Document:

Exhibit 10.4

 

THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR COMMUNICATION INTELLIGENCE CORPORATION
SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.

 

WARRANT TO
PURCHASE

 

SHARES OF COMMON
STOCK

OF

COMMUNICATION INTELLIGENCE CORPORATION

 

 

Expires October 28,
2009

 

	
  No.: W-04-

  	
  Number of Shares:

  

Date of Issuance: October 28,
2004

 

FOR VALUE RECEIVED,
subject to the provisions hereinafter set forth, the undersigned, Communication
Intelligence Corporation, a Delaware corporation (together with its successors
and assigns, the “Issuer”), hereby certifies that                                                               
or its registered assigns is entitled to subscribe for and purchase, during the
Term (as hereinafter defined), up to                                                                         
(                          )
shares (subject to adjustment as hereinafter provided) of the duly authorized,
validly issued, fully paid and non-assessable Common Stock of the Issuer, at an
exercise price per share equal to the Warrant Price then in effect, subject,
however, to the provisions and upon the terms and conditions hereinafter set
forth.  Capitalized terms used in this
Warrant and not otherwise defined herein shall have the respective meanings
specified in Section 9 hereof.

 

1.                                       Term.  The term of this Warrant shall commence on October 28,
2004 and shall expire at 5:00 p.m., eastern time, on October 28, 2009
(such period being the “Term”).

 

2.                                       Method
of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

 

(a)                                  Time
of Exercise.  The purchase rights
represented by this Warrant may be exercised in whole or in part at any time
during the Term.

 

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(b)                                 Method
of Exercise.  The Holder hereof may
exercise this Warrant, in whole or in part, by the surrender of this Warrant
(with the exercise form attached hereto duly executed) at the principal office
of the Issuer, and by the payment to the Issuer of an amount of consideration
therefor equal to the Warrant Price in effect on the date of such exercise
multiplied by the number of shares of Warrant Stock with respect to which this
Warrant is then being exercised, payable at such Holder’s election by certified
or official bank check or by wire transfer to an account designated by the
Issuer.

 

(c)                                  Issuance
of Stock Certificates.  In the event
of any exercise of the rights represented by this Warrant in accordance with
and subject to the terms and conditions hereof, (i) certificates for the shares
of Warrant Stock so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding three
(3) Trading Days after such exercise or, at the request of the Holder (provided
that a registration statement under the Securities Act providing for the resale
of the Warrant Stock is then in effect and the Holder complies with the
prospectus delivery requirements in connection with any sale), issued and
delivered to the Depository Trust Company (“DTC”) account on the Holder’s
behalf via the Deposit Withdrawal Agent Commission System (“DWAC”),
within a reasonable time, not exceeding three (3) Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
holder of the shares of Warrant Stock so purchased as of the date of such
exercise and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer’s
expense within such time.

 

(d)                                 Transferability
of Warrant.  Subject to Section 2(e),
this Warrant may be transferred by a Holder without the consent of the
Issuer.  If transferred pursuant to this
paragraph and subject to the provisions of Section 2(e), this Warrant may
be transferred on the books of the Issuer by the Holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant at the principal office
of the Issuer, properly endorsed (by the Holder executing an assignment in the
form attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. 
This Warrant is exchangeable at the principal office of the Issuer for
Warrants to purchase the same aggregate number of shares of Warrant Stock, each
new Warrant to represent the right to purchase such number of shares of Warrant
Stock as the Holder hereof shall designate at the time of such exchange.  All Warrants issued upon a transfer or
exchange shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.

 

(e)                                  Compliance
with Securities Laws.

 

(i)                                     The Holder of this
Warrant, by acceptance hereof, acknowledges that this Warrant or the shares of
Warrant Stock to be issued upon exercise hereof, as applicable, are being
acquired for the Holder’s own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued upon
exercise hereof, except

 

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pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.

 

(ii)                                  Except as provided in
Section 2(e)(iii), this Warrant and all certificates representing shares
of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with
a legend in substantially the following form:

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR COMMUNICATION INTELLIGENCE
CORPORATION SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.

 

(iii)                               The Issuer agrees to
reissue this Warrant or certificates representing any of the Warrant Stock,
without the legend set forth above if at such time, prior to making any
transfer of any such securities, the Holder shall give written notice to the
Issuer describing the manner and terms of such transfer and removal as the
Issuer may reasonably request.  Such
proposed transfer and removal will not be effected until: (a) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the
Issuer, to the effect that the registration of such securities under the
Securities Act is not required in connection with such proposed transfer, (ii)
a registration statement under the Securities Act covering such proposed
disposition has been filed by the Issuer with the Securities and Exchange
Commission and has become effective under the Securities Act, (iii) the Issuer
has received other evidence reasonably satisfactory to the Issuer that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the Holder provides the Issuer with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Issuer has received an opinion of
counsel reasonably satisfactory to the Issuer, to the effect that registration
or qualification under the securities or “blue sky” laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or “blue sky” laws has been effected or a valid
exemption exists with respect thereto. 
The Issuer will respond to any such notice from the Holder within five
(5) business days.  In the case of any
proposed transfer under this Section 2(e), the Issuer will use reasonable best
efforts to comply with any such applicable state securities or “blue sky” laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, or (y) to take any action that would subject it
to tax or to the general service of process in any state where it is not then 

 

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subject.  The restrictions on transfer contained in
this Section 2(e) shall be in addition to, and not by way of limitation
of, any other restrictions on transfer contained in any other section of
this Warrant.  Whenever a certificate
representing the Warrant Stock is required to be issued to a the Holder without
a legend, in lieu of delivering physical certificates representing the Warrant
Stock, provided the Issuer’s transfer agent is participating in the DTC Fast
Automated Securities Transfer program, the Issuer shall use its reasonable best
efforts to cause its transfer agent to electronically transmit the Warrant
Stock to the Holder by crediting the account of the Holder’s Prime Broker with
DTC through DWAC (to the extent not inconsistent with any provisions of this
Warrant or the Purchase Agreement).

 

3.                                       Stock
Fully Paid; Reservation and Listing of Shares; Covenants.

 

(a)                                  Stock
Fully Paid.  The Issuer represents,
and warrants to the Holder, and covenants and agrees for the benefit of the Holder
that all shares of Warrant Stock which may be issued upon the exercise of this
Warrant or otherwise hereunder will, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable and free from all taxes, liens, charges
or other encumbrances of any nature whatsoever created by or through the Issuer.  The Issuer further covenants and agrees that
during the period within which this Warrant may be exercised, the Issuer will
at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.

 

(b)                                 Reservation.  If any shares of Common Stock required to be
reserved for issuance upon exercise of this Warrant or as otherwise provided
hereunder require registration or qualification with any governmental authority
under any federal or state law before such shares may be so issued, the Issuer
will in good faith use its best efforts at its expense to cause such shares to
be duly registered or qualified.  If the
Issuer shall list any shares of Common Stock on any securities exchange or
market it will, at its expense, list thereon, maintain and increase when
necessary such listing, of, all shares of Warrant Stock from time to time issued
upon exercise of this Warrant or as otherwise provided hereunder (provided that
such Warrant Stock has been registered pursuant to a registration statement
under the Securities Act then in effect), and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed.  The Issuer will also
so list on each securities exchange or market, and will maintain such listing
of, any other securities which the Holder of this Warrant shall be entitled to
receive upon the exercise of this Warrant if at the time any securities of the
same class shall be listed on such securities exchange or market by the Issuer.

 

(c)                                  Covenants.  The Issuer shall not by any action including,
without limitation, amending the Certificate of Incorporation or the by-laws of
the Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms or provisions
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment.

 

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Without limiting the
generality of the foregoing, the Issuer will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Warrant Price, (ii) not
amend or modify any provision of the Certificate of Incorporation or by-laws of
the Issuer in any manner that would adversely affect the rights of the Holder
of this Warrant, (iii) take all such action as may be reasonably necessary in
order that the Issuer may validly and legally issue fully paid and
nonassessable shares of Common Stock, free and clear of any liens, claims,
encumbrances and restrictions (other than as provided herein) upon the exercise
of this Warrant, and (iv) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be reasonably necessary to enable the Issuer to
perform its obligations under this Warrant.

 

(d)                                 Loss,
Theft, Destruction of Warrants.  Upon
receipt of evidence satisfactory to the Issuer of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Issuer or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Issuer will make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same number of shares of
Common Stock.

 

4.                                       Adjustment
of Warrant Price and Warrant Share Number. 
The number of shares of Common Stock for which this Warrant is
exercisable, and the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Issuer shall give the Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 in
accordance with Section 5.

 

5

 

(a)                                  Recapitalization,
Reorganization, Reclassification, Consolidation, Merger or Sale.

 

(i)  In
case the Issuer after the Original Issue Date shall do any of the following
(each, a “Triggering Event”): (a) consolidate with or merge into any
other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or
(d) effect a capital reorganization or reclassification of its Capital Stock,
then, and in the case of each such Triggering Event, proper provision shall be
made so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof
at any time after the consummation of such Triggering Event, to the extent this
Warrant is not exercised prior to such Triggering Event, to receive at the
Warrant Price in effect at the time immediately prior to the consummation of
such Triggering Event in lieu of the Common Stock issuable upon such exercise
of this Warrant prior to such Triggering Event, the Securities, cash and
property to which such Holder would have been entitled upon the consummation of
such Triggering Event if such Holder had exercised the rights represented by
this Warrant immediately prior thereto, subject to adjustments (subsequent to
such corporate action) as nearly equivalent as possible to the adjustments
provided for elsewhere in this Section 4.

 

(ii)                                  Notwithstanding
anything contained in this Warrant to the contrary, a Triggering Event shall
not be deemed to have occurred if, prior to the consummation thereof, each
Person (other than the Issuer) which may be required to deliver any Securities,
cash or property upon the exercise of this Warrant as provided herein shall
assume, by written instrument delivered to, and reasonably satisfactory to, the
Holder of this Warrant, (A) the obligations of the Issuer under this Warrant
(and if the Issuer shall survive the consummation of such Triggering Event,
such assumption shall be in addition to, and shall not release the Issuer from,
any continuing obligations of the Issuer under this Warrant) and (B) the
obligation to deliver to such Holder such Securities, cash or property as, in
accordance with the foregoing provisions of this subsection (a), such
Holder shall be entitled to receive, and such Person shall have similarly
delivered to such Holder an opinion of counsel for such Person, which counsel
shall be reasonably satisfactory to such Holder, or in the alternative, a written
acknowledgement executed by the President or Chief Financial Officer of the
Issuer, stating that this Warrant shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this subsection (a)) shall be applicable to the Securities,
cash or property which such Person may be required to deliver upon any exercise
of this Warrant or the exercise of any rights pursuant hereto.

 

(b)                                 Stock
Dividends, Subdivisions and Combinations. 
If at any time the Issuer shall:

 

(i)                                     take
a record of the holders of its Common Stock for the purpose

 

6

 

of entitling them to
receive a dividend payable in, or other distribution of, shares of Common
Stock,

 

(ii)                                  subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock, or

 

(iii)                               combine
its outstanding shares of Common Stock into a smaller number of shares of
Common Stock,

 

then (1) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
the occurrence of any such event shall be adjusted to equal the number of
shares of Common Stock which a record holder of the same number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
occurrence of such event would own or be entitled to receive after the
happening of such event, and (2) the Warrant Price then in effect shall be
adjusted to equal (A) the Warrant Price then in effect multiplied by the number
of shares of Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares of Common Stock for
which this Warrant is exercisable immediately after such adjustment.

 

(c)                                  Certain
Other Distributions.  If at any time
the Issuer shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:

 

(i)                                     cash
(other than a cash dividend payable out of earnings or earned surplus legally
available for the payment of dividends under the laws of the jurisdiction of
incorporation of the Issuer),

 

(ii)                                  any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock
Equivalents or Additional Shares of Common Stock), or

 

(iii)                               any
warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property of any nature whatsoever (other than cash, Common Stock Equivalents or
Additional Shares of Common Stock),

 

then (1) the number of
shares of Common Stock for which this Warrant is exercisable shall be adjusted
to equal the product of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such adjustment multiplied by a
fraction (A) the numerator of which shall be the Volume Weighted Average
Price of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Volume Weighted Average Price minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer) of any and all such evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase rights so
distributable, and (2) the Warrant Price then in effect shall be adjusted to
equal (A) the Warrant Price then in effect multiplied by the number of shares
of

 

7

 

Common Stock for which
this Warrant is exercisable immediately prior to the adjustment divided by (B)
the number of shares of Common Stock for which this Warrant is exercisable
immediately after such adjustment.  A
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Issuer to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4(c) and, if
the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be,
of the outstanding shares of Common Stock within the meaning of Section 4(b).

 

(d)                                 Issuance
of Additional Shares of Common Stock.

 

(i)                                     Commencing
on the Original Issue Date and for a period of one (1) year thereafter, in the
event the Issuer shall issue any Additional Shares of Common Stock (otherwise
than as provided in the foregoing subsections (a) through (c) of this Section 4),
at a price per share less than the Warrant Price then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to the price equal to the consideration per share paid for such Additional
Shares of Common Stock.

 

(ii)                                  Commencing
on the date that is one (1) year and one (1) day following the Original Issue
Date, in the event the Issuer shall issue any Additional Shares of Common Stock
(otherwise than as provided in the foregoing subsections (b) through (c) of
this Section 4), at a price per share less than the Warrant Price on the
date of such issuance or without consideration, then the Warrant Price upon
each such issuance shall be adjusted to that price determined by multiplying
the Warrant Price then in effect by a fraction:

 

(A)                              the
numerator of which shall be equal to the sum of (x) the number of shares of
Outstanding Common Stock immediately prior to the issuance of such Additional
Shares of Common Stock plus (y) the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional
Shares of Common Stock so issued would purchase at a price per share equal to
the Warrant Price then in effect, and

 

(B)                                the
denominator of which shall be equal to the number of shares of Outstanding
Common Stock immediately after the issuance of such Additional Shares of Common
Stock.

 

(iii)                               The
provisions of paragraphs (i) and (ii) of Section 4(d) shall not apply to
any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4(b) or 4(c). 
No adjustment of the number of shares of Common Stock for which this
Warrant shall be exercisable shall be made under paragraphs (i) and (ii) of Section 4(d)
upon the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any Common Stock Equivalents, if any such
adjustment shall previously have been made upon the issuance of such Common
Stock Equivalents (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4(e) or Section 4(f).

 

8

 

(e)                                  Issuance
of Warrants or Other Rights.  If at
any time the Issuer shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a distribution of, or shall in any
manner (whether directly or by assumption in a merger in which the Issuer is
the surviving corporation) issue or sell, any Common Stock Equivalents (or
issue any warrant or other rights therefor), whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such Common Stock
Equivalents (or any warrant or other rights therefor) shall be less than the
Warrant Price in effect immediately prior to the time of such issue or sale,
then the number of shares for which this Warrant is exercisable and the Warrant
Price then in effect shall be adjusted as provided in Section 4(d) on the
basis that the maximum number of Additional Shares of Common Stock issuable
pursuant to all such Common Stock Equivalents (or upon the issuance of any
warrant or other rights therefor) shall be deemed to have been issued and
outstanding and the Issuer shall have received all of the consideration payable
therefor, if any, as of the date of the actual issuance of such warrants or
other rights.  No adjustments of the
Warrant Price then in effect or the number of Warrant Shares for which this
Warrant is exercisable shall be made upon the actual issue of such Common Stock
or of such Common Stock Equivalents upon exercise of such warrants or other
rights or upon the actual issue of such Common Stock upon such conversion or
exchange of such Common Stock Equivalents.

 

(f)                                    Issuance
of Common Stock Equivalents.  If at
any time the Issuer shall issue or sell any Common Stock Equivalents, whether
or not the rights to exchange or convert thereunder are immediately
exercisable, and the aggregate price per share for which Common Stock is
issuable upon such conversion or exchange plus the consideration received by
the Issuer for issuance of such Common Stock Equivalent divided by the number
of shares of Common Stock issuable pursuant to such Common Stock Equivalent
shall be less than the Warrant Price in effect immediately prior to the time of
such issue or sale, then the Warrant Price then in effect shall be adjusted as
provided in Section 4(d).  No
further adjustment of the Warrant Price then in effect shall be made under this
Section 4(f) upon the issuance of any Common Stock Equivalents which are
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to Section 4(e).  No further adjustments of the Warrant Price
then in effect shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Common Stock Equivalents.

 

(g)                                 Superseding
Adjustment.  If, at any time after
any adjustment of the number of shares of Common Stock for which this Warrant
is exercisable and the Warrant Price then in effect shall have been made
pursuant to Section 4(e) or Section 4(f) as the result of any
issuance of warrants, other rights or Common Stock Equivalents, and (i) such warrants
or other rights, or the right of conversion or exchange in such other Common
Stock Equivalents, shall expire, and all or a portion of such warrants or other
rights, or the right of conversion or exchange with respect to all or a portion
of such other Common Stock Equivalents, as the case may be shall not have been
exercised, or (ii) the consideration per share for which shares of Common Stock
are issuable pursuant to such Common Stock Equivalents, shall be increased
solely by virtue of provisions therein contained for an automatic increase in
such consideration per share upon the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which

 

9

 

were deemed to have been
issued by virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by virtue
of such computation.  Upon the occurrence
of an event set forth in this Section 4(g) above, there shall be a
recomputation made of the effect of such Common Stock Equivalents on the basis
of: (i) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or other rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a
new adjustment of the number of shares of Common Stock for which this Warrant
is exercisable and the Warrant Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

 

(h)                                 Purchase
of Common Stock by the Issuer.  If
the Issuer at any time while this Warrant is outstanding shall, directly or
indirectly through a Subsidiary or otherwise, purchase, redeem or otherwise
acquire any shares of Common Stock at a price per share greater than the Volume Weighted Average
Price, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Outstanding Common Stock immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Volume Weighted Average Price; and (ii)
the denominator of which shall be the number of shares of Outstanding Common
Stock immediately after such purchase, redemption or acquisition.  For the purposes of this subsection (h),
the date as of which the Volume Weighted Average Price shall be computed shall be the
earlier of (x) the date on which the Issuer shall enter into a firm contract
for the purchase, redemption or acquisition of such Common Stock, or (y) the
date of actual purchase, redemption or acquisition of such Common Stock.  For the purposes of this subsection (h),
a purchase, redemption or acquisition of a Common Stock Equivalent shall be
deemed to be a purchase of the underlying Common Stock, and the computation
herein required shall be made on the basis of the full exercise, conversion or
exchange of such Common Stock Equivalent on the date as of which such
computation is required hereby to be made, whether or not such Common Stock
Equivalent is actually exercisable, convertible or exchangeable on such date.

 

(i)                                     Other
Provisions applicable to Adjustments under this Section.  The following provisions shall be applicable
to the making of adjustments of the number of shares of Common Stock for which
this Warrant is exercisable and the Warrant Price then in effect provided for
in this Section 4:

 

(i)                                     Computation
of Consideration.  To the extent that
any Additional Shares of Common Stock or any Common Stock Equivalent (or any
warrants or other rights therefor) shall be issued for cash consideration, the
consideration received by the Issuer therefor shall be the amount of the cash
received by the Issuer therefor, or, if such Additional Shares of Common Stock
or Common Stock Equivalents are offered by the Issuer for subscription, the
subscription

 

10

 

price, or, if such
Additional Shares of Common Stock or Common Stock Equivalents are sold to
underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts
paid or receivable for accrued interest or accrued dividends and without taking
into account any compensation, discounts or expenses paid or incurred by the
Issuer for and in the underwriting of, or otherwise in connection with, the
issuance thereof).  In connection with
any merger or consolidation in which the Issuer is the surviving corporation
(other than any consolidation or merger in which the previously outstanding
shares of Common Stock of the Issuer shall be changed to or exchanged for the
stock or other securities of another corporation), the amount of consideration
therefor shall be, deemed to be the fair value, as determined reasonably and in
good faith by the Board, of such portion of the assets and business of the
nonsurviving corporation as the Board may determine to be attributable to such
shares of Common Stock or Common Stock Equivalents, as the case may be.  The consideration for any Additional Shares
of Common Stock issuable pursuant to any warrants or other rights to subscribe
for or purchase the same shall be the consideration received by the Issuer for
issuing such warrants or other rights plus the additional consideration payable
to the Issuer upon exercise of such warrants or other rights.  The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Common Stock Equivalent
shall be the consideration received by the Issuer for issuing warrants or other
rights to subscribe for or purchase such Common Stock Equivalents, plus the
consideration paid or payable to the Issuer in respect of the subscription for
or purchase of such Common Stock Equivalents, plus the additional consideration,
if any, payable to the Issuer upon the exercise of the right of conversion or
exchange in such Common Stock Equivalents. 
In the event of any consolidation or merger of the Issuer in which the
Issuer is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Issuer shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event of any sale
of all or substantially all of the assets of the Issuer for stock or other
securities of any corporation, the Issuer shall be deemed to have issued a
number of shares of its Common Stock for stock or securities or other property
of the other corporation computed on the basis of the actual exchange ratio on
which the transaction was predicated, and for a consideration equal to the fair
market value on the date of such transaction of all such stock or securities or
other property of the other corporation. 
In the event any consideration received by the Issuer for any securities
consists of property other than cash, the fair market value thereof at the time
of issuance or as otherwise applicable shall be as determined in good faith by
the Board.  In the event Common Stock is
issued with other shares or securities or other assets of the Issuer for
consideration which covers both, the consideration computed as provided in this
Section 4(i)(i) shall be allocated among such securities and assets as
determined in good faith by the Board.

 

(ii)                                  When
Adjustments to Be Made.  The adjustments
required by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
that would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in Section 4(b))
up to, but not beyond the date of exercise if such adjustment either by itself
or with other adjustments not previously made adds or subtracts less than one
percent (1%) of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment.  Any adjustment representing a change of less
than such minimum amount (except

 

11

 

as aforesaid) which is
postponed shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this Section 4 and not
previously made, would result in a minimum adjustment or on the date of
exercise. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its occurrence.

 

(iii)                               Fractional
Interests.  In computing adjustments
under this Section 4, fractional interests in Common Stock shall be taken
into account to the nearest one one-hundredth (1/100th) of a share.

 

(iv)                              When
Adjustment Not Required.  If the
Issuer shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.

 

(j)                                     Form
of Warrant after Adjustments.  The
form of this Warrant need not be changed because of any adjustments in the
Warrant Price or the number and kind of Securities purchasable upon the
exercise of this Warrant.

 

(k)                                  Escrow
of Warrant Stock.  If after any
property becomes distributable pursuant to this Section 4 by reason of the
taking of any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, and the Holder
exercises this Warrant, any shares of Common Stock issuable upon exercise by
reason of such adjustment shall be deemed the last shares of Common Stock for
which this Warrant is exercised (notwithstanding any other provision to the
contrary herein) and such shares or other property shall be held in escrow for
the Holder by the Issuer to be issued to the Holder upon and to the extent that
the event actually takes place, upon payment of the current Warrant Price.  Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

 

5.                                       Notice
of Adjustments.  Whenever the Warrant
Price or Warrant Share Number shall be adjusted pursuant to Section 4
hereof (for purposes of this Section 5, each an “adjustment”), the Issuer
shall cause its Chief Financial Officer to prepare and execute a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board made any determination
hereunder), and the Warrant Price and Warrant Share Number after giving effect
to such adjustment, and shall cause copies of such certificate to be delivered
to the Holder of this Warrant promptly after each adjustment.  Any dispute between the Issuer and the Holder
of this Warrant with respect to the matters set forth in such certificate may
at the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the “big four” selected by the Holder; provided
that the Issuer shall have ten (10) days after receipt of notice from such
Holder of its selection of such

 

12

 

firm to object thereto,
in which case such Holder shall select another such firm and the Issuer shall
have no such right of objection.  The
firm selected by the Holder of this Warrant as provided in the preceding
sentence shall be instructed to deliver a written opinion as to such matters to
the Issuer and such Holder within thirty (30) days after submission to it of
such dispute.  Such opinion shall be
final and binding on the parties hereto.

 

6.                                       Fractional
Shares.  No fractional shares of
Warrant Stock will be issued in connection with any exercise hereof, but in
lieu of such fractional shares, the Issuer shall make a cash payment therefor
equal in amount to the product of the applicable fraction multiplied by the Volume Weighted Average
Price then in effect.

 

7.                                       Ownership
Cap and Certain Exercise Restrictions. 
(a)  Notwithstanding anything to
the contrary set forth in this Warrant, at no time may a Holder of this Warrant
exercise this Warrant if the number of shares of Common Stock to be issued
pursuant to such exercise would exceed, when aggregated with all other shares
of Common Stock owned by such Holder at such time, the number of shares of
Common Stock which would result in such Holder owning more than 4.9% of all of
the Common Stock outstanding at such time; provided, however, that
upon the Holder of this Warrant providing the Issuer with sixty-one (61) days
notice (pursuant to Section 13 hereof) (the “Waiver Notice”) that
such Holder would like to waive this Section 7(a) with regard to any or
all shares of Common Stock issuable upon exercise of this Warrant, this Section 7(a)
will be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect (i) during the sixty-one (61)
days immediately preceding the expiration of the term of this Warrant or (ii)
upon the Holder’s receipt of a Call Notice (as defined in Section 8
hereof).

 

(b)                                 The
Holder may not exercise the Warrant hereunder to the extent such exercise would
result in the Holder beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) in excess of 9.9% of the then
issued and outstanding shares of Common Stock, including shares issuable upon
exercise of this Warrant held by the Holder; provided, however,
that upon a holder of this Warrant providing the Issuer with a Waiver Notice
that such holder would like to waive this Section 7(b) with regard to any
or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7(b)
shall be of no force or effect with regard to those shares of Warrant Stock
referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect (i) during the sixty-one (61)
days immediately preceding the expiration of the term of this Warrant or (ii)
upon the Holder’s receipt of a Call Notice.

 

8.                                       Call.  Notwithstanding anything herein to the
contrary, commencing twenty (20) days following the effective date (the “Effectiveness
Date”) of a registration statement providing for the resale of the Warrant
Stock and the Common Stock pursuant to the Purchase Agreement, the Issuer, at
its option, may call up to one hundred percent (100%) of this Warrant by
providing the Holder of this Warrant written notice pursuant to Section 13
(the “Call Notice”) if the Volume Weighted Average Price of the Common Stock
has been greater than $1.00 for a period of twenty (20) consecutive Trading
Days immediately prior to the date of delivery of the Call Notice so long as
the first Trading Day of such twenty (20) Trading Day period shall commence
following the Effectiveness Date; provided, that (i) a
registration statement under the Securities

 

13

 

Act providing for the
resale of the Warrant Stock and the Common Stock issuable upon conversion of
the convertible promissory notes issued pursuant to the Purchase Agreement is
then in effect and has been effective, without lapse or suspension of any kind,
for a period of thirty (30) consecutive Trading Days, (ii) trading in the
Common Stock shall not have been suspended by the Securities and Exchange
Commission or the OTC Bulletin Board and (iii) the Issuer is in material
compliance with the terms and conditions of this Warrant and the other
Transaction Documents (as defined in the Purchase Agreement); provided, further,
that a registration statement under the Securities Act providing for the resale
of the Warrant Stock and the Common Stock issuable upon conversion of the
convertible promissory notes issued pursuant to the Purchase Agreement is in
effect from the date of delivery of the Call Notice until the date which is the
later of (A) the date the Holder exercises the Warrant pursuant to the Call
Notice and (B) the 20th Trading Day after the Holder receives the
Call Notice (the “Early Termination Date”).  The rights and privileges granted pursuant to
this Warrant with respect to the shares of Warrant Stock subject to the Call
Notice (the “Called Warrant Shares”) shall expire on the Early
Termination Date if this Warrant is not exercised with respect to such Called
Warrant Shares prior to such Early Termination Date.  In the event this Warrant is not exercised
with respect to the Called Warrant Shares, the Issuer shall remit to the Holder
of this Warrant (A) $.01 per Called Warrant Share and (B) a new Warrant
representing the number of shares of Warrant Stock, if any, which shall not
have been subject to the Call Notice upon the Holder tendering to the Issuer
the applicable Warrant certificate.

 

9.                                       Definitions.  For the purposes of this Warrant, the
following terms have the following meanings:

 

“Additional
Shares of Common Stock” means all shares of Common Stock issued by the
Issuer after the Original Issue Date, and all shares of Other Common, if any,
issued by the Issuer after the Original Issue Date, except for Permitted
Financings (as defined in the Purchase Agreement) and the Other Warrants.

 

“Certificate
of Incorporation” means the Certificate of Incorporation of the Issuer as
in effect on the Original Issue Date, and as hereafter from time to time
amended, modified, supplemented or restated in accordance with the terms hereof
and thereof and pursuant to applicable law.

 

“Board”
shall mean the Board of Directors of the Issuer.

 

“Capital Stock”
means and includes (i) any and all shares, interests, participations or other
equivalents of or interests in (however designated) corporate stock, including,
without limitation, shares of preferred or preference stock, (ii) all partnership
interests (whether general or limited) in any Person which is a partnership,
(iii) all membership interests or limited liability company interests in any
limited liability company, and (iv) all equity or ownership interests in any
Person of any other type.

 

“Common Stock”
means the Common Stock, par value $0.01 per share, of the Issuer and any other
Capital Stock into which such stock may hereafter be changed.

 

14

 

“Common Stock
Equivalent” means any Convertible Security or warrant, option or other
right to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Security.

 

“Convertible
Securities” means evidences of Indebtedness, shares of Capital Stock or
other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common Stock.  The term “Convertible Security” means one of
the Convertible Securities.

 

“Governmental
Authority” means any governmental, regulatory or self-regulatory entity, department,
body, official, authority, commission, board, agency or instrumentality,
whether federal, state or local, and whether domestic or foreign.

 

“Holder”
means the Person who holds this Warrant. 
The term “Holders” means one of the Persons who shall from time to time
hold this Warrant.

 

“Independent
Appraiser” means a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the
Holder of any Warrant.

 

“Issuer”
means Communication Intelligence Corporation, a Delaware corporation, and its
successors and assigns.

 

“Majority
Holders” means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time
outstanding.

 

“Original Issue
Date” means October 28, 2004.

 

“OTC Bulletin Board”
means the over-the-counter electronic bulletin board.

 

“Other Common”
means any other Capital Stock of the Issuer of any class which shall be authorized
at any time after the date of this Warrant (other than Common Stock) and which
shall have the right to participate in the distribution of earnings and assets
of the Issuer without limitation as to amount.

 

“Other
Warrants” means the warrants to purchase shares of Common Stock issued to
the other Purchasers pursuant to the Purchase Agreement.

 

“Outstanding
Common Stock” means, at any given time, the aggregate amount of outstanding
shares of Common Stock, assuming full exercise, conversion or exchange (as
applicable) of all options, warrants and other Securities which are convertible
into or exercisable or exchangeable for, and any right to subscribe for, shares
of Common Stock

 

15

 

that are outstanding at
such time.

 

“Person”
means an individual, corporation, limited liability company, partnership, joint
stock company, trust, unincorporated organization, joint venture, Governmental
Authority or other entity of whatever nature.

 

“Purchase
Agreement” means the Note and Warrant Purchase Agreement dated as of October 28,
2004, among the Issuer and the Purchasers.

 

“Purchasers”
means the purchasers of the Notes and Warrants issued by the Issuer pursuant to
the Purchase Agreement.

 

“Securities”
means any debt or equity securities of the Issuer, whether now or hereafter
authorized, any instrument convertible into or exchangeable for Securities or a
Security, and any option, warrant or other right to purchase or acquire any
Security.  “Security” means one of the Securities.

 

“Securities Act”
means the Securities Act of 1933, as amended, or any similar federal statute
then in effect.

 

“Subsidiary”
means any corporation at least 50% of whose outstanding Voting Stock shall at
the time be owned directly or indirectly by the Issuer or by one or more of its
Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

 

“Term” has
the meaning specified in Section 1 hereof.

 

“Trading Day”
means (a) a day on which the Common Stock is traded on the OTC Bulletin Board,
or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however,
that in the event that the Common Stock is not listed or quoted as set forth in
(a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday
and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or
other government action to close.

 

“Volume Weighted Average Price” shall mean
the daily volume weighted average price (based on a Trading Day from 9:30 a.m.
to 4:00 p.m., eastern time) of the Common Stock of the Issuer on the OTC
Bulletin Board as reported by Bloomberg Financial LP using the AQR function.

 

“Voting Stock”
means, as applied to the Capital Stock of any corporation, Capital Stock of any
class or classes (however designated) having ordinary voting power for the
election of a majority of the members of the Board of Directors (or other
governing body) of such corporation, other than Capital Stock having such power
only by reason of the happening of a contingency.

 

16

 

“Warrants”
means the Warrants issued and sold pursuant to the Purchase Agreement,
including, without limitation, this Warrant, and any other warrants of like
tenor issued in substitution or exchange for any thereof pursuant to the
provisions of Section 2(c) or 2(d) hereof or of any of such other
Warrants.

 

“Warrant Price”
initially means $.508, as such price may be adjusted from time to time as shall
result from the adjustments specified in this Warrant, including Section 4
hereto.

 

“Warrant Share
Number” means at any time the aggregate number of shares of Warrant Stock
which may at such time be purchased upon exercise of this Warrant, after giving
effect to all prior adjustments and increases to such number made or required
to be made under the terms hereof.

 

“Warrant Stock”
means Common Stock issuable upon exercise of any Warrant or Warrants or
otherwise issuable pursuant to any Warrant or Warrants.

 

10.                                 Other
Notices.  In case at any time:

 

(A)                              the
Issuer shall make any distributions to the holders of Common Stock; or

 

(B)                                the
Issuer shall authorize the granting to all holders of its Common Stock of
rights to subscribe for or purchase any shares of Capital Stock of any class or
other rights; or

 

(C)                                there
shall be any reclassification of the Capital Stock of the Issuer; or

 

(D)                               there
shall be any capital reorganization by the Issuer; or

 

(E)                                 there
shall be any (i) consolidation or merger involving the Issuer or (ii) sale,
transfer or other disposition of all or substantially all of the Issuer’s
property, assets or business (except a merger or other reorganization in which
the Issuer shall be the surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and except a consolidation,
merger, sale, transfer or other disposition involving a wholly-owned
Subsidiary); or

 

(F)                                 there
shall be a voluntary or involuntary dissolution, liquidation or winding-up of
the Issuer or any partial liquidation of the Issuer or distribution to holders
of Common Stock;

 

17

 

then, in each of such
cases, the Issuer shall give written notice to the Holder of the date on which
(i) the books of the Issuer shall close or a record shall be taken for such
dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be, shall take place.  Such notice also shall specify the date as of
which the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
certificates for Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be.  Such notice shall be given at least twenty
(20) days prior to the action in question and not less than ten (10) days prior
to the record date or the date on which the Issuer’s transfer books are closed
in respect thereto.  This Warrant
entitles the Holder to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Common Stock.

 

11.                                 Amendment
and Waiver.  Any term, covenant,
agreement or condition in this Warrant may be amended, or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), by a written instrument or written instruments
executed by the Issuer and the Majority Holders; provided, however,
that no such amendment or waiver shall reduce the Warrant Share Number,
increase the Warrant Price, shorten the period during which this Warrant may be
exercised or modify any provision of this Section 11 without the consent
of the Holder of this Warrant.

 

12.                                 Governing
Law.  THIS WARRANT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY OF ITS PRINCIPLES OF CONFLICTS OF LAW WHICH WOULD RESULT
IN THE APPLICATION OF THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.

 

13.                                 Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earlier of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified for notice prior to 5:00 p.m., eastern
time, on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice later than 5:00 p.m., eastern time, on
any date and earlier than 11:59 p.m., eastern time, on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given.  The
addresses for such communications shall be with respect to the Holder of this
Warrant or of Warrant Stock issued pursuant hereto, addressed to such Holder at
its last known address or facsimile number appearing on the books of the Issuer
maintained for such purposes, or with respect to the Issuer, addressed to:

 

Communication
Intelligence Corporation

275 Shoreline Drive,
Suite 500

Redwood Shores,
California 94065

Attention: Frank Dane,
Chief Financial and Legal Officer

 

18

 

Tel. No.: (650) 802-7737

Fax No.: (419) 735-7922

 

with copies (which copies

shall not constitute
notice

to the
Issuer) to:                                                                                                        Davis
Wright Tremaine LLP

1300 S.W. Fifth Avenue,
23rd Floor

Portland, OR 97201

Attention: Michael C.
Phillips

Tel. No.: (503) 241-2300

Fax No.: (503) 778-5299

 

Copies of notices to the
Holder shall be sent to Jenkens & Gilchrist Parker Chapin LLP, 405
Lexington Avenue, New York, New York 10174, Attention: Christopher S. Auguste,  Facsimile No.: (212) 704-6288.  Any party hereto may from time to time change
its address for notices by giving at least ten (10) days written notice of such
changed address to the other party hereto.

 

14.                                 Warrant
Agent.  The Issuer may, by written
notice to each Holder of this Warrant, appoint an agent having an office in New
York, New York for the purpose of issuing shares of Warrant Stock on the
exercise of this Warrant pursuant to subsection (b) of Section 2
hereof, exchanging this Warrant pursuant to subsection (c) of Section 2
hereof or replacing this Warrant pursuant to subsection (d) of Section 3
hereof, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.

 

15.                                 Remedies.  The Issuer stipulates that the remedies at
law of the Holder of this Warrant in the event of any breach or threatened
breach by the Issuer in the performance of or compliance with any of the terms
or provisions of this Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms or provisions may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms or
provisions hereof or otherwise.

 

16.                                 Successors
and Assigns.  This Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Issuer, the Holder hereof and (to the extent
provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall
be enforceable by any such Holder or Holders of Warrant Stock.

 

17.                                 Severability.  If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision
hereof is found to be unenforceable, then such provision shall be deemed modified
to the extent necessary to make it enforceable by such court or agency.  If any such provision is not enforceable as
set forth in the preceding sentence, the unenforceability of such provision
shall not affect the other provisions of this Warrant, but this Warrant shall
be construed as if such unenforceable provision had never been contained
herein.

 

19

 

18.                                 Headings.  The headings of the Sections of this Warrant
are for convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant and shall not influence the construction or
interpretation of this Warrant.

 

20

 

IN WITNESS WHEREOF, the
Issuer has executed this Warrant as of the day and year first above written.

 

 

	
   

  	
  COMMUNICATION INTELLIGENCE
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

21

 

EXERCISE FORM

WARRANT

 

COMMUNICATION
INTELLIGENCE CORPORATION

 

The undersigned                               ,
pursuant to the provisions of the within Warrant, hereby elects to purchase           
shares of Common Stock of                         
covered by the within Warrant.

 

	
  Dated:

  	
   

  	
   

  	
  Signature

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
							

 

ASSIGNMENT

 

FOR VALUE RECEIVED,                                   
hereby sells, assigns and transfers unto                                     
the within Warrant and all rights evidenced thereby and does irrevocably
constitute and appoint                           ,
attorney, to transfer the said Warrant on the books of the within named
corporation.

 

	
  Dated:

  	
   

  	
   

  	
  Signature

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
							

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED,                                   
hereby sells, assigns and transfers unto                                     
the right to purchase                   
shares of Warrant Stock evidenced by the within Warrant together with all
rights therein, and does irrevocably constitute and appoint                                       ,
attorney, to transfer that part of the said Warrant on the books of the within
named corporation.

 

	
  Dated:

  	
   

  	
   

  	
  Signature

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
							

 

FOR USE BY THE
ISSUER ONLY:

 

This Warrant No. W-      
canceled (or transferred or exchanged) this           
day of                       ,
          , shares of Common
Stock issued therefor in the name of                               ,
Warrant No. W-          
issued for          shares of Common
Stock in the name of                               .

 

22EXHIBIT 10.79

 

WARBURG, PINCUS EQUITY PARTNERS, L.P.

466 Lexington Avenue

New York, NY 10017

 

October 29, 2004

 

InterMune,
Inc.

3280
Bayshore Boulevard

Brisbane,
CA  94005

Attention: Chief Executive Officer

 

Re:  Amended and Restated Standstill Agreement

 

Gentlemen:

 

In connection with the acquisition of Common Stock, par value $0.001
per share (the “Common Stock”), of InterMune, Inc., a Delaware
corporation (the “Company”), by Warburg, Pincus Equity Partners, L.P., a
Delaware limited partnership (“WPEP”), Warburg, Pincus Netherlands
Equity Partners I, C.V., a Netherlands limited partnership (“WPEP I”),
Warburg, Pincus Netherlands Equity Partners II, C.V., a Netherlands limited
partnership (“WPEP II”), Warburg, Pincus Netherlands Equity Partners
III, C.V., a Netherlands limited partnership (“WPEP III” and, together
with WPEP, WPEP I and WPEP II, the “Purchasers”), Warburg Pincus &
Co., a New York general partnership and the sole general partner of each of the
Purchasers (“WP”), and Warburg Pincus LLC, a New York limited liability
company and the sole manager of each of the Purchasers (“WP LLC” and,
collectively, WP LLC, WP and the Purchasers are referred to herein as, the “Purchaser
Group”), the Company and the Purchaser Group entered into a Standstill
Agreement, dated April 28, 2004 (the “Original Standstill Agreement”).  In connection with the Purchaser Group’s
desire to purchase additional shares of Common Stock and the Company’s desire
to influence any disposition of Common Stock held by the Purchaser Group, the
Company and the Purchaser Group hereby amend and restate the Original
Standstill Agreement in its entirety and agree as follows:

 

1.             Standstill.  For a period of three years from the date
hereof (the “Standstill Period”), no member of the Purchaser Group or
any of their respective Affiliates (as defined below) shall, without the prior
written consent of a majority of the independent members of the Board of
Directors of the Company (the “Board”) who are not affiliated with the
Purchaser Group:

 

(a)           in any manner
acquire, agree or seek to acquire, or make any proposal or offer (other than to
a member of the Board or senior management of the Company by means that would
not cause public dissemination thereof) to acquire, whether directly or
indirectly,

 

 

 

(i)            any material assets of the Company
or

 

(ii)           any Common Stock, voting equity
securities of the Company or any securities convertible or exchangeable into or
exercisable for any such securities (including derivatives), other than
acquisitions that would not, in the aggregate, result in the Purchaser Group
together with their respective Affiliates Beneficially Owning (as defined
herein) more than 25.0% of the Company’s issued and outstanding Common Stock,
as of the date of such acquisition;

 

(b)           propose to any
person (other than to a member of the Board or senior management of the Company
by means that would not cause public dissemination thereof) or effect, seek to
effect or enter into, whether alone or in concert with others, any merger,
consolidation, acquisition, scheme, business combination or other extraordinary
transaction in which the Company or any of its subsidiaries is a constituent
corporation or party (a “Business Combination”);

 

(c)           solicit proxies or
shareholder consents or participate in any such solicitation for any purpose
relating to the election or removal of directors of the Company or a Business
Combination;

 

(d)           form, join,
encourage, influence, advise or participate in a “group” (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) with respect to the voting, ownership or control of
any Common Stock (other than the group consisting of the current members
of the Purchaser Group);

 

(e)           seek to have the
Company waive, amend or modify its Certificate of Incorporation, Bylaws or the
Rights Agreement, dated as of July 17, 2001, between the Company and Mellon
Investor Services LLC (the “Rights Agreement”);

 

(f)            assist, advise or
encourage (including by knowingly providing or arranging financing for that
purpose) any other person in connection with any of the foregoing; or

 

(g)           make, or take any
action (including a request to waive or amend any provision of this agreement)
that would cause the Company to make, a public announcement regarding any
intention of the Purchaser Group or any of their respective Affiliates to take
an action which would be prohibited by any of the foregoing.

 

For purposes of this letter agreement, 
(i) “Affiliates” shall mean (1) any person, corporation,
partnership, trust, limited liability company or other entity, whether existing
now or in the future, that, directly or indirectly, controls, is controlled by
or is under common control with, the Purchaser Group; provided, however,
that no corporation, partnership, trust, limited liability company or other
entity in which a Controlled Fund (as defined below) has made or in the future

 

2

 

makes an investment shall be considered an Affiliate for purposes of
this letter agreement and/or (2) any fund, whether existing now or in the
future, of which WP is a general partner or WP LLC is a manager (a “Controlled
Fund”) and (ii) “Beneficially Owns” (including the terms “Beneficial
Ownership”, “Beneficially Owned” or “Beneficially Owning”)
shall mean beneficial ownership within the meaning of Rule 13d-3 under the
Exchange Act.

 

2.             No Effect on Directors.  Notwithstanding any of the foregoing, the
provisions set forth in Section 1 shall in no way limit the ability of any
individual who is serving as a director of the Company to take any actions (or
to refrain from taking any actions) in their capacity as directors of the
Company.

 

3.             Waiver of Section 203.  The Company represents and warrants to the
Purchaser Group that the Board has taken all action necessary to render
inapplicable the provisions of Section 203 of the General Corporation Law of
the State of Delaware (“Section 203”) solely as it relates to the
acquisition by the Purchaser Group of Beneficial Ownership of up to 25.0% of the
Company’s issued and outstanding Common Stock (the “Waiver”); provided,
however, such Waiver shall no longer be applicable if, subsequent to
becoming an “interested stockholder” (as defined in Section 203), the Purchaser
Group no longer has Beneficial Ownership of 15% or more of Common Stock as a
result of any sale or disposition of Beneficial Ownership of Common Stock by
the Purchaser Group.

 

4.             Voting Agreement.  In the event the Purchaser Group and their
Affiliates Beneficially Own more than 19.9% of the Common Stock, any shares of
Common Stock Beneficially Owned by the Purchaser Group and their Affiliates in
excess of 19.9% of the Common Stock shall be voted as directed by the Board,
whether at an annual or special meeting of stockholders of the Company, by
written consent or otherwise.  If
requested by the Board, the Purchaser Group shall execute and deliver to the
Company an irrevocable proxy to the foregoing effect.

 

5.             Amendments to Rights Agreement.  The Company represents and warrants to the
Purchaser Group that the Rights Agreement has been duly amended to exclude the
Purchaser Group from the definition of the term “Acquiring Person” as such term
may relate to the acquisition by the Purchaser Group (including by “affiliates”
and “associates”, as such terms are defined in Rule 12b-2 under the Exchange
Act, of the Purchaser Group) of Beneficial Ownership of up to 25.0% of the
Company’s issued and outstanding Common Stock. 
During the Standstill Period, the Company shall not amend or modify the
definition of “Acquiring Person” in the Rights Agreement, if, as a result of
such amendment or modification, the Purchaser Group would be deemed to be an “Acquiring
Person” thereunder.  During the
Standstill Period, the Company shall not adopt a new rights agreement or an
agreement having substantially the same effect of the Rights Agreement if the
Purchaser Group would be considered an “Acquiring Person” (or would have the
same or substantially similar effect of an “Acquiring Person” under the Rights
Agreement).

 

3

 

6.             Limitation on Sales; Right of
First Offer.

 

(a)           Without the prior
written consent of a majority of the independent members of the Board who are
not affiliated with the Purchaser Group:

 

(i)            the Purchaser Group shall not sell
or cause any shares of Common Stock Beneficially Owned by them to be sold
pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Act”);

 

(ii)           except for sales pursuant to Section
6(b) or distributions in accordance with Section 6(d), all shares of Common
Stock Beneficially Owned by the Purchaser Group shall be sold only through a
registered, underwritten public offerings in accordance with the terms of the
Registration Rights Agreement, dated as of the date hereof, among the
Purchasers, WP and the Company (as the same may be amended from time to time,
the “Registration Rights Agreement”); provided, however,
that, to the extent that the Purchaser Group does not make a request for
registration or the Company does not effect, or take any action to effect, any
registration under the Registration Rights Agreement because the anticipated
aggregate public offering price (before deduction of Selling Expenses (as
defined in the Registration Rights Agreement)) of all Registrable Securities
(as defined in the Registration Rights Agreement) does not equal or exceed
$25,000,000 as set forth in Section 2(a)(i)(2)(C) of the Registration Rights
Agreement, the restrictions in this Section 6(a) shall be suspended;

 

(b)           No sales of Common
Stock Beneficially Owned by the Purchaser Group shall be made pursuant to a
private sale or other exemption from the registration requirements of the Act
without the prior written consent of the Company if, (i) the purchaser of such
shares is a biotechnology or pharmaceutical firm, (ii) such purchaser, or group
of affiliated purchasers, would, after giving effect to such sale, Beneficially
Own more than 5.0% of the Common Stock, or (iii) the purchaser of such shares
has announced an unsolicited tender offer for the Common Stock without the
prior consent of the Company’s Board of Directors.

 

(c)           Prior to any private
sale of the Company’s Common Stock by a member of the Purchaser Group (“Transferor”)
pursuant to Section 6(b) above, such Transferor will notify the Company of its
intent to sell such shares (the “Offered Shares”).  The Company may, within 36 hours after the
receipt of such notice, offer to purchase the Offered Shares (the “Offer”).  The Offer will be in writing and shall
specify the price and other terms and conditions of the Offer.  Until the expiration of such 36 hour period,
the Transferor will not accept, make or solicit any other offers to sell such
shares.

 

(d)           The provisions of
Section 6(a), (b) and (c) shall have no force or effect if, at the time of such
sale, the Purchaser Group and their Affiliates Beneficially Own 5.0% or less of
the Common Stock.

 

(e)           Notwithstanding any
provision of this Section 6 to the contrary, the

 

4

 

Purchaser Group
shall be permitted to distribute shares of Common Stock Beneficially Owned by
them to their respective general and limited partners without restriction.  To the extent the Purchaser Group decides to
distribute shares of Common Stock to such partners, the Purchaser Group agrees
to use commercially reasonable best efforts to distribute such shares in a
manner designed not to adversely affect the market price of the Company’s
Common Stock.

 

7.             Representations.  Each party represents to the other that: (a) this
letter agreement has been duly authorized by all necessary corporate or
partnership action, as the case may be; and (b) this letter agreement is a
valid and binding agreement of such party, enforceable against it in accordance
with its terms.  The Company represents
that this letter agreement was approved by the vote a majority of the
independent members of the Board who are not affiliated with the Purchaser
Group as set forth in Section 6 of the Original Standstill Agreement.

 

8.             Specific Enforcement; Legal
Effect.  The parties hereto agree
that any breach of this letter agreement would result in irreparable injury to
other party and that money damages would not be an adequate remedy for such
breach.  Accordingly, without prejudice
to the rights and remedies otherwise available under applicable law, either
party shall be entitled to specific performance and equitable relief by way of
injunction or otherwise if the other party breaches or threatens to breach any
of the provisions of this letter agreement. 
It is further understood and agreed that no failure or delay by either
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 right, power or
privilege hereunder.  This letter
agreement contains the entire agreement between the parties hereto concerning
the matters addressed herein; the Original Standstill Agreement is hereby
amended and restated in its entirety and is of no further force and
effect.  No modification of this letter
agreement or waiver of the terms and conditions hereof shall be binding upon
either party hereto, unless approved in writing by each such party; provided,
however, that no waiver or amendment shall be effective as against the
Company unless such waiver or amendment is approved in writing by the vote a
majority of the independent members of the Board who are not affiliated with
the Purchaser Group.  This Agreement
shall be governed by and construed in accordance with the law of the State of
New York without regard to principles of conflicts of law that would cause the
application of the laws of any jurisdiction other than the State of New York.

 

9.             Counterparts.  This letter agreement may be executed in
counterpart (including by facsimile), each of which shall be deemed an
original.

 

[Remainder of page left blank intentionally.]

 

5

 

If you are in agreement with the terms set forth above, please sign
this letter agreement in the space provided below and return an executed copy
to the undersigned.

 

Very truly yours,

 

	
  WARBURG, PINCUS EQUITY PARTNERS,

  L.P.

  	
  WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.

  
	
   

  	
   

  
	
  By: Warburg Pincus & Co., its General Partner

  	
  By: Warburg Pincus & Co., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Jonathan Leff

  	
   

  	
  By:

  	
  /s/ Jonathan Leff

  	
   

  
	
  Name:  Jonathan Leff

  	
  Name:  Jonathan Leff

  
	
  Title:  Partner

  	
  Title:  Partner

  
	
   

  	
   

  
	
  WARBURG, PINCUS NETHERLANDS

  EQUITY PARTNERS II, C.V.

  	
  WARBURG PINCUS & CO.

  
	
   

  	
   

  
	
  By: Warburg Pincus & Co., its General Partner

  	
  By:

  	
  /s/ Jonathan Leff

  	
   

  
	
   

  	
  Name:  Jonathan Leff

  
	
   

  	
  Title:  Partner

  
	
  By:

  	
  /s/ Jonathan Leff

  	
   

  	
   

  
	
  Name:  Jonathan Leff

  	
  WARBURG PINCUS LLC

  
	
  Title:  Partner

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Leff

  	
   

  
	
  WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.

  	
  Name:  Jonathan Leff

  Title:  Managing Partner

  
	
   

  	
   

  
	
  By: Warburg Pincus & Co., its General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Jonathan Leff

  	
   

  	
   

  
	
  Name:  Jonathan Leff

  	
   

  
	
  Title:  Partner

  	
   

  

 

 

	
  Confirmed and Agreed:

  	
   

  
	
   

  	
   

  
	
  INTERMUNE, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Daniel Welch

  	
   

  	
   

  
	
   

  	
  Name: Daniel G. Welch

  	
   

  
	
   

  	
  Title: President and Chief Executive Officer

  	
   

  
					

 

6

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