificate of Designations.
Conversion Date:
-------------------------
Conversion Information: NAME OF HOLDER:
----------------------
By:
-----------------------------------
(Print) Name:
(Print) Title:
(Print) Address of Holder:
---------------------------------------
---------------------------------------
Issue Common Stock to:
----------------
at:
-----------------------------------
-----------------------------------
SIGNATURE GUARANTEED BY:
- ---------------------------------
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON THE
ATTACHED PAGE.
Page 1 of Conversion Notice
Page 2 to Conversion Notice dated for:
----------------- -----------------------
(Conversion Date) (Name of Holder)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: shares
---------
A. Number of Preferred Shares converted x $25 $
-----------
B. Number of Preferred Shares converted x accrued
and unpaid dividends up to the most recent
Dividend Payment Date $
-----------
C. Default Payments due Holders $
-----------
Total dollar amount converted (total of A + B + C) $
-----------
-----------
-----------
Conversion Price (determined
pursuant to Section 4(b)(i) of the Certificate
of Designations) $
-----------
Number of Common Shares = Total dollar amount converted = $
----------------------------- -----------
Conversion Price $-----------
If the conversion is not being settled by DTC, please issue and deliver ___
certificate(s) for Common Shares in the following amount(s):
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If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver ___ certificate(s) for Preferred Shares in
the following amounts:
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