Exhibit 10.49

 

EXECUTION COPY

 

 

 

EXCHANGE AGREEMENT

 

BETWEEN

 

COMMUNICATION INTELLIGENCE CORPORATION,

 

PHOENIX VENTURE FUND LLC,

 

MICHAEL ENGMANN,

 

RONALD GOODMAN

 

AND

 

THE PARTIES SIGNATORY HERETO

 

DATED AS OF JUNE 21, 2010

 

 

 

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Table of Contents

 

 

 

Page

 

 

 

1.

Authorization of Securities

1

 

 

 

2.

Exchange of Indebtedness for Series B Preferred Stock

1

 

 

 

3.

Closing

2

 

 

 

4.

Representations and Warranties of the Lenders; Register of Securities;
Restrictions on Transfer

2

 

 

 

 

4.1

Organization; Authority

2

 

 

 

 

 

4.2

Validity

3

 

 

 

 

 

4.3

Brokers

3

 

 

 

 

 

4.4

Investment Representations and Warranties

3

 

 

 

 

 

4.5

Acquisition for Own Account

3

 

 

 

 

 

4.6

Ability to Protect Its Own Interests and Bear Economic Risks

3

 

 

 

 

 

4.7

Accredited Investor

3

 

 

 

 

 

4.8

Access to Information

4

 

 

 

 

 

4.9

Restricted Securities

4

 

 

 

 

 

4.10

Residence

4

 

 

 

 

5.

Representations and Warranties by the Company

4

 

 

 

 

 

5.1

Capitalization

4

 

 

 

 

 

5.2

Due Issuance and Authorization of Capital Stock

5

 

 

 

 

 

5.3

Organization

6

 

 

 

 

 

5.4

Subsidiaries

6

 

 

 

 

 

5.5

Consents

6

 

 

 

 

 

5.6

Power and Authorization

7

 

 

 

 

 

5.7

Enforcement

7

 

 

 

 

 

5.8

No Conflicts

7

 

 

 

 

 

5.9

Material Contracts

8

 

 

 

 

 

5.10

Right of First Refusal; Stockholders Agreement; Voting and Registration Rights

8

 

 

 

 

 

5.11

Previous Issuances

8

 

 

 

 

 

5.12

No Integrated Offering

8

 

 

 

 

 

5.13

SEC Reports; Financial Statements

9

 

 

 

 

 

5.14

No Undisclosed Material Liabilities

9

 

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Table of Contents
(Continued)

 

 

 

Page

 

 

 

 

5.15

Litigation

10

 

 

 

 

 

5.16

Taxes

10

 

 

 

 

 

5.17

Employee Matters

10

 

 

 

 

 

5.18

Compliance with Laws

11

 

 

 

 

 

5.19

Brokers

11

 

 

 

 

 

5.20

Environmental Matters

11

 

 

 

 

 

5.21

Intellectual Property Matters

12

 

 

 

 

 

5.22

Related-Party Transactions

17

 

 

 

 

 

5.23

Title to Property and Assets

18

 

 

 

 

 

5.24

Absence of Changes

18

 

 

 

 

 

5.25

Illegal Payments

19

 

 

 

 

 

5.26

Suppliers and Customers

20

 

 

 

 

 

5.27

Regulatory Permits

20

 

 

 

 

 

5.28

Insurance

20

 

 

 

 

 

5.29

Investment Company

20

 

 

 

 

 

5.30

Listing and Maintenance Requirements

20

 

 

 

 

 

5.31

Accountants

20

 

 

 

 

 

5.32

Application of Takeover Protections

21

 

 

 

 

 

5.33

Stock Options

21

 

 

 

 

 

5.34

Disclosure

21

 

 

 

 

6.

Pre-Closing Covenants

21

 

 

 

 

6.1

Conduct of Business

21

 

 

 

 

 

6.2

Notice of Certain Events

22

 

 

 

 

 

6.3

Salary Incentive Plan

23

 

 

 

 

7.

Conditions of Parties’ Obligations

23

 

 

 

 

7.1

Conditions of the Lenders’ Obligations

23

 

 

 

 

 

7.2

Conditions of the Company’s Obligations

26

 

 

 

 

 

7.3

Conditions of Each Party’s Obligations

27

 

 

 

 

8.

Covenants; Nomination of Third Series B Director; Termination

27

 

 

 

 

8.1

Preparation of Proxy Statement; Stockholders Meeting

27

 

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Table of Contents
(Continued)

 

 

 

 

Page

 

 

 

 

 

8.2

Reporting Requirements; Access to Records

27

 

 

 

 

 

8.3

Integration

28

 

 

 

 

 

8.4

Securities Laws Disclosure; Publicity

28

 

 

 

 

 

8.5

Reservation of Common Stock

28

 

 

 

 

 

8.6

Listing of Common Stock

28

 

 

 

 

 

8.7

Filings

29

 

 

 

 

 

8.8

Appointment of Chief Executive Officer

29

 

 

 

 

 

8.9

Nomination of Third Series B Director

29

 

 

 

 

 

8.10

Termination of Agreement

29

 

 

 

 

 

8.11

Procedure and Effect of No-Default Termination

30

 

 

 

 

9.

Transfer Restrictions; Restrictive Legend

30

 

 

 

 

9.1

Transfer Restrictions

30

 

 

 

 

 

9.2

Unlegended Certificates

30

 

 

 

 

10.

Registration, Transfer and Substitution of Certificates for Securities

30

 

 

 

 

10.1

Stock Register; Ownership of Securities

30

 

 

 

 

 

10.2

Replacement of Certificates

31

 

 

 

 

11.

Definitions

31

 

 

 

12.

Enforcement

35

 

 

 

 

12.1

Cumulative Remedies

35

 

 

 

 

 

12.2

No Implied Waiver

35

 

 

 

 

13.

Confidentiality

35

 

 

 

14.

Miscellaneous

36

 

 

 

 

14.1

Waivers and Amendments

36

 

 

 

 

 

14.2

Notices

36

 

 

 

 

 

14.3

Indemnification; Survival

37

 

 

 

 

 

14.4

No Waivers

37

 

 

 

 

 

14.5

Successors and Assigns

37

 

 

 

 

 

14.6

Headings

38

 

 

 

 

 

14.7

Governing Law

38

 

 

 

 

 

14.8

Fees and Expenses

38

 

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Table of Contents
(Continued)

 

 

 

 

Page

 

 

 

 

 

14.9

Jurisdiction

38

 

 

 

 

 

14.10

Waiver of Jury Trial

39

 

 

 

 

 

14.11

Counterparts; Effectiveness

39

 

 

 

 

 

14.12

Entire Agreement

39

 

 

 

 

 

14.13

Severability

39

 

 

 

 

 

14.14

Independent Nature of Lenders’ Obligations and Rights

40

 

Exhibits and Schedules

 

Schedule I

 

Schedule of Lenders

 

 

 

Schedule II

 

Disclosure Schedule

 

 

 

Exhibit A

 

Certificate of Designation (Series B)

 

 

 

Exhibit B

 

Amended and Restated Certificate of Designation (Series A-1)

 

 

 

Exhibit C

 

By-law Amendment

 

 

 

Exhibit D

 

Charter Amendment

 

 

 

Exhibit E

 

Investor Rights Agreement

 

 

 

Exhibit F

 

Registration Rights Agreement

 

iv

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EXCHANGE AGREEMENT

 

This EXCHANGE AGREEMENT (this “Agreement”) is made and entered into this 21st
day of June, 2010,  by and between Communication Intelligence Corporation, a
Delaware corporation (the “Company”), Phoenix Venture Fund LLC, a Delaware
limited liability company (“Phoenix”), Michael Engmann, an individual
(“Engmann”), Ronald Goodman, an individual (“Goodman”) and the other entities
and individuals listed on Schedule I hereto (Phoenix, Engmann and Goodman
together with such other entities and individuals, the “Lenders” and each, a
“Lender”). Certain terms used and not otherwise defined in the text of this
Agreement are defined in Section 10 hereof.

 

W I T N E S S E T H

 

WHEREAS, the Company, through its Board, has decided to authorize and issue a
new series of capital stock to be designated Series B Participating Convertible
Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”); and

 

WHEREAS, the Company desires to convert and exchange each $1.00 of Indebtedness
outstanding on the Closing Date into one (1) share of Series B Preferred Stock,
and the Lenders desire to convert and exchange such Indebtedness into shares of
Series B Preferred Stock, all in accordance with the terms and provisions of
this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto,
intending to be bound, hereby agree as follows:

 

1.             Authorization of Securities.  The Company has authorized the
issuance of up to 14,000,000 shares of its Series B Preferred Stock, a portion
of which will be issued pursuant to the terms and subject to the conditions of
this Agreement to convert and exchange all of the Indebtedness outstanding on
the Closing Date (the “Exchange Shares”) and up to 2,000,000 shares of which
will be issued and sold upon the terms and subject to the conditions of the
Purchase Agreement.  The Series B Preferred Stock will be convertible into
shares of the Company’s common stock, par value $0.01 per share (the “Common
Stock”), and will have the rights, preferences and privileges set forth in the
form of Certificate of Designation of Series B Preferred Stock attached hereto
as Exhibit A (the “Certificate of Designation (Series B)”).  The shares of
Common Stock into which the Series B Preferred Stock is convertible are
sometimes referred to herein as the “Conversion Shares”, the Exchange Shares and
the Conversion Shares are sometimes referred to herein collectively as the
“Securities”.

 

2.             Exchange of Indebtedness for Series B Preferred Stock.

 

(a)           Upon the terms and subject to the conditions herein contained, on
the Closing Date, the Company and the Lenders shall consummate the conversion
and exchange of all of the outstanding Indebtedness held by the Lenders as of
the Closing Date into the Exchange Shares as follows: for each $1.00 owed under
such Indebtedness, including accrued and unpaid interest through the Closing
Date, one (1) whole share of Series B Preferred Stock.  Each Lender shall
receive the number of shares of Series B Preferred Stock determined by dividing
the Indebtedness outstanding on the Closing Date

 

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held by such Lender by an exchange price per share equal to $1.00 (the “Exchange
Price”), which shall be paid through the conversion and exchange of the
Indebtedness.  The principal amount of Indebtedness outstanding on the date
hereof held by each Lender is set forth in the column “Indebtedness To Be
Exchanged” opposite such Lender’s name on Schedule I attached hereto and the
number of shares of Series B Preferred Stock issuable to such Lender for such
Indebtedness is set forth in the column “Number of Exchange Shares” opposite
such Lender’s name on Schedule I.  Schedule I will be updated on the Closing
Date to add the additional Indebtedness incurred by the Company from the date
hereof to the Closing Date and the number of Exchange Shares issuable therefor. 
Fractional shares of the Series B Preferred Stock will not be issued and as a
result, the Company will round up the number of Exchange Shares to the next
whole share if the amount of Indebtedness converted and exchanged by a Lender is
not a whole number. The Company and the Lenders are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded by Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.

 

(b)           Each of the Lenders acknowledges and agrees that (i) the
Indebtedness converted and exchanged pursuant to the terms and conditions this
Agreement shall be cancelled as of the Closing Date and that the Company shall
have no further obligation to the Lenders to make any payments of principal or
interest under such Indebtedness or the Credit Agreement; and (ii) the
Collateral Agent will, at the Company’s written request and expense, execute and
deliver to the Company such documents and instruments and take such other action
as the Company may reasonably request, at the Company’s expense, to evidence or
effect the release of any liens arising out of or made in connection with the
Indebtedness and the Credit Agreement.

 

3.             Closing.  Upon the terms and subject to the satisfaction of the
conditions contained in Section 7 hereof and concurrently with the closing of
the Offering, the closing (the “Closing”) with respect to the transaction
contemplated in Section 2 hereof shall take place at the offices of Pillsbury
Winthrop Shaw Pittman LLP, 1540 Broadway, New York, New York at 10:00 a.m. local
time, or another mutually acceptable time and location, on the date that is five
(5) Business Days after the date on which the last of the conditions precedent
to Closing set forth in Section 7 hereof have been either satisfied or waived by
the party for whose benefit such conditions precedent exist or at such other
date and time as the Company and Lenders may agree (the “Closing Date”).  At the
Closing, the Company shall deliver to each Lender certificates representing the
Series B Preferred Stock which such Lender is receiving at the Closing,
registered in the name of such Lender, against exchange of the Indebtedness
outstanding on the Closing Date held by such Lender for the Exchange Price
therefor.

 

4.             Representations and Warranties of the Lenders; Register of
Securities; Restrictions on Transfer. Each Lender, severally as to itself and
not jointly, represents and warrants to the Company as follows:

 

4.1           Organization; Authority.  (a)  Each Lender that is an entity is
duly formed or organized, validly existing and in good standing under the laws
of its jurisdiction of organization or formation, and has all requisite
corporate, limited liability company, partnership

 

2

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or trust (as the case may be) power and authority to enter into and deliver this
Agreement and the other Transaction Documents and instruments referred to herein
to which it is a party and to consummate the transactions contemplated hereby
and thereby.

 

(b)           Each Lender that is an individual has full legal right, power,
authority and capacity to enter into and deliver this Agreement and the other
Transaction Documents and instruments referred to herein to which such Lender is
a party and to consummate the transactions contemplated hereby and thereby.

 

4.2           Validity.  The execution, delivery and performance of this
Agreement and the other Transaction Documents and instruments referred to
herein, in each case to which such Lender is a party, and the consummation by
such Lender of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary action on the part of such Lender.  This Agreement
and the other Transaction Documents and instruments referred to herein to which
such Lender is a party have been duly executed and delivered by such Lender, and
each such agreement constitutes a valid and binding obligation of such Lender
enforceable against it in accordance with its terms, subject to general
application from time to time of bankruptcy, insolvency, fraudulent conveyance
or other similar laws affecting creditors’ rights generally and to general
equitable principles.

 

4.3           Brokers.  There is no broker, investment banker, financial
advisor, finder or other person which has been retained by such Lender who might
be entitled to any fee or commission for which the Company will be liable in
connection with the execution of this Agreement and the consummation of the
transactions contemplated hereby.

 

4.4           Investment Representations and Warranties.  Such Lender
understands that the offering and sale of the Exchange Shares have not been
registered under the Securities Act and are being made in reliance upon federal
and state exemptions for transactions not involving a public offering which
depend upon, among other things, the bona fide nature of the investment intent
and the accuracy of Lender’s representations as expressed herein.  Such Lender
acknowledges that, except as set forth in the Registration Rights Agreement, the
Company has no obligation to register or qualify the Exchange Shares for resale.

 

4.5           Acquisition for Own Account.  Such Lender is acquiring the
Exchange Shares for its own account for investment and not with a view toward
distribution in a manner which would violate the Securities Act.

 

4.6           Ability to Protect Its Own Interests and Bear Economic Risks. 
Such Lender, by reason of its own business and financial experience or that of
its management, has the capacity to protect its own interests in connection with
the transactions contemplated by this Agreement and the other Transaction
Documents. Such Lender is able to bear the economic risk of an investment in the
Exchange Shares and is able to sustain a loss of all of its investment in the
Exchange Shares without economic hardship if such a loss should occur.

 

4.7           Accredited Investor.  Each Lender is an “accredited investor” as
that term is defined in Regulation D promulgated under the Securities Act.  Such
Lender is not required to be registered as a broker-dealer under Section 15 of
the Exchange Act and such Lender is not a

 

3

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broker-dealer.  Each Lender acknowledges that an investment in the Exchange
Shares is speculative and involves a high degree of risk.

 

4.8           Access to Information. Such Lender has been given access to
Company documents, records and other information, and has had adequate
opportunity to ask questions of, and receive answers from, the Company’s
officers, employees, accountants, and representatives concerning the Company’s
business, operations, financial condition, assets, liabilities, and all other
matters relevant to its investment in the Exchange Shares. The representations
of the Lenders contained in this Agreement shall not affect the ability of the
Lenders to rely on the representations and warranties made by the Company
pursuant to Section 5 of this Agreement.

 

4.9           Restricted Securities.

 

(a)           Such Lender understands that the Securities will be characterized
as “restricted securities” under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such Securities may
be resold without registration under the Securities Act only in certain limited
circumstances.

 

(b)           Such Lender acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Securities Act and under
applicable state securities laws or an exemption from such registration is
available.

 

(c)           Such Lender is aware of the provisions of Rule 144 under the
Securities Act which permit limited resale of securities acquired in a private
placement.

 

4.10         Residence.  The office or offices of such Lender in which its
investment decision was made, and which is its principal place of business, in
the case of a corporation, limited liability company, partnership or other
entity, or is its residence, in the case of an individual, is located at the
address or addresses of such Lender set forth on Schedule I hereto.

 

5.             Representations and Warranties by the Company. Except as set
forth by the Company in a written Disclosure Schedule provided by the Company to
the Lenders dated the date hereof (the “Disclosure Schedule”), the Company
represents and warrants to each Lender that the statements contained in this
Section 5 are complete and accurate as of the date of this Agreement and as of
the Closing Date. The Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections and subsections contained in
this Section 5, and the disclosures in any section or subsection of the
Disclosure Schedule shall qualify other sections and subsections in this
Section 5 only to the extent it is readily apparent from a reasonable reading of
the disclosure that such disclosure is applicable to such other sections and
subsections.

 

5.1           Capitalization.

 

(a)           As of the date hereof, the authorized capital stock of the Company
consists of 285,000,000 shares of Common Stock, par value $0.01 per share, and
10,000,000 shares of preferred stock, par value $0.01 per share, of which
2,000,000 shares are designated Series A-1 Preferred Stock. As of the date
hereof, the Company has

 

4

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190,776,482 issued shares of Common Stock, of which no shares are held by the
Company as treasury shares and 190,776,482 are outstanding; 766,195 shares of
Series A-1 Preferred Stock are outstanding; 4,000,000 shares of Common Stock are
reserved for issuance under the Company’s 1999 Stock Option Plan, under which
2,223,368 shares are subject to outstanding options and no further grants will
be made; 7,000,000 shares of Common Stock are reserved for issuance under the
Company’s 2009 Stock Compensation Plan, under which 3,465,640 shares are subject
to outstanding awards and 3,461,375 shares are available for grant; 4,129,443
shares are subject to outstanding non-plan options and 31,374,223 shares of
Common Stock are reserved for issuance upon the exercise of warrants and other
convertible securities outstanding on the date hereof. As of the date hereof the
Company has no other shares of capital stock authorized, issued, outstanding or
reserved.  A capitalization table presenting the capitalization of the Company
as of the date hereof is set forth on Schedule 5.1(a) hereto.

 

(b)           After giving effect to the filing of the Charter Amendment and the
Certificate of Designation (Series B) with the Secretary of State of the State
of Delaware, the authorized capital stock of the Company consists of 519,000,000
shares of Common Stock, par value $0.01 per share, and 16,000,000 shares of
preferred stock, par value $0.01 per share, of which 2,000,000 shares are
designated Series A-1 Preferred Stock and 14,000,000 shares are designated
Series B Preferred Stock.

 

(c)           As of the date hereof, other than as stated in Section 5.1(a),
except as set forth on Schedule 5.1(c), (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock, nor are any such issuances or arrangements contemplated;
(ii) there are no agreements or arrangements under which the Company is or may
become obligated to register the sale of any of its securities under the
Securities Act; (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iv) the Company has not reserved any shares of capital stock for
issuance pursuant to any stock option plan or similar arrangement.

 

(d)           There have been no adjustments to the exercise price or the
conversion price of any options, warrants or other securities convertible into
or exchangeable for shares of Common Stock and Series A-1 Preferred Stock.  The
execution and delivery of this Agreement and the Exchange Agreement and the
consummation of the transactions contemplated hereby and thereby will not
trigger any conversion or exercise price adjustments or any other anti-dilution
rights or provisions relating to any shares of capital stock of the Company or
any securities or rights convertible into or exercisable or exchangeable for
shares of capital stock of the Company.

 

5.2           Due Issuance and Authorization of Capital Stock.  All of the
shares of capital stock of the Company outstanding on the date hereof have been
validly issued and are

 

5

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fully paid and non-assessable.  On the Closing Date, the sale and delivery of
the Exchange Shares, when issued, sold and delivered in accordance with the
terms hereof, and the issuance and/or delivery of the Conversion Shares upon
conversion of the Exchange Shares in accordance with the terms of the
Certificate of Designation (Series B) will be duly authorized, validly issued,
fully paid and non-assessable, and free from all taxes and will vest in the
holders thereof legal and valid title to such Exchange Shares or Conversion
Shares, as the case may be, free and clear of any lien, claim, judgment, charge,
mortgage, security interest, pledge, escrow, equity or other encumbrance
(collectively, “Encumbrances”), and will not be subject to preemptive rights or
other similar rights of stockholders of the Company, and the issuance of such
shares will not impose personal liability upon the holder thereof.  Following
the filing of the Charter Amendment with the Secretary of State of the State of
Delaware, a sufficient number of authorized shares of Common Stock have been
reserved for issuance upon conversion of the Exchange Shares.

 

5.3           Organization. The Company and each of its Subsidiaries (a) is duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its formation, (b) is duly qualified to do
business as a foreign entity and is in good standing in each jurisdiction where
the nature of the property owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified would not have a Material Adverse Effect, and (c) has all
requisite corporate power and authority to own or lease and operate its assets
and carry on its business as presently being conducted. The Company has its
principal place of business and chief executive office in Redwood Shores,
California.

 

5.4           Subsidiaries.  All of the direct and indirect Subsidiaries of the
Company are set forth on Schedule 5.4.  Except as set forth on Schedule 5.4, the
Company owns, directly or indirectly, all of the capital stock or comparable
equity interests of each Subsidiary free and clear of any Encumbrances, and all
of the issued and outstanding shares of capital stock or comparable equity
interests of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities.

 

5.5           Consents.  Except as set forth on Schedule 5.5, neither the
execution, delivery or performance of this Agreement, the Certificate of
Designation (Series B), the Amended and Restated Certificate of Designation
(Series A-1), the Charter Amendment or the other Transaction Documents by the
Company, nor the consummation by it of the obligations and transactions
contemplated hereby or thereby (including, without limitation, the issuance, the
reservation for issuance and the delivery of the Series B Preferred Stock or the
issuance and delivery of the Conversion Shares) requires any consent of,
authorization by, exemption from, filing with or notice to any Governmental
Entity or any other Person, other than (a) approval by the Company’s
stockholders of the Charter Amendment and the Amended and Restated Certificate
of Designation (Series A-1), (b) the filing of the Charter Amendment, the
Certificate of Designation (Series B) and the Amended and Restated Certificate
of Designation (Series A-1) with the Secretary of State of the State of
Delaware, (c) the filings required to comply with the Company’s registration
obligations under the Registration Rights Agreement and (d) filings required
under applicable U.S. federal and state securities laws.

 

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5.6           Power and Authorization.  The Company has all requisite corporate
power and has taken all necessary corporate action required for the due
authorization, execution, delivery and performance by the Company of this
Agreement, the Certificate of Designation (Series B), the Amended and Restated
Certificate of Designation (Series A-1), the Charter Amendment and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Series B
Preferred Stock, the Conversion Shares and the provision to the Lenders of the
rights contemplated by the Transaction Documents) and no action on the part of
the stockholders of the Company is required other than approval by the
stockholders of the Charter Amendment and the election to the Board of the
Series B Directors, and approval by the holders of Series A-1 Preferred Stock of
the Amended and Restated Certificate of Designation (Series A-1).  The
execution, delivery and performance by the Company of this Agreement and each of
the other Transaction Documents, the execution and filing of the Charter
Amendment, the Certificate of Designation (Series B) and the Amended and
Restated Certificate of Designation (Series A-1), and the consummation by the
Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company.

 

5.7           Enforcement.  This Agreement has been duly executed and delivered
by the Company, and the Certificate of Designation (Series B), the Amended and
Restated Certificate of Designation (Series A-1), the Charter Amendment, and the
other Transaction Documents and instruments referred to herein to which it is a
party will be duly executed and delivered by the Company, and each such
agreement constitutes or will constitute a valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject to general
application from time to time of bankruptcy, insolvency, fraudulent conveyance
or other similar laws affecting creditors’ rights generally and to general
equitable principles.

 

5.8           No Conflicts.  The execution, delivery and performance of each of
this Agreement, the other Transaction Documents, the Certificate of Designation
(Series B), the Amended and Restated Certificate of Designation (Series A-1) and
the Charter Amendment, and the consummation of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Exchange Shares, the Series B Preferred
Stock and the Conversion Shares) will not (a) result in a violation of the
Certificate of Incorporation and By-laws of the Company (the “Charter
Documents”) or the certificates of formation, operating agreements, articles or
certificates of incorporation, by-laws or comparable organization documents of
its Subsidiaries, (b) conflict with or result in the breach of the terms,
conditions or provisions of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give rise to
any right of termination, acceleration or cancellation under, any Material
Contract, (c) result in a material violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any Subsidiary or
by which any property or asset of the Company or any Subsidiary is bound or
affected, (d) result in a material violation of any rule or regulation of FINRA
or its Trading Markets, or (e) result in the creation of any Encumbrance upon
any of the Company’s or any Subsidiary’s assets.  The Company is not in
violation of its Charter Documents.  The business of the Company and each of its
Subsidiaries is not being conducted in violation in any material respect of any
law, ordinance or regulation of any Governmental Entity.

 

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5.9           Material Contracts.  Each Material Contract of the Company or any
Subsidiary is listed on Schedule 5.9 hereof.  Each Material Contract is the
legal, valid and binding obligation of the Company or such Subsidiary, as the
case may be, enforceable against the Company or such Subsidiary, as the case may
be, in accordance with its terms, except to the extent that enforceability may
be limited by bankruptcy, insolvency, fraudulent conveyance or other similar
laws affecting creditors’ rights generally and by general equitable principles. 
There has not occurred any breach, violation or default or any event that, with
the lapse of time, the giving of notice or the election of any Person, or any
combination thereof, would constitute a breach, violation or default by the
Company under, or give others any rights of termination, amendment, acceleration
or cancellation of, any such Material Contract.  To the knowledge of the
Company, there has not occurred any breach, violation or default or any event
that, with the lapse of time, the giving of notice or any combination thereof,
would constitute a breach, violation or default by any other Person under any
such Material Contract.  The Company has not been notified that any party to any
Material Contract intends to cancel, terminate, not renew or exercise an option
under any Material Contract, whether in connection with the transactions
contemplated hereby or otherwise.

 

5.10         Right of First Refusal; Stockholders Agreement; Voting and
Registration Rights.  Except as set forth in the Certificate of Designation
(Series B), no party has any right of first refusal, right of first offer, right
of co-sale, preemptive right or other similar right regarding the securities of
the Company.  Except as set forth on Schedule 5.10, there are no provisions in
the Charter Documents or any Material Contracts, which (a) may affect or
restrict the voting rights of the Lender with respect to the Securities in its
capacity as a stockholder of the Company, (b) restrict the ability of the
Lenders, or any successor thereto or assignee or transferee thereof, to transfer
the Securities, (c) would adversely affect the Company’s or any Lender’s right
or ability to consummate the transactions contemplated by this Agreement or
comply with the terms of the other Transaction Documents or the Certificate of
Designation (Series B) and the transactions contemplated hereby or thereby,
(d) require the vote of more than a majority of the Company’s issued and
outstanding Common Stock, voting together as a single class, to take or prevent
any corporate action, other than those matters requiring a different vote under
Delaware law, or (e) entitle any party to nominate or elect any director of the
Company or require any of the Company’s stockholders to vote for any such
nominee or other person as a director of the Company.

 

5.11         Previous Issuances.  All shares of capital stock and other
securities issued by the Company prior to the Closing Date have been issued in
transactions registered under or exempt from the registration requirements under
the Securities Act and all applicable state securities or “blue sky” laws, and
in compliance with all applicable corporate laws.  The Company has not violated
the Securities Act or any applicable state securities or “blue sky” laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing Date.  No Person has any rescission rights with respect to
any shares of capital stock of the Company.

 

5.12         No Integrated Offering.  Neither the Company, nor any of its
Affiliates or any other Person acting on the Company’s behalf, has directly or
indirectly engaged in any form of general solicitation or general advertising
with respect to the Series B Preferred Stock, the Exchange Shares or the
Conversion Shares nor have any of such Persons made any offers or

 

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sales of any security of the Company or its Affiliates or solicited any offers
to buy any security of the Company or its Affiliates under circumstances that
would require registration of the Series B Preferred Stock, the Exchange Shares
or the Conversion Shares under the Securities Act or cause this offering of
Exchange Shares to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

5.13         SEC Reports; Financial Statements.

 

(a)           The Company has filed all reports, schedules, forms, statements
and other documents required to be filed by the Company under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof since
January 1, 2008 (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension.  As of their respective dates, the SEC Reports
complied as to form in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.  All Material Contracts to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject that are required to be included as part of or
specifically identified in the SEC Reports are so included or specifically
identified.

 

(b)           The financial statements of the Company and its Subsidiaries
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC and PCAOB with
respect thereto as in effect at the time of filing.  Such financial statements
have been prepared in accordance with GAAP and except that unaudited financial
statements may not contain all footnotes required by GAAP are true and correct
in all material respects and fairly present the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.

 

5.14         No Undisclosed Material Liabilities.  As of the date of this
Agreement, there are no liabilities of the Company or any Subsidiary, of any
kind whatsoever, whether interest-bearing indebtedness, or liabilities accrued,
contingent, absolute, determined, determinable or otherwise, other than
liabilities:

 

(a)           reflected in the financial statements included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009 and the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010;

 

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(b)           incurred since March 31, 2010 in the ordinary course of business
consistent with past practice, which are not in excess of $250,000 in the
aggregate;

 

(c)           created under, or incurred in connection with, this Agreement, the
other Transaction Documents, the Certificate of Designation (Series B) or the
Amended and Restated Certificate of Designation (Series A-1).

 

5.15         Litigation.  Except as set forth on Schedule 5.15, there is no
action, suit, investigation or other proceeding pending against, or to the
knowledge of the Company, threatened against or affecting, the Company or any of
its Subsidiaries or any of their properties or to the knowledge of the Company
any of its or their officers or directors before any court or arbitrator or any
Governmental Entity.  To the knowledge of the Company, there are no facts that
would cause a reasonable person to believe that such a proceeding would likely
result.

 

5.16         Taxes.  The Company and each of its Subsidiaries has properly filed
all federal, foreign, state, local, and other tax returns and reports which are
required to be filed, which returns and reports were properly completed and are
true and correct in all respects, and all taxes, interest, and penalties due and
owing have been timely paid.  There are no outstanding waivers or extensions of
time with respect to the period for assessing or auditing any tax or tax return
of the Company or any Subsidiary, or claims now pending or matters under
discussion between the Company or any Subsidiary and any taxing authority in
respect of any tax of the Company or any Subsidiary.

 

5.17         Employee Matters.

 

(a)           The Company has listed any “employee benefit plan” subject to the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that it
or any Subsidiary maintains as an exhibit to an SEC Report or on Schedule
5.17(a).

 

(b)           No director or officer or other employee of the Company or any
Subsidiary will become entitled to any retirement, severance or similar benefit
or enhanced or accelerated benefit (including any acceleration of vesting) or
lapse of repurchase rights or obligations with respect to any employee benefit
plan subject to ERISA or other benefit under any compensation plan or
arrangement of the Company or any Subsidiary (each, an “Employee Benefit Plan”))
solely as a result of the transactions contemplated in this Agreement; and no
payment made or to be made to any current or former employee or director of the
Company or any of its Affiliates by reason of the transactions contemplated
hereby (whether alone or in connection with any other event, including, but not
limited to, a termination of employment) will constitute an “excess parachute
payment” within the meaning of Section 280G of the Code.

 

(c)           No employee is, or is now expected to be, in violation of any term
of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
employee does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matter.

 

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(d)           The Company and each of its Subsidiaries are in substantial
compliance with all applicable federal, state, local and foreign statutes, laws
(including, without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders and codes respecting employment, employment
practices, labor, terms and conditions of employment and wages and hours, and no
work stoppage or labor strike against the Company or any Subsidiary is pending
or, to their knowledge, threatened, nor is the Company or any Subsidiary
involved in or, to their knowledge, threatened with any labor dispute, grievance
or litigation relating to labor matters involving any employees of the Company
or any Subsidiary. To the Company’s knowledge, there are no suits, actions,
disputes, claims (other than routine claims for benefits), investigations or
audits pending or, to the knowledge of the Company, threatened in connection
with any Employee Benefit Plan.

 

5.18         Compliance with Laws.  The Company and each of its Subsidiaries
have been and are in compliance in all material respects with the terms of all
franchises, permits, licenses and other rights and privileges necessary to
conduct the Company’s and each of its Subsidiaries’ present and proposed
business and is in compliance with and have not violated, in any respect, any
applicable provisions of any laws, statutes, ordinances or regulations material
to its respective business or the terms of any judgments, orders, decrees,
injunctions or writs.

 

5.19         Brokers.  Except as set forth on Schedule 5.19, there is no
investment banker, broker, finder, financial advisor or other person which has
been retained by or is authorized to act on behalf of the Company who is
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.

 

5.20         Environmental Matters.

 

(a)           (i) No written notice, notification, demand, request for
information, citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of the Company, threatened by any Person against the Company or any of
its Subsidiaries and no penalty has been assessed against the Company or any of
its Subsidiaries, in each case, with respect to any matters relating to or
arising out of any Environmental Law; (ii) the Company and each of its
Subsidiaries are in substantial compliance with all applicable Environmental
Laws; and (iii) to the knowledge of the Company, there are no liabilities of or
relating to the Company or any of its Subsidiaries relating to or arising out of
any Environmental Law, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in a such a
liability.

 

(b)           For purposes of this Agreement, the term “Environmental Laws”
means federal, state, local and foreign statutes, laws, binding judicial
decisions, regulations, ordinances, rules, binding judgments, binding orders,
codes, binding injunctions and permits relating to human health and the
environment, including, but not limited to, Hazardous Materials; and the term
“Hazardous Material” means all substances or materials regulated as hazardous,
toxic, explosive, dangerous, flammable or radioactive under any Environmental
Law including, but not limited to: (i) petroleum, asbestos, or polychlorinated
biphenyls and (ii) in the United States, all substances defined

 

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as Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil
and Hazardous Substances Pollution Contingency Plan.

 

5.21         Intellectual Property Matters.

 

(a)           “Intellectual Property” means any and all of the following arising
under the laws of the United States, any other jurisdiction or any treaty
regime: (i) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereon, and all patents, patent
applications and patent disclosures and all reissuances, continuations,
continuations-in-part, divisionals, revisions, extensions and reexaminations
thereof, (ii) all trademarks, service marks, trade dress, logos, trade names and
corporate names and all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith (collectively, “Trademarks”),
(iii) all copyrightable works, mask works or moral rights, all copyrights and
all applications, registrations and renewals in connection therewith, (iv) all
trade secrets and confidential business information (including, without
limitation, ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information and business and marketing plans and proposals), (v) all computer
software, including, without limitation, all software implementations of
algorithms, models and methodologies, whether in source code or object code, all
databases and compilations, including any and all data and collections of data,
whether machine readable or otherwise, all descriptions, schematics, flow-charts
and other work product used to design, plan, organize and develop any of the
foregoing, and all documentation, including user manuals and training materials,
relating to any of the foregoing (“Software”), (vi) all other proprietary
rights, (vii) all copies and tangible embodiments of the foregoing (in whatever
form or medium) and (viii) all licenses or agreements in connection with the
foregoing.  “Company Intellectual Property” means all Intellectual Property
which is used or usable in the business of the Company or any of its
Subsidiaries.

 

(b)           Without limiting the scope of the Company Intellectual Property,
Schedule 5.21(b) sets forth each item of Company Intellectual Property.  Except
as set forth on Schedule 5.21(b), with respect to each item of Company
Intellectual Property:

 

(1)           the Company or a Subsidiary possesses all rights, titles and
interests in and to the item if owned by the Company or a Subsidiary, free and
clear of any Encumbrance, license or other restriction(other than Encumbrances
created under the Pledge and Security Agreement, dated June 5, 2008), and uses
and contemplates using such item, in the case of a licensed item, in the manner
in which it is entitled to use such item under the applicable license agreement,
and the Company has taken or caused to be taken commercially reasonable and
prudent steps for a company of like resources and business model to protect its
rights in and to the item;

 

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(2)           the item, if owned by the Company or a Subsidiary, is not, and if
licensed, to the knowledge of the Company is not, subject to any outstanding
injunction, judgment, order, decree, ruling or charge;

 

(3)           no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the knowledge of the Company, has
been or is being threatened which challenges the validity, enforceability,
registrability, use or ownership of the item;

 

(4)           the Company or a Subsidiary has sufficient right, title and
interest to use or own the item without infringement upon or misappropriation of
any valid and enforceable Intellectual Property right or other right of any
third party;

 

(5)           other than customary contractual obligations to indemnify
customers in connection with an allegation of infringement made by a third
party, neither the Company nor any of its Subsidiaries has agreed to indemnify
any person for or against any interference, infringement or misappropriation;

 

(6)           to the knowledge of the Company, no third party has interfered
with, infringed upon, misappropriated or otherwise come into conflict with the
Company Intellectual Property and, except as set forth in Schedule 5.21(b), no
claim or litigation has been brought or threatened against any third party by or
on behalf of the Company or any Subsidiary asserting interference with,
infringement of, or misappropriation of Company Intellectual Property or breach
of any license or agreement involving the Company Intellectual Property;

 

(7)           neither the Company nor any Subsidiary is party to any option,
license, sublicense or agreement covering the item that it is in breach or
default thereunder, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification
or acceleration thereunder;

 

(8)           each option, license, sublicense or agreement covering the item is
valid, binding and enforceable against the Company or its Subsidiary, as the
case may be;

 

(9)           that is a registered or applied for patent, copyright, trademark,
or service mark in the United States or any other jurisdiction, such item, to
the knowledge of the Company, is valid, enforceable and subsisting and is not
subject to any claims, Encumbrances, taxes or other fees except for periodic
filing, annuity and maintenance fees; and

 

(10)         the Company has not entered into any agreement granting any third
party the right to bring infringement actions with respect to, or otherwise to
enforce rights with respect to, the item.

 

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(c)           Except as set forth on Schedule 5.21(b), the Company, each of its
Subsidiaries, and their respective products and services have not, to the
knowledge of the Company, infringed upon, misappropriated or otherwise come into
conflict with any valid and enforceable Intellectual Property rights of third
parties or violated any license or agreement with respect to Intellectual
Property rights of a third party. There is no pending or, to the knowledge of
the Company, threatened claim or litigation against the Company, any Subsidiary,
or any of their respective products and services contesting the right to use any
third party’s Intellectual Property rights, asserting the infringement, misuse,
misappropriation, or other violation of any third party’s Intellectual Property
rights, asserting violation of any license or agreement with respect to a third
party’s Intellectual Property rights, or asserting unfair competition or trade
practices. The Company has not received written, or to the knowledge of the
Company, non-written notice from any third party (i) that the Company, any
Subsidiaries, or any of their respective products and services infringes,
misuses, misappropriates or otherwise violates the Intellectual Property of any
third party, (ii) that the Company or a Subsidiary requires a license to any
third party Intellectual Property rights to conduct its business as currently
conducted or as it is intended to be conducted, or (iii) of an unsolicited offer
to license any Intellectual Property rights of a third party. To the knowledge
of the Company, there are no facts or circumstances that would reasonably lead
it to believe that the activities or the conduct of the business or operations
of the Company or any Subsidiary did prior to Closing, or will when conducted in
the same manner following the Closing, infringe upon, violate or constitute the
unauthorized use of the Intellectual Property rights of any third party.

 

(d)           All domain names owned by the Company or its Subsidiaries or used
in the business of the Company and its Subsidiaries (the “Domain Names”) have
been and are duly registered with Network Solutions and GoDaddy.com (together,
the “Registrars”) through the Registrars’ registration procedures, and are
operating, accessible domain names. The registration of each such Domain Name is
free and clear of all Encumbrances and is in full force and effect. The Company
has paid all fees required to maintain each Domain Name registration. The
Company or a Subsidiary owns all, and has not waived, forfeited or granted to
any third parties any, rights, title or interest in or to the Domain Names
including, without limitation, any benefits, entitlements or rights of renewal
with respect to the Domain Names.  None of the Domain Names have been placed on
“hold” or are otherwise subject to a dispute or potential dispute. Neither the
Company nor any of its Subsidiaries has received written notice of any claim
asserted against the Company or any of its Subsidiaries adverse to its rights to
such Domain Names.

 

(e)           The Company or a Subsidiary is the exclusive owner of all
Trademarks used in connection with the operation or conduct of the business of
the Company and its Subsidiaries. All Trademarks of the Company and its
Subsidiaries which are used in any way in connection with the conduct of the
Company’s business have been in continuous use by the Company or a Subsidiary.
There has been no prior use of any such Trademarks or other action taken by any
third party that would confer upon said third party superior rights in such
Trademarks, the Company has taken all necessary steps to protect the Trademarks
against infringement and the registered

 

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Trademarks have been continuously used in the form appearing in, and in
connection with the goods and services listed in their respective registration
certificates or identified in their respective pending applications.

 

(f)            None of the key employees of the Company or any Subsidiary are
obligated under any contract (including, without limitation, licenses,
covenants, or commitments of any nature) or other agreement, or subject to any
judgment, decree, or order of any court or administrative agency, that would
interfere with the use of his or her reasonable diligence to promote the
interests of the Company or any Subsidiary or that would conflict with the
Company’s or any Subsidiary’s businesses as presently conducted or as proposed
to be conducted. Neither the execution, delivery or performance of this
Agreement, nor the carrying on of the businesses of the Company or any
Subsidiary by the employees of the Company and its Subsidiaries, nor the conduct
of the Company’s businesses as presently conducted or as proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant, or
instrument under which any such key employee is obligated.

 

(g)           The Company has entered into confidentiality and proprietary
information and assignment of inventions and other Intellectual Property
agreements with each of the current and former employees, consultants, and
independent contractors of the Company and its Subsidiaries, that, among other
things, protect the confidentiality of all Company Intellectual Property and
ensure full and unencumbered ownership by the Company or a Subsidiary of all
Company Intellectual Property. The Company is not aware of any violation by any
such employees of such agreements.

 

(h)           No current of former stockholder, member, director, officer or
employee of the Company or any Subsidiary has any interest, right, title or
interest in any of the Company Intellectual Property.

 

(i)            The Company and each of its Subsidiaries have taken all necessary
steps to protect the respective rights in confidential information and trade
secrets used in connection with the conduct of the Company’s or any Subsidiary’s
business. Without limiting the foregoing, the Company and each of its
Subsidiaries have enforced a policy of requiring each employee, consultant,
contractor and third party to which they disclose confidential information or
trade secrets to execute agreements restricting disclosure and use of such
confidential information and trade secrets that are substantially consistent
with the Company’s standard forms thereof. Except under valid and binding
confidentiality obligations, there has been no disclosure of any confidential
information or trade secrets used in connection with the conduct of the
Company’s or any Subsidiary’s business. Except as set forth in Schedule 5.21(b),
the Company or a Subsidiary has not provided, nor is obligated in any
circumstance to provide, source code to any Company Intellectual Property to any
third party.

 

(j)            The Company Intellectual Property comprises all Intellectual
Property necessary to the business of the Company and each of its Subsidiaries
as presently conducted or proposed to be conducted.  It is not necessary for the
Company or

 

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any Subsidiary to utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their employment by the
Company or a Subsidiary, except for valid and enforceable inventions, trade
secrets or proprietary information that have been assigned to the Company or a
Subsidiary.

 

(k)           The Company and each of its Subsidiaries are not subject to any
“open source” or “copyleft” obligations and are not subject to any agreement or
distribution model that: (i) involves distribution, making generally available
of, or making any public disclosure of, any source code either used or developed
by the Company or any Subsidiary, (ii) prohibits or limits charging a fee or
receiving consideration in connection with licensing or distributing any Company
product, (iii) except as specifically permitted by law, grants any right to, or
otherwise allows, any third party to decompile, disassemble or otherwise
reverse-engineer any Company product, or (iv) requires the licensing of any
Company product for the purpose of making derivative works.

 

(l)            All Software, hardware, and technology used by the Company and
each of its Subsidiaries perform in substantial compliance with all applicable
specifications.

 

(m)          Any Software used by the Company or any Subsidiary was either
(i) developed by employees of the Company or a Subsidiary within the scope of
their employment; (ii) developed by consultants or independent contractors who
have assigned their rights to the Company or a Subsidiary pursuant to written
agreements; or (iii) otherwise acquired by the Company or a Subsidiary from a
third party pursuant to a valid written agreement with the third party. The
Software used by the Company or any Subsidiary does not contain any programming
code, documentation or other materials or development environments that embody
Intellectual Property rights of any third party, except for such materials or
development environments obtained by the Company or a Subsidiary from third
parties who make such materials or development environments generally available
on non-discriminatory commercial terms.

 

(n)           Neither the Company nor any Subsidiary is now or ever was a member
or promoter of, or a contributor to, or otherwise participated in any industry
standards bodies or similar organizations that could compel the Company or any
Subsidiary to grant or offer to any third party any license or right to Company
Intellectual Property, to disclose any Company Intellectual Property to any
third party, or to restrict Company’s enforcement of the Company Intellectual
Property, provided that the mere act of implementing a standard shall not be
deemed to cause the Company or any Subsidiary to be considered a member,
promoter, contributor or participant in a standards body or similar
organization.  To the extent the Company or any Subsidiary is now or ever was a
member, promoter, contributor, or participant in any industry standards body or
similar organization, the Company and such Subsidiary have complied at all times
with any policies of such industry standards body or similar organization,
including without limitation any policies regarding the identification and
disclosure of intellectual property. Schedule 5.21(n) sets forth a complete and
accurate list of any standards bodies or similar

 

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organizations in which the Company or any Subsidiary has ever been a member,
promoter, contributor or participant.

 

(o)           No funding or facilities of a government, university, college, or
other educational institution or research center was used in the creation or
development of the Company Intellectual Property. To the knowledge of the
Company, no current or former employee, consultant or independent contractor,
who was involved in, or who contributed to, the creation or development of any
Company Intellectual Property, performed services for any government,
university, college, or other educational institution or research center, during
a period of time during which such employee, consultant or independent
contractor was also performing services used in the creation or development of
the Company Intellectual Property. Neither the Company nor any of its
Subsidiaries are party to any contract, license or agreement with any government
that grants to such government any right or license with respect to the Company
Intellectual Property, other than as granted in the ordinary course of business
pursuant to a non-exclusive license to any Company product.

 

(p)           The Company and each of its Subsidiaries maintain rules, policies
and procedures regarding data security, privacy, collection and use of personal
information and user information, and data use that are commercially reasonable
and, in any event, comply with the Company’s or such Subsidiary’s obligations to
its customers and applicable laws, rules and regulations. To the knowledge of
the Company, there have not been, and the transaction contemplated under this
Agreement will not result in, any security breaches of any security policy, data
use restriction or privacy breach under any such policies or any applicable
laws, rules or regulations. No claims have been asserted or, to the knowledge of
the Company, threatened against the Company or any Subsidiary by any person
alleging a violation of such person’s privacy, personal or confidentiality
rights under any applicable rules, policies or procedures.

 

(q)           No event has occurred, and no circumstance or condition exists,
that has resulted or would result in the delivery, license, or disclosure of the
source code for any Company Software to any other Person pursuant to any source
code escrow arrangement.  The Company and each of its Subsidiaries have at all
times been in compliance with the obligations and conditions of any source code
escrow agreement.

 

5.22         Related-Party Transactions.  Except as set forth on Schedule 5.22,
no stockholder who beneficially owns 5% or more (on a fully-diluted basis) of
any class of equity securities, officer or director of the Company or any
Subsidiary or member of his or her immediate family is currently indebted to the
Company or any Subsidiary, nor is the Company or any Subsidiary indebted (or
committed to make loans or extend or guarantee credit) to any of such Person. 
Except as set forth on Schedule 5.22 hereto, as of the date hereof, no
stockholder who beneficially owns 5% or more (on a fully-diluted basis) of any
class of equity securities, officer or director of the Company and no member of
the immediate family of any stockholder who beneficially owns 5% or more (on a
fully-diluted basis) of any class of equity securities, officer or director of
the Company is directly or indirectly interested in any contract with the
Company or any of its Subsidiaries.

 

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5.23         Title to Property and Assets.  Neither the Company nor any
Subsidiary owns any real property.  The Company and each of its Subsidiaries own
or have legally enforceable rights to use or hold for use their personal
property and assets free and clear of all Encumbrances except liens for taxes
not yet due and payable, purchase-money security interests entered into in the
ordinary course of business and such other Encumbrances, if any, that
individually or in the aggregate, do not and would not detract from the value of
any asset or property of the Company and its Subsidiaries. With respect to any
real property, neither the Company nor any Subsidiary is in violation in any
material respect of any of its leases. All machinery, equipment, furniture,
fixtures and other personal property and all buildings, structures and other
facilities, if any, including, without limitation, office or other space used by
the Company or any of its Subsidiaries in the conduct of their business, are in
good operating condition and fit for operation in the ordinary course of
businesses (subject to normal wear and tear). The Company has delivered to the
Lenders true and complete copies of any leases related to the real property used
by the Company or any of its Subsidiaries in the conduct of their businesses.

 

5.24         Absence of Changes.  Since December 31, 2009 and except as set
forth on Schedule 5.24 or as expressly provided by this Agreement, there has not
been:

 

(1)           any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company of any outstanding
shares of its capital stock of the Company;

 

(2)           any amendment of any term of any outstanding security of the
Company;

 

(3)           any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
or any Subsidiary relating to its assets or business (including the acquisition
or disposition of any material amount of assets) or any relinquishment by the
Company or any Subsidiary of any contract or other right, other than contracts
that do not involve the payment of more than $100,000 in the aggregate;

 

(4)           any (A) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of the
Company or any Subsidiary, (B) entering into of any employment, deferred
compensation, supplemental retirement or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of the Company or any Subsidiary, (C) increase in, or accelerated vesting and/or
payment of, benefits under any existing severance or termination pay policies or
employment agreements or (D) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to directors,
officers or senior employees of the Company or any Subsidiary; or

 

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(5)           any tax election made or changed, any audit settled or any amended
tax returns filed;

 

(6)           any Material Adverse Effect or any event or events that
individually or in the aggregate would have a Material Adverse Effect;

 

(7)           any damage, destruction or loss (whether or not covered by
insurance) affecting the Company’s and any of its Subsidiaries’ properties or
assets;

 

(8)           any sale, assignment or transfer, or any agreement to sell, assign
or transfer, any asset, liability, property, obligation or right of the Company
or any Subsidiary to any Person, including, without limitation, the Lender and
its Affiliates, in each case, other than in the ordinary course of business and
consistent with past practice;

 

(9)           any liability incurred, or any loans or advances made, by the
Company or any Subsidiary, other than advances of travel and other business
expenses in the ordinary course involving not more than $5,000 individually or
$25,000 in the aggregate;

 

(10)         any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets;

 

(11)         any assignment, lease or other transfer or disposition, or any
other agreement or arrangement therefor by the Company or any Subsidiary of any
property or equipment having a value in excess of $50,000;

 

(12)         any expenditure by the Company or any Subsidiary (or series of
related expenditures) involving more than $50,000 individually or $100,000 in
the aggregate;

 

(13)         any waiver of any rights or claims of the Company or any
Subsidiary;

 

(14)         any agreement or commitment by the Company or any Subsidiary to do
any of the foregoing or any transaction by the Company or any Subsidiary outside
the ordinary course of business of the Company; or

 

(15)         any lien upon, or adversely affecting, any property or other assets
of the Company or any Subsidiary.

 

5.25         Illegal Payments.  Neither the Company nor any Subsidiary has, nor,
to the knowledge of the Company, has any director, officer, agent or employee of
the Company or any Subsidiary, paid, caused to be paid, or agreed to pay,
directly or indirectly, in connection with the business of the Company or any
Subsidiary: (a) to any government or agency thereof, any agent or any supplier
or customer, any bribe, kickback or other similar payment; (b) any contribution
to any political party or candidate (other than from personal funds of
directors,

 

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officers or employees not reimbursed by their respective employers or as
otherwise permitted by applicable law); or (c) intentionally established or
maintained any unrecorded fund or asset or made any false entries on any books
or records for any purpose.

 

5.26         Suppliers and Customers.  Since January 1, 2009, there has been no
termination, cancellation or threatened termination or cancellation or
limitation of, or any dissatisfaction with, the business relationship between
the Company or any Subsidiary and any supplier, customer, vendor, customer or
client, where such business relationship involves the payment of more than
$25,000 per annum.

 

5.27         Regulatory Permits.  The Company and each of its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such permits is
not material to the Company and its Subsidiaries taken as a whole (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

 

5.28         Insurance.  The Company and each of its Subsidiaries are insured
against such losses and risks and in such amounts as are customary in the
businesses in which the Company and each of its Subsidiaries are engaged.  The
Company carries directors and officer’s insurance coverage in the amount set
forth on Schedule 5.28.  Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a significant
increase in cost.

 

5.29         Investment Company.  The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the shares of Series B
Preferred Stock, will not be or be an Affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.

 

5.30         Listing and Maintenance Requirements.  The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the SEC is contemplating
terminating such registration.  The Common Stock is currently quoted on the OTC
Bulletin Board (the “OTCBB”) under the symbol “CICI.”  The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading Market
on which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market.  The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements of such Trading Market.

 

5.31         Accountants.  GHP Horwath, P.C. has delivered an unqualified audit
report to the Company with respect to its audited consolidated financial
statements included in the SEC Reports for the years ended December 31, 2008 and
2009, and are independent accountants as required by the Securities Act and the
rules and regulations promulgated thereunder. During the last two fiscal years,
there have been no disagreements of any kind and

 

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none are reasonably anticipated by the Company to arise, between the Company and
GHP Horwath, P.C. and the Company is current with respect to any fees owed to
such accounting firm.

 

5.32         Application of Takeover Protections.  The Company and its Board
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s certificate or articles of incorporation, bylaws (or other
organizational or charter documents) or the laws of its state of incorporation
(including Section 203 of the Delaware General Corporation Law) that is or could
become applicable as a result of this Agreement, the Exchange Agreement, the
Certificate of Designation (Series B) and the Transaction Documents, including
without limitation the Company’s issuance of the Series B Preferred Stock or the
issuance and delivery of the Conversion Shares and the ownership of the Series B
Preferred Stock and the Conversion Shares.

 

5.33         Stock Options.  With respect to stock options issued pursuant to
the Company’s Employee Benefit Plans (i) each stock option designated by the
Company at the time of grant as an “incentive stock option” under Section 422 of
the Code so qualifies; (ii) except as set forth in the SEC Reports, including
the financial statements included therein, each grant of a stock option was duly
authorized no later than the date on which the grant of such stock option was by
its terms to be effective by all necessary corporate action, including, as
applicable, approval by the Board (or a duly constituted and authorized
committee thereof) and any required stockholder approval by the necessary number
of votes or written consents; and (iii) each such grant was made in accordance
with the terms of the Employee Benefit Plans, the Securities Act and all other
applicable laws and regulatory rules or requirements.

 

5.34         Disclosure.  The Company understands and confirms that the Lenders
will rely on the foregoing representations in purchasing securities of the
Company. No representation or warranty by the Company contained in this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.  The Company
acknowledges and agrees that the Lenders do not make and have not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 4 hereof.

 

6.             Pre-Closing Covenants.

 

6.1           Conduct of Business.

 

(a)           From the date of this Agreement through the Closing Date, except
as Phoenix may otherwise approve (which approval shall not be unreasonably
withheld) or as otherwise expressly provided by this Agreement, the Company
shall, and shall cause each of its Subsidiaries to, (i) conduct their businesses
in the ordinary course in accordance with past practice, (ii)  use commercially
reasonable efforts to preserve intact their respective business organizations
and goodwill and assets, (iii) use commercially reasonable efforts to keep
available the services provided by their respective present officers and key
employees, (iv) use their commercially reasonable efforts to maintain

 

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satisfactory relationships with others having business relationships with the
Company and any of its Subsidiaries, and (v) observe and perform all of its
obligations and comply with all terms and provisions of any and all leases,
licenses and other agreements to which it is a party.

 

(b)           Except as described in Schedule 6.1(b) or as expressly provided by
this Agreement, or to the extent Phoenix otherwise consents in writing, during
the period from the date of this Agreement to the Closing Date (which consent
shall not be unreasonably withheld), the Company shall not, and shall not cause
or permit any of its Subsidiaries, to directly or indirectly (i) incur
indebtedness for borrowed money, other than under the terms of the Credit
Agreement, (ii) grant any Encumbrances on its assets, (iii) enter into any
Material Contract or terminate or amend any Material Contract to which any such
Person becomes or is a party or transfer or license any Company Intellectual
Property, in each case, other than in the ordinary course of business consistent
with past practice, (iv) dispose of any assets of any such Person, (v) other
than issuances of additional shares of Series A-1 Preferred Stock in connection
with the payment of accrued dividends on shares of Series A-1 Preferred Stock
outstanding as of the date hereof, make any distribution in respect of the
equity securities of or other ownership interest in such Person, (vi) make or
revoke any election under the Code, (vii) other than (a) the issuance of secured
promissory notes under the terms of the Credit Agreement, (B) the issuance of
additional warrants to purchase Common Stock in connection with the payment of
accrued interest through the issuance of additional secured promissory notes
under the terms of the Credit Agreement, or (C) the issuance of additional
shares of Series A-1 Preferred Stock in connection with the payment of accrued
dividends on shares of Series A-1 Preferred Stock outstanding as of the date
hereof, authorize, issue, or agree or otherwise commit to authorize or issue,
any shares of stock of any class, or any bonds, debentures or notes, or any
securities convertible into, exchangeable for or having option rights to
purchase any shares of capital stock of the Company securities other than
pursuant to the exercise of options or warrants or the conversion of Series A-1
Preferred Stock, in each case, outstanding on the date hereof pursuant to their
terms, (viii) amend its Charter Documents or comparable governance documents,
(ix) make any capital expenditure in excess of $100,000, (x) decrease the amount
of any insurance coverage, (xi) make any alteration to its business plan,
(xii) increase the compensation of any of its employees, (xiii) waive,
compromise, or settle any claim, or (xiv) voluntarily incur any liability or
obligation in excess of $50,000 individually or $250,000 in the aggregate.

 

6.2           Notice of Certain Events.  The Company will promptly give written
notice to Phoenix, on behalf of the Lenders, of (i) any facts, events or
circumstance changes which, individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect or cause the conditions to closing in
Section 7 not to be satisfied and (ii) all claims or proceedings pending or
threatened against the Company or any of it Subsidiaries which may give rise to
a liability in excess of $50,000 or which may harm the reputation or operations
of the Company or any of its Subsidiaries.  The Company will promptly supply
Phoenix, on behalf of the Lenders, with all information reasonably requested in
respect of any such facts, events, circumstances, claims or proceedings.

 

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6.3           Salary Incentive Plan.  The Company covenants and agrees that it
shall, commencing with the pay period ending June 30, 2010, implement a salary
incentive plan in accordance with the terms and provisions of Schedule 6.3
hereof for each of the executive officers and employees listed on such schedule
in the amounts set forth next to such individual’s name on such schedule (the
“2010 Salary Incentive Plan” or “Plan”). The Plan shall remain in effect until
the Company has satisfied one of the revenue tests set forth on Schedule 6.3 and
it is terminated in accordance with its terms.  Fifty percent (50%) of the
initial awards of restricted shares under the Plan will vest on December 31,
2010 and the remaining fifty percent (50%) will vest on June 30, 2011, provided,
in each case, the participant remains employed by the Company through that date.

 

7.             Conditions of Parties’ Obligations.

 

7.1           Conditions of the Lenders’ Obligations.  The obligations of the
Lenders to consummate the transactions contemplated by this Agreement and
convert and exchange the Indebtedness for the Exchange Shares as set forth on
Schedule I attached hereto at the Closing are subject to the fulfillment prior
to the Closing Date of all of the following conditions, any of which may be
waived in whole or in part by Phoenix in its absolute discretion.

 

(a)           Representations and Warranties. The representations and warranties
of the Company contained in this Agreement and in any certificate, if any, or
other writing, if any, delivered by the Company pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date except those
representations and warranties qualified by materiality or Material Adverse
Effect, which shall be true and correct in all respects, with the same effect as
though such representations and warranties had been made on and as of the
Closing Date.

 

(b)           Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with it on or
before the Closing.

 

(c)           No Material Adverse Effect.  There shall have been no Material
Adverse Effect with respect to the Company or its Subsidiaries since
December 31, 2009.

 

(d)           Consents and Waivers.  The Company shall have obtained all
consents or waivers necessary to execute and perform its obligations under this
Agreement, the other Transaction Documents (including the consents and waivers
listed on Schedule 5.5), the Certificate of Designation (Series B) and the
Amended and Restated Certificate of Designation (Series A-1), to issue the
Series B Preferred Stock and the Conversion Shares, and to carry out the
transactions contemplated hereby and thereby, including the consent of the
requisite holders of the shares of Series A-1 Preferred Stock, in the form
attached hereto as Schedule 7.1(d).  All corporate and other action and
governmental filings necessary to effectuate the terms of the Charter Amendment,
the Certificate of Designation (Series B), the Amended and Restated Certificate
of Designation (Series A-1), this Agreement, the other Transaction Documents,
the Exchange Shares and the Conversion Shares, and other agreements and

 

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instruments executed and delivered by the Company in connection herewith shall
have been made or taken.

 

(e)           Series B Offering.  Concurrently with the Closing hereunder,
pursuant to the terms and subject to the conditions of that certain Purchase
Agreement, of even date herewith, by and between the Company, Phoenix and the
other entities and individuals signatories thereto (the “Purchase Agreement”),
the Company shall have received from the purchasers thereunder not less than
$1,400,000 in immediately available funds for the purchase of shares of Series B
Preferred Stock (the “Offering”).

 

(f)            Charter Amendment. Prior to the Closing, (i) the Company shall
have caused the Charter Amendment, to be filed with the Secretary of State of
Delaware to increase the number of authorized shares of Common Stock to
519,000,000 and the number of authorized shares of Preferred Stock to 16,000,000
and (ii) the Lenders shall have received confirmation from the Secretary of
State of the State of Delaware reasonably satisfactory to them that such filing
has occurred.

 

(g)           Certificates of Designation. Prior to the Closing, (i)(A) the
Certificate of Designation (Series B) and (B) the Amended and Restated
Certificate of Designation (Series A-1) shall have been filed with the Secretary
of State of the State of Delaware, and (ii) the Lenders shall have received
confirmation from the Secretary of State of the State of Delaware reasonably
satisfactory to it that such filings has occurred.

 

(h)           By-law Amendment.  The Company shall have adopted the By-law
Amendment.

 

(i)            Resignations.  The Company shall have received the resignations
of Guido DiGregorio and Louis Panetta from the Board and the resignation of
Guido DiGregorio as Chief Executive Officer and Chairman of the Board, in each
case, effective as of the Closing Date.

 

(j)            Board Appointment and Approval.  In accordance with the
Certificate of Designation (Series B) and the Investor Rights Agreement, the
Board shall have appointed three representatives of the holders of Series B
Preferred Stock to the Board (the “Series B Directors”), which representatives
shall be Philip Sassower, Andrea Goren and Francis Elenio to fill the vacancies
caused by the resignations required under subsection (j) above and David Welch
and Kurt Amundson shall have been duly elected to serve on the Board by the
stockholders of the Company at the Stockholders Meeting contemplated by
Section 8.1 hereof, duly called and held in accordance with the Delaware General
Corporation Law.

 

(k)           Stockholder Approval Obtained. The Company shall have obtained all
necessary stockholder approval to have filed the Charter Amendment, the
Certificate of Designation (Series B) and the Amended and Restated Certificate
of Designation (Series A-1), including the holders of the Series A-1 Preferred
Stock voting separately as a class (and with respect to the Amended and Restated
Certificate of Designation (Series 

 

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A-1), the holders of Common Stock and Series A-1 Preferred Stock voting together
as a class).

 

(l)            No Change to Capitalization.  Other than (i) the issuance of
shares of restricted Common Stock in accordance with terms of Section 6.3 hereof
in connection with the 2010 Salary Incentive Plan, (ii) the issuance of
additional warrants to purchase Common Stock in connection with the payment of
accrued interest through the issuance of additional secured promissory notes
under the terms of the Credit Agreement, (iii) the issuance of additional shares
of Series A-1 Preferred Stock in connection with the payment of accrued
dividends on shares of Series A-1 Preferred Stock outstanding as of the date
hereof, or (iv) the issuance of shares of Common Stock in connection with the
exercise of options or warrants or the conversion of Series A-1 Preferred Stock,
in each case, outstanding on the date hereof, there shall have been no change to
the capitalization of the Company as set forth on Schedule 5.1(a) hereto since
the date hereof.

 

(m)          2010 Salary Incentive Plan.  The 2010 Salary Incentive Plan shall
have been in continuous effect since the date hereof.

 

(n)           Compliance Certificate. The Company shall have delivered to the
Lender a Compliance Certificate, executed by the Chief Executive Officer and
Chief Financial Officer of the Company, dated as of the Closing Date to the
effect that the conditions specified in subsections (a), (b), (c), (d), (e),
(f)(i), (g)(i), (h), (i), (j), (k), (l), (m) and (n) of this Section 7.1 have
been satisfied.

 

(o)           Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals, if any, required to be obtained prior to
the Closing under applicable state securities laws shall have been obtained for
the lawful execution, delivery and performance of this Agreement and the other
Transaction Documents, including, without limitation, the offer and sale of the
Series B Preferred Stock.

 

(p)           Investor Rights Agreement. The Investor Rights Agreement shall
have been executed and delivered by (i) Company and (ii) the Persons listed on
the signature pages thereto.

 

(q)           Registration Rights Agreement. The Registration Rights Agreement
shall have been executed and delivered by (i) Company and (ii) the Persons
listed on the signature pages thereto.

 

(r)            Supporting Documents.  The Lenders at the Closing shall have
received the following:

 

(1)           A good standing certificate of the Company and CIC Acquisition
Corp.;

 

(2)           An opinion from Davis Wright Tremaine LLP, counsel to the Company,
dated as of the Closing Date, in a form satisfactory to the Lenders;

 

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(3)           Copies of resolutions of the Board of Directors of the Company
(the “Board”), certified by the Secretary of the Company, authorizing and
approving (A) the filing of the Charter Amendment, the Certificate of
Designation (Series B) and the Amended and Restated Certificate of Designation
(Series A-1), (B) the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents, (C) the appointment of the
Series B Directors upon consummation of the transactions contemplated by this
Agreement and the other Transaction Documents, (D) the By-law Amendment and
(E) the execution, delivery and performance of this Agreement and the other
Transaction Documents and all other documents and instruments to be delivered
pursuant hereto and thereto;

 

(4)           Copy of the Certificate of Incorporation and By-laws of the
Company, certified by the Secretary of the Company; and

 

(5)           A certificate of incumbency executed by the Secretary of the
Company (A) certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in subparagraphs (3) and
(4) above and (B) further certifying that the Certificate of Designation
(Series B) delivered to the Lenders at the time of the execution of this
Agreement has been validly adopted and has not been amended or modified.

 

(s)           Fees of Lenders’ Counsel and Consultants.  The Company shall have
paid all of the fees, expenses and disbursements of Phoenix and its Affiliate,
SG Phoenix LLC, and otherwise satisfied its obligations under Section 14.8
hereof and the Fee Letter in full.

 

7.2           Conditions of the Company’s Obligations.  The obligations of the
Company under Section 2 hereof are subject to the fulfillment prior to or on the
Closing Date of all of the following conditions, any of which may be waived in
whole or in part by the Company.

 

(a)           Covenants; Representations and Warranties. (i) Each of the Lenders
at the Closing Date shall have performed in all material respects all of its
obligations and conditions hereunder required under this Agreement to be
performed or complied by it at or prior to the Closing Date and (ii) the
representations and warranties of each Lender at the Closing Date contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date as if made at and as of the Closing Date (except to the extent
expressly made as of an earlier date, in which case as of such earlier date).

 

(b)           Investor Rights Agreement. Each Lender shall have executed and
delivered the Investor Rights Agreement.

 

(c)           Registration Rights Agreement. Each Lender and the other Persons
listed on the signature pages thereto shall have executed and delivered the
Registration Rights Agreement.

 

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7.3           Conditions of Each Party’s Obligations.  The respective
obligations of the Company and the Lenders to consummate the transactions at the
Closing contemplated hereunder are subject to the absence of the following:
(a) any litigation challenging or seeking damages in connection with the
transactions contemplated by this Agreement, the Offering, any of the
Transaction Documents, the Charter Amendment, the By-law Amendment, the
Certificate of Designation (Series B) or the Amended and Restated Certificate of
Designation (Series A-1), in which there has been issued any order or injunction
delaying or preventing the consummation of the transactions contemplated hereby,
and (b) any statute, rule, regulation, injunction, order or decree, enacted,
enforced, promulgated, entered, issued or deemed applicable to this Agreement or
the transactions contemplated hereby by any court, government or governmental
authority or agency or legislative body, domestic, foreign or supranational
prohibiting or enjoining the transactions contemplated by this Agreement.

 

8.             Covenants; Nomination of Third Series B Director; Termination.

 

8.1           Preparation of Proxy Statement; Stockholders Meeting.   As
promptly as reasonably practicable following the date of this Agreement, but no
later than June 25, 2010, the Company shall prepare and cause to be filed with
the SEC a preliminary proxy statement to be sent to the stockholders of the
Company relating to the Company’s stockholders meeting (together with any
amendments or supplements thereto, the “Proxy Statement”).  The Company shall
use its reasonable best efforts to finalize the Proxy Statement as promptly as
possible after such filing.  The Company shall promptly notify Phoenix upon the
receipt of any comments from the SEC or any request from the SEC for amendments
or supplements to the Proxy Statement and shall provide Phoenix with copies of
all correspondence between it and its representatives, on the one hand, and the
SEC, on the other hand.  Phoenix shall have the opportunity to review and
approve in its reasonable discretion the proxy statement and all amendments
thereto and all correspondence from the Company and its representatives to the
SEC related to the Company stockholders meeting (the “Stockholders Meeting”)
prior to filing with the SEC.  The Company shall, as soon as reasonably
practicable following the date the SEC completes review of the Proxy Statement
or notifies the Company that it will not review the Proxy Statement, duly call
and give notice to the Company stockholders by mailing the definitive Proxy
Statement, convene and hold the Stockholders Meeting for the purpose of seeking
Company stockholder approval and to solicit such approval from the stockholders.
In connection with the Stockholders Meeting, the Company shall, through the
Board, recommend to its stockholders that they approve (a) an increase in
(i) its authorized shares of Common Stock to 519,000,000 and (ii) its authorized
shares of Preferred Stock to 16,000,000, (b) the Amended and Restated
Certificate of Designation (Series A-1) and (c) elect four directors to the
Board.  The Company shall within one (1) Business Day of obtaining such
stockholder approvals in accordance with the terms of this Agreement, the
Purchase Agreement and the Investor Rights Agreement, take all requisite actions
(including the filing of the Charter Amendment, the Certificate of Designation
(Series B) and the Amended and Restated Certificate of Designation (Series A-1)
with the Secretary of State of the State of Delaware) to effect approvals and
consummate the transactions contemplated by this Agreement and the other
Transaction Documents, including the Purchase Agreement.

 

8.2           Reporting Requirements; Access to Records.  The Company covenants
to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all

 

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reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act as long as the Company remains subject to the reporting
requirements of the Exchange Act. The Company further agrees to promptly make
available to the Principal Lenders (i) such information as the Company is
required to file or furnish to the SEC, within the time periods required by
applicable law and regulations for filing or furnishing such information with
the SEC, (ii) such information as it furnishes to its other shareholders as a
class, and (iii) reasonable access during normal business hours, upon reasonable
advance notice, to all of the books, records and properties of the Company and
each of its Subsidiaries, if any, and to all officers and employees of the
Company and such Subsidiaries (which access shall be given to the Principal
Lenders’ respective officers, employees, advisors, counsel and other authorized
representatives).

 

8.3           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Series B Preferred Stock in a manner that would require the
registration under the Securities Act of the conversion and exchange of
Indebtedness for shares of Series B Preferred Stock.

 

8.4           Securities Laws Disclosure; Publicity.  The Company shall by the
fourth business day immediately following the date hereof, file with the SEC a
Current Report on Form 8-K, disclosing the material terms of the transactions
contemplated hereby and filing the Transaction Documents as exhibits thereto.
The Company and Phoenix shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor Phoenix shall issue any such press release or otherwise make any
such public statement without the prior consent of the Company, with respect to
any press release of Phoenix, or without the prior consent of Phoenix, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.  Notwithstanding
the foregoing, the Company shall not include the name of any Lender in any
filing with the SEC or any regulatory agency or Trading Market, without the
prior written consent of Phoenix, except (i) as required by federal securities
law in connection with (A) any registration statement contemplated by the
Registration Rights Agreement, (B) the Current Report on Form 8-K required by
this Section 8.4, (C) any filing required by the SEC and (D) the filing of final
Transaction Documents (including signature pages thereto) with the SEC and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide Phoenix with prior notice
of such disclosure permitted under this clause (ii);  provided, however, that
other than such Lender’s name, the Company will not disclose any personal
information regarding the Lender, including without limitation, the Lender’s tax
identification number and address.

 

8.5           Reservation of Common Stock.  The Company will reserved and
continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the
Company to issue Conversion Shares upon conversion of the Series B Preferred
Stock.

 

8.6           Listing of Common Stock.  The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market.  The
Company will take all

 

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action reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Trading
Market.

 

8.7           Filings.  The Company shall make all filings with the SEC and its
Trading Markets as required by the transactions contemplated hereby.

 

8.8           Appointment of Chief Executive Officer.  For so long as twenty
percent (20%) of the aggregate number of shares of Series B Preferred Stock
issued in connection the consummation of the transactions contemplated by this
Agreement and the Purchase Agreement remain outstanding, the Company shall take
all steps necessary to appoint and retain as the Company’s Chief Executive
Officer a nominee designated by Phoenix.

 

8.9           Nomination of Third Series B Director.  Each of the Lenders hereby
authorizes and approves the nomination of Francis J. Elenio to serve on the
Board as a Series B Director.

 

8.10         Termination of Agreement.

 

(a)           This Agreement may be terminated at any time prior to the Closing
Date by mutual written consent of the Company and Phoenix.

 

(b)           This Agreement may be terminated by the Company or Phoenix if
(i) any Federal or state court of competent jurisdiction shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Closing, and such order, judgment or decree shall have become
final and nonappealable or (ii) any statute, rule, order or regulation shall
have been enacted or issued by any Governmental Entity which, directly or
indirectly, prohibits the consummation of the Closing; or (iii) the Closing
contemplated hereby shall have not occurred on or before August 31, 2010 (the
“Termination Date”), provided, however, that the right to terminate this
Agreement under this Section 8.10(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date.

 

(c)           This Agreement may be terminated by Phoenix if there has been a
material violation or breach by the Company of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date ten (10) days after receipt by
the Company of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Phoenix.

 

(d)           This Agreement may be terminated by the Company, if there has been
a material violation or breach by the Lenders of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date ten (10) days after receipt by
Phoenix of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by the Company.

 

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8.11         Procedure and Effect of No-Default Termination.  In the event of
termination of this Agreement pursuant to Section 8.10, written notice thereof
shall forthwith be given by the terminating party to the other party, whereupon,
if this Agreement is terminated pursuant to any of Sections 8.10(a) or (b), the
liabilities of the parties hereunder will terminate to each other, except as
otherwise expressly provided in this Agreement, and thereafter neither the
Company nor the Lenders shall have any recourse against the other by reason of
this Agreement.

 

9.             Transfer Restrictions; Restrictive Legend.

 

9.1           Transfer Restrictions.  The Lenders understands that the Company
may, as a condition to the transfer of any of the Securities, require that the
request for transfer be accompanied by an opinion of counsel reasonably
satisfactory to the Company, to the effect that the proposed transfer does not
result in a violation of the Securities Act, unless such transfer is covered by
an effective registration statement or exempt under Rule 144 or Rule 144A under
the Securities Act; provided, however, that an opinion of counsel shall not be
required for a transfer by a Lender that is (A) a partnership transferring all
of the assets owned by it to its partners or former partners pro rata in
accordance with partnership interests, (B) a corporation transferring to a
wholly owned subsidiary or a parent corporation that owns all of the capital
stock of such Lender, (C) a limited liability company transferring all of the
assets owned by it to its members or former members pro rata in accordance with
their interest in the limited liability company, (D) an individual transferring
to such Lender’s family member or trust for the benefit of such Lender, or
(E) transferring its Securities to any Affiliate of such Lender, in the case of
an institutional investor, or other Person under common management with such
Lender; and provided, further, that the transferee in each case agrees to be
subject to the restrictions in this Section 9. It is understood that the
certificates evidencing the Securities may bear substantially the following
legends:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT.”

 

9.2           Unlegended Certificates.  The Company shall be obligated to
promptly reissue unlegended certificates upon the request of any holder thereof
at such time as the holding period under Rule 144 or another applicable
exemption from the registration requirements of the Securities Act has been
satisfied.

 

10.           Registration, Transfer and Substitution of Certificates for
Securities.

 

10.1         Stock Register; Ownership of Securities.  The Company will keep at
its principal office a register in which the Company will provide for the
registration or transfers of the Securities. The Company may treat the Person in
whose name any of the Securities are registered on such register as the owner
thereof and the Company shall not be affected by any

 

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notice to the contrary. All references in this Agreement to a “holder” of any
Securities shall mean the Person in whose name such Securities are at the time
registered on such register.

 

10.2         Replacement of Certificates.  Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing Securities, and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
the Company or, in the case of any such mutilation, upon surrender of such
certificate for cancellation at the office of the Company maintained pursuant to
Section 10.1 hereof, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate representing Securities of like tenor.

 

11.           Definitions.  Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings specified for all purposes of
this Agreement.

 

Except as otherwise expressly provided, all accounting terms used in this
Agreement, whether or not defined in this Section 11, shall be construed in
accordance with GAAP. If and so long as the Company has one or more
Subsidiaries, such accounting terms shall be determined on a consolidated basis
for the Company and each of its Subsidiaries, and the financial statements and
other financial information to be furnished by the Company pursuant to this
Agreement shall be consolidated and presented with consolidating financial
statements of the Company and each of its Subsidiaries.

 

“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.

 

“Agreement” has the meaning assigned to it in the introductory paragraph hereof.

 

“Amended and Restated Certificate of Designation (Series A-1)” means the Amended
and Restated Certificate of Designation of Series A-1 Cumulative Convertible
Preferred Stock in the form attached hereto as Exhibit B, which sets forth the
rights, preferences and privileges of the Series A-1 Preferred Stock, par value
$0.01 per share, of the Company.

 

“By-laws” means the By-laws of the Company in effect as of the date hereof, and
as may be amended, restated, modified or amended and restated, from time to time

 

“By-law Amendment”, means the Amendment to By-laws, in the form attached hereto
as Exhibit C.

 

“Board” has the meaning assigned to it in Section 7.1(r)(3) hereof.

 

“Certificate of Designation (Series B)” has the meaning assigned to it in
Section 1 hereof.

 

“Certificate of Incorporation” means the Amended and Restated Certificate of
Incorporation of the Company in effect on the date hereof, and as may be
amended, restated, modified or amended and restated, from time to time.

 

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“Charter Amendment” means the Certificate of Amendment to the Certificate of
Incorporation, in the form attached hereto as Exhibit D.

 

“Charter Documents” has the meaning assigned to it in Section 5.8 hereof.

 

“Closing” has the meaning assigned to it in Section 3.1 hereof.

 

“Closing Date” has the meaning assigned to it in Section 3.1 hereof.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collateral Agent” means SG Phoenix LLC, a Delaware limited liability company.

 

“Common Stock” has the meaning assigned to it in Section 1 hereof.

 

“Company” has the meaning assigned to it in the introductory paragraph hereof.

 

“Company Intellectual Property” has the meaning assigned to it in
Section 5.21(a) hereof.

 

“Conversion Shares” has the meaning assigned to it in Section 1 hereof.

 

“Credit Agreement” means the Credit Agreement, dated as of June 5, 2008, among
the Company, Phoenix, the other lenders signatory thereto and SG Phoenix LLC, as
Collateral Agent, as amended by Amendment No. 1 to the Credit Agreement, dated
as of May 28, 2009 and Amendment No. 2 to the Credit Agreement, dated as of
May 4, 2010 (as the same may be amended, restated, supplemented or amended and
restated from time to time.

 

“Disclosure Schedule” has the meaning assigned to it in Section 5 hereof.

 

“Domain Names” has the meaning assigned to it in Section 5.21(c) hereof.

 

“Employee Benefit Plan” has the meaning assigned to it in
Section 5.17(b) hereof.

 

“Encumbrances” has the meaning assigned to it in Section 5.2 hereof.

 

“Environmental Law” has the meaning assigned to it in Section 5.20(b) hereof.

 

“ERISA” has the meaning assigned to it in Section 5.17(a) hereof.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exchange Price” has the meaning assigned to it in Section 2(a) hereof.

 

“Exchange Shares” has the meaning assigned to it in Section 1 hereof.

 

“Fee Letter” means the Fee Letter, dated April 26, 2010, between the Company,
Phoenix and SG Phoenix LLC.

 

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“GAAP” means U.S. generally accepted accounting principles consistently applied.

 

“Governmental Entity” means any national, federal, state, municipal, local,
territorial, foreign or other government or any department, commission, board,
bureau, agency, regulatory authority or instrumentality thereof, or any court,
judicial, administrative or arbitral body or public or private tribunal.

 

“Hazardous Material” has the meaning assigned to it in Section 5.20(b) hereof.

 

“Indebtedness” means all of the Company’s senior secured indebtedness and other
obligations under the Credit Agreement.

 

“Intellectual Property” has the meaning assigned to it in
Section 5.21(a) hereof.

 

“Investor Rights Agreement” means the Investor Rights Agreement in the form
attached hereto as Exhibit E.

 

“knowledge” of the Company or any similar phrase means, with respect to any
fact, circumstance, event or other matter in question, the knowledge of such
fact, circumstance, event or other matter after reasonable inquiry of Guido
DiGregorio, Francis Dane, Craig Hutchison, Russel Davis, Bill Macy or Beth
Selling.  Any such individual will be deemed to have knowledge of a particular
fact, circumstance, event or other matter if (a) such fact, circumstance, event
or other matter is contained in one or more documents (whether written or
electronic, including electronic mails sent to or by such individual) in the
possession of such individual, including his or her personal files, or (b) such
knowledge would reasonably be expected to be obtained from reasonable inquiry of
the persons employed by the Company charged with administrative or operational
responsibility for such matters for the Company.

 

“Lenders” has the meaning assigned to it in the introductory paragraph of this
Agreement and shall include any Affiliates of the Lenders.

 

“Material Adverse Effect” means (i) any material adverse effect on the issuance
or validity of the Securities or the transactions contemplated hereby or the
enforceability or validity of the Charter Amendment, the Certificate of
Designation (Series B) or the Amended and Restated Certificate of Designation
(Series A-1) or on the ability of the Company to perform its obligations under
this Agreement and the other Transaction Documents or (ii) any material adverse
effect on the condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects of the Company and its
Subsidiaries, taken as a whole.

 

“Material Contract” means all written and oral contracts, agreements, deeds,
mortgages, leases, subleases, licenses, instruments, notes, commitments,
commissions, undertakings, arrangements and understandings (i) which by their
terms involve, or would reasonably be expected to involve, aggregate payments by
or to the Company during any 12 month period in excess of $50,000, (ii) the
breach of which by the Company or any of its Subsidiaries would be material to
the Company or any of its Subsidiaries or (iii) which are required to be filed
as exhibits by the Company with the SEC pursuant to Items 601(b)(4) and
601(b)(10) of Regulation S-K promulgated by the SEC.

 

33

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“Material Permits” has the meaning assigned to it in Section 5.27 hereof.

 

“Offering” has the meaning assigned to it in Section 7.1(e) hereof.

 

“PCAOB” means the Public Company Accounting Oversight Board.

 

“Person” means and includes all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures, limited liability
companies and other entities and governments and agencies and political
subdivisions.

 

“Phoenix” has the meaning assigned to it in the introductory paragraph hereof.

 

“Principal Lenders” means Phoenix, Michael Engmann, Kendu Partners Company and
MDNH Partners L.P.

 

“Proxy Statement” has the meaning assigned to it in Section 8.1 hereof.

 

“Purchase Agreement” has the meaning assigned to it in Section 7.1(e) hereof

 

“Registrars” has the meaning assigned to it in Section 5.21(d) hereof.

 

“Registration Rights Agreement” means the Registration Rights Agreement in the
form attached hereto as Exhibit F.

 

“SEC” means the Securities and Exchange Commission.

 

“SEC Reports” has the meaning assigned to it in Section 5.13(a) hereof.

 

“Securities” has the meaning assigned to it in Section 1 hereof.

 

“Securities Act” or “Act” means the Securities Act of 1933, as amended.

 

“Series A-1 Preferred Stock” means the Series A-1 Cumulative Convertible
Preferred Stock, par value $0.01 per share, of the Company provided for pursuant
to the Amended and Restated Certificate of Designation (Series A-1) filed with
the Delaware Secretary of State.

 

“Series B Preferred Stock” has the meaning assigned to such term in Section 1
hereof.

 

“Software” has the meaning assigned to it in Section 5.21(a) hereof.

 

“Stockholders Meeting” has the meaning assigned to it in Section 8.1 hereof.

 

“Subsidiary” means any corporation, association trust, limited liability
company, partnership, joint venture or other business association or entity
(i) at least 50% of the outstanding voting securities of which are at the time
owned or controlled directly or indirectly by the Company or (ii) with respect
to which the Company possesses, directly or indirectly, the power to direct or
cause the direction of the affairs or management of such Person.

 

“Termination Date” has the meaning assigned to it in Section 8.10(b) hereof.

 

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“Trademarks” has the meaning assigned to it in Section 5.21(a) hereof.

 

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

“Transaction Documents” means this Agreement, the Investor Rights Agreement, and
the Registration Rights Agreement and, in the case of the Company, the Purchase
Agreement.

 

“2010 Salary Incentive Plan” has the meaning assigned to it in Section 6.3
hereof.

 

12.           Enforcement.

 

12.1         Cumulative Remedies.  None of the rights, powers or remedies
conferred upon the Lenders on the one hand or the Company on the other hand
shall be mutually exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy, whether
conferred by this Agreement, any of the other Transaction Documents, the
Certificate of Incorporation, the Certificate of Designation (Series B) or the
Amended and Restated Certificate of Designation (Series A-1) or now or hereafter
available at law, in equity, by statute or otherwise. In addition to being
entitled to exercise all rights provided herein or granted at law, including
recovery of damages, the Lenders and the Company will be entitled to specific
performance under the Transaction Documents, the Certificate of Incorporation
and the Certificate of Designation (Series B). The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any
breach of obligations contained in the Transaction Documents and hereby agree to
waive and not to assert in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate or the posting of
a bond.

 

12.2         No Implied Waiver.  Except as expressly provided in this Agreement,
no course of dealing between the Company and the Lenders or any other holder of
shares of Series B Preferred Stock and no delay in exercising any such right,
power or remedy conferred hereby or by the Certificate of Designation
(Series B), or by any of the other Transaction Documents or now or hereafter
existing at law in equity, by statute or otherwise, shall operate as a waiver
of, or otherwise prejudice, any such right, power or remedy.

 

13.           Confidentiality.  Except as otherwise agreed in writing by the
Company, each Lender agrees that it will use reasonable care to keep
confidential and not disclose or divulge any confidential information obtained
from the Company pursuant to the terms of the Transaction Documents, unless such
confidential information (a) is known or becomes known to the public in general
(other than as a result of a breach of this Section 13 by such Lender), (b) is
or has been independently developed or conceived by such Lender without use of
the Company’s confidential information, (c) is or has been made known or
disclosed to such Lender by a third party without a breach of any obligation of
confidentiality such third party may have to the Company or (d) was known to
such Lender prior to disclosure to the Lender by the Company; provided, however,
that such Lender may disclose confidential information (i) to its attorneys,
accountants, consultants, and other professionals; (ii) to any prospective
purchaser of any

 

35

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Securities from the Lender, if such prospective purchaser agrees to keep such
information confidential; (iii) to any Affiliate, partner, member, stockholder
or advisor of such Lender in the ordinary course of business, provided that the
Lender informs such person that such information is confidential; or (iv) as may
otherwise be required by law.

 

14.           Miscellaneous.

 

14.1         Waivers and Amendments.  Upon the approval of the Company and the
written consent of Phoenix, the obligations of the Company and the rights of the
Lenders under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely). Neither this Agreement, nor any provision
hereof, may be changed, waived, discharged or terminated orally or by course of
dealing, but only by an instrument in writing.

 

The foregoing notwithstanding, no such waiver or supplemental agreement shall
affect any of the rights of any holder of any Securities created by the
Certificate of Designation (Series B) or by the Delaware General Corporation Law
without compliance with all applicable provisions of the Certificate of
Designation (Series B) and the Delaware General Corporation Law.

 

14.2         Notices.  All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed delivered (a) three
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid or (b) one business day after being sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient as set forth below:

 

If to the Lenders at its address set forth on Schedule I hereto.

 

with a copy (which shall not constitute notice) to:

 

Pillsbury Winthrop Shaw Pittman LLP
1540 Broadway
New York, New York 10036
Attention: Jonathan J. Russo, Esq.
Facsimile No.: (212) 858-1500

 

If to the Company:

 

Communication Intelligence Corporation
275 Shoreline Drive, Suite 500
Redwood Shores, CA 94065
Attention: Francis V. Dane
Facsimile No.: (650) 802-7777

 

with a copy (which shall not constitute notice) to:

 

Davis Wright Tremaine LLP
1300 SW Fifth Avenue, Suite 2300

 

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Portland, OR 97201
Attention: Michael C. Phillips, Esq.
Facsimile No.: (503) 778-5299

 

or at such other address as the Company or the Lenders each may specify by
written notice to the other parties hereto. Any party may give any notice,
request, consent or other communication under this Agreement using any other
means (including, without limitation, personal delivery, messenger service,
telecopy, first class mail or electronic mail), but no such notice, request,
consent or other communication shall be deemed to have been duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices, requests, consents or other
communications hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Section 14.2.

 

14.3         Indemnification; Survival.  The Company shall indemnify, save and
hold harmless each Lender, its directors, officers, members, stockholders,
employees, partners, representatives, advisors, attorneys and agents (each, a
“Lender Indemnified Party”) from and against (and shall promptly reimburse such
indemnified persons for) any and all liability, loss, cost, damage, fine,
penalty, amount paid in settlement, reasonable attorneys’ and accountants’ fees
and expenses, court costs and all other out-of-pocket expenses incurred
(collectively, “Losses”) in connection with or arising from claims, actions,
suits, proceedings, investigations or similar claims by any person or entity
(other than any Lender Indemnified Party) associated, arising out of or relating
to (i) the execution, delivery and performance of this Agreement, any of the
other Transaction Documents or the Certificate of Designation (Series B),
(ii) the transactions contemplated hereby or thereby, (iii) the ownership by
such Lender of the Securities or (iv) the rights of the Lenders to elect
directors to the Company’s Board.  This indemnification provision shall be in
addition to the rights of the Lender to bring an action against the Company for
breach of any term of this Agreement, the other Transaction Documents or the
Certificate of Designation (Series B). All representations and warranties of the
Company in this Agreement or the Transaction Documents shall survive the Closing
until the date that is two (2) years after the Closing Date; provided, however,
that the representations and warranties of the Company contained in Sections 5.2
(Due Issuance and Authorization of Capital Stock), 5.16 (Taxes), 5.17 (Employee
Matters) and 5.21 (Intellectual Property Matters) shall survive the Closing
until the sixty (60) days after the expiration of the applicable statute of
limitations period (after giving effect to any waivers or extensions thereof). 
All covenants of the Company in this Agreement, except to the extent otherwise
expressly provided, shall survive the Closing indefinitely.

 

14.4         No Waivers.  No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.

 

14.5         Successors and Assigns.  All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective parties hereto, the successors and permitted assigns of each
Lender and the successors of the Company, whether so expressed or not.  None of
the parties hereto may assign its rights or obligations under Section 2 hereof
without the prior written consent of the Company, except that each

 

37

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Lender may, without the prior consent of the Company, assign its rights to
receive the Exchange Shares to any Affiliate.

 

14.6         Headings.  The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.

 

14.7         Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to its
conflict of law principles.

 

14.8         Fees and Expenses.  The Company agrees to pay, reimburse and hold
the Phoenix, on behalf of the Lenders, harmless from liability for the payment
of all out-of-pocket fees and expenses incurred by it in connection with its
diligence investigation of the Company, the preparation and negotiation of this
Agreement and the consummation of the transactions contemplated hereby
(including the Offering), regardless of whether the conversion and exchange of
Indebtedness and the acquisition of shares of Series B Preferred Stock by the
Lenders pursuant to this Agreement is consummated in accordance with the terms
of this Agreement.  Phoenix may deduct such fees and expenses from the aggregate
amount to be paid by Phoenix at the Closing for the shares of Series B Preferred
Stock to be purchased by it under the Purchase Agreement.  The fees and expenses
of the Phoenix may include, without limitation:

 

(a)           the fees and expenses of counsel, consultants and accountants and
out of pocket expenses, including diligence and travel expenses, of Phoenix and
its Affiliates, arising in connection with the preparation, negotiation and
execution of the Certificate of Designation (Series B), the Amended and Restated
Certificate of Designation (Series A-1) and the Transaction Documents, the
preparation, execution and filing of all forms, schedules and reports and
amendments thereto of the Lenders required to be filed with the SEC in
connection with or arising out of the transactions contemplated by the
Transaction Documents and the consummation of the transactions contemplated
thereby (including Schedule 13D filings and amendments and Form 4 filings),

 

(b)           all costs of the Company’s performance and compliance with the
Certificate of Designation (Series B), the Amended and Restated Certificate of
Designation (Series A-1) or the Transaction Documents, and

 

(c)           stamp and other taxes, excluding income taxes, which may be
payable with respect to the execution and delivery of the Certificate of
Designation (Series B), the Amended and Restated Certificate of Designation
(Series A-1) or the Transaction Documents, or the issuance, delivery or
acquisition of the Exchange Shares or the Conversion Shares.

 

14.9         Jurisdiction.  Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be brought in any
federal or state court located in the State of New York, and each of the parties
hereby consents to the jurisdiction of such courts (and

 

38

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of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 14.2 shall be deemed
effective service of process on such party.

 

14.10       Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, THE LENDERS AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE LENDERS WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO
THE DEALINGS OF THE LENDERS AND THE COMPANY HEREUNDER OR THEREUNDER, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN TORT OR CONTRACT
OR OTHERWISE. The Company acknowledges that it has been informed by the Lenders
that the provisions of this Section 14.10 constitute a material inducement upon
which the Lenders are relying and will rely in entering into this Agreement. The
Lenders or the Company may file an original counterpart or a copy of this
Section 14.10 with any court as written evidence of the consent of the Lenders
and the Company to the waiver of the right to trial by jury.

 

14.11       Counterparts; Effectiveness.  This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto.

 

14.12       Entire Agreement.  This Agreement, the Certificate of Designation
(Series B), the Amended and Restated Certificate of Designation (Series A-1) and
the Transaction Documents contain the entire agreement among the parties hereto
with respect to the subject matter hereof and thereof and such agreements
supersede and replace all other prior agreements, written or oral, among the
parties hereto with respect to the subject matter hereof and thereof.

 

14.13       Severability.  If any provision of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.

 

39

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14.14       Independent Nature of Lenders’ Obligations and Rights.  The
obligations of each Lender under this Agreement and any other Transaction
Document are several and not joint with the obligations of any other Lender, and
no Lender shall be responsible in any way for the performance or non-performance
of the obligations of any other Lender under this Agreement and any other
Transaction Document.  The decision of each Lender to convert and exchange
Indebtedness for shares of Series B Preferred Stock pursuant to this Agreement
and the other Transaction Documents has been made by such Lender independently
of any other Lender.  Nothing contained herein or in any other Transaction
Document, and no action taken by any Lender pursuant thereto, shall be deemed to
constitute the Lenders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Lenders are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement and the other Transaction
Documents.  Each Lender shall be entitled to independently protect and enforce
its rights, including without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.

 

[Remainder of Page Intentionally Left Blank]

 

40

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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

THE COMPANY

 

 

 

 

 

COMMUNICATION INTELLIGENCE
CORPORATION

 

 

 

 

 

By:

/s/ Guido DiGregorio

 

Name: Guido DiGregorio

 

Title: Chairman and Chief Executive Officer

 

 

Signature Page to Exchange Agreement

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

LENDER

 

 

 

PHOENIX VENTURE FUND LLC

 

 

 

By:

SG Phoenix Ventures LLC,

 

 

its Managing Member

 

 

 

 

 

 

 

By:

/s/ Andrea Goren

 

Name: Andrea Goren

 

Title: Member

 

 

Signature Page to Exchange Agreement

 

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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

LENDER

 

 

 

MICHAEL ENGMANN

 

 

 

 

 

By:

/s/ Michael W. Engmann

 

Name: Michael Engmann

 

 

Signature Page to Exchange Agreement

 

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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

LENDER

 

 

 

RONALD GOODMAN

 

 

 

 

 

By:

/s/ Ronald Goodman

 

Name: Ronald Goodman

 

 

Signature Page to Exchange Agreement

 

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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

LENDER

 

 

 

KENDU PARTNERS COMPANY

 

 

 

 

 

By:

/s/ Michael W. Engmann

 

Name:

Michael W. Engmann

 

Title:

General Partner

 

 

Signature Page to Exchange Agreement

 

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IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be
duly executed as of the day and year first above written.

 

 

 

LENDER

 

 

 

MDNH PARTNERS L.P.

 

 

 

 

 

By:

/s/ Michael W. Engmann

 

Name:

Michael W. Engmann

 

Title:

General Partner

 

 

Signature Page to Exchange Agreement

 

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Schedule I

 

Lender

 

Number of
Exchange Shares

 

Indebtedness
To Be Exchanged

 

Phoenix Venture Fund LLC

 

 

 

$

 

 

Michael Engmann

 

 

 

 

 

Ronald Goodman

 

 

 

 

 

Kendu Partners Company

 

 

 

 

 

MDNH Partners L.P.

 

 

 

 

 

Total

 

 

 

 

 

 

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