Document:

Supplemental Indenture, dated February 9, 2007

     

    Exhibit
      10.1

     

    

     

    
      
        

      

     

    AVIS
      BUDGET CAR RENTAL, LLC

     

    and

     

    AVIS
      BUDGET FINANCE, INC.,

    as
      Issuers,

     

     

    The
      GUARANTORS from time to time parties hereto

     

    and

     

    THE
      BANK
      OF NOVA SCOTIA TRUST COMPANY OF NEW YORK

    as
      Trustee

     

     

    ______

     

     

    SUPPLEMENTAL
      INDENTURE

    DATED
      as
      of FEBRUARY 9, 2007

    TO
      THE
      INDENTURE 

    DATED
      as
      of APRIL 19, 2006

     

     

    ______

     

     

    FLOATING
      RATE SENIOR NOTES DUE 2014

     

    7.625%
      SENIOR NOTES DUE 2014

     

    7.75%
      SENIOR NOTES DUE 2016

     

    

    
      
        

        
          
            
              

            

            
            

          

          
            
            

            
              

            

          

          
            
            

            
            

          

        

    

     

    SUPPLEMENTAL
      INDENTURE, dated as of February 9, 2007 (this "Supplemental
      Indenture"),
      by
      and among Avis Budget Group, Inc., a corporation organized under the laws of
      the
      State of Delaware ("Avis
      Budget Group"),
      Avis
      Budget Car Rental, LLC, a limited liability company organized under the laws
      of
      the State of Delaware (the "Company"),
      and
      Avis Budget Finance, Inc., a corporation organized under the laws of the State
      of Delaware (together with the Company, "the Issuers"),
      the
      other guarantors parties hereto (the "Existing
      Guarantors")
      and
      The Bank of Nova Scotia Trust Company of New York, as trustee (the "Trustee")
      under
      the Indenture referred to below.

     

     

    WHEREAS,
      the Issuers, the Existing Guarantors and the Trustee are parties to an
      indenture, dated as of April 19, 2006 (the "Indenture"),
      providing for the issuance of Floating Rate Senior Notes due 2014, 7.625% Senior
      Notes due 2014 and 7.75% Senior Notes due 2016 of the Issuers (collectively,
      the
“Notes”);
      and

     

     

    WHEREAS,
      Section 901(4) of the Indenture provides that the Company may enter into a
      supplemental indenture to the Indenture with the Trustee to add Guarantees
      (as
      such term is defined in the Indenture) with respect to the Notes, without the
      consent of the Holders; and

     

     

    WHEREAS,
      all conditions and requirements necessary to make this Supplemental Indenture
      a
      valid and binding agreement have been duly performed and complied
      with.

     

     

    NOW,
      THEREFORE, for and in consideration of the premises and other good and valuable
      consideration, the receipt and sufficiency of which hereby are acknowledged,
      it
      is mutually covenanted and agreed, for the benefit
      of all Holders of the Notes as follows:

     

     

    ARTICLE
      I  

     

    DEFINITIONS
      AND INCORPORATION BY REFERENCE

     

     

    Section
      1.1  Unless
      the context otherwise requires:

     

     

    (a)  a
      term
      not defined herein that is defined in the Indenture has the same meaning when
      used in this Supplemental Indenture;

     

     

    (b)  a
      term
      defined anywhere in this Supplemental Indenture has the same meaning
      throughout;

     

     

    (c)  the
      singular includes the plural and vice versa;

     

     

    (d)  unless
      otherwise specified, any reference to a Section or Article is to a Section
      or
      Article of this Supplemental Indenture; and

     

     

    (e)  headings
      are for convenience of reference only and do not affect
      interpretation;

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      1.2  The
      definition of "Guarantor" contained in Section 101 of the Indenture is hereby
      amended to read in its entirety as follows:

     

     

    "Guarantor"
      means
Avis
      Budget Group, Inc., a corporation organized under the laws of the State of
      Delaware, Avis
      Budget Holdings, LLC, a limited liability company organized under the laws
      of
      the State of Delaware, and each Subsidiary Guarantor.

     

     

    ARTICLE
      II 

     

    REGISTRATION
      RIGHTS AGREEMENT

     

     

    Section
      2.1  Promptly
      following the execution and delivery of this Supplemental Indenture, Avis Budget
      Group will execute a counterpart to the Registration Rights Agreement, dated
      April 19, 2006, by and among the Issuers, the guarantors party thereto and
      J.P.
      Morgan Securities Inc., on behalf of itself and the other initial purchasers
      listed on schedule 2 thereto (the "Initial
      Purchasers"),
      in
      the form attached thereto as Annex A, and will deliver such counterpart to
      the
      Initial Purchasers no later than five Business Days following the execution
      thereof.

     

     

    ARTICLE
      III 

     

    MISCELLANEOUS

     

     

    Section
      3.1  The
      Trustee accepts the trusts created by the Indenture, as amended and
      supplemented
      by this Supplemental Indenture, and agrees to perform the same upon the terms
      and conditions of the Indenture, as amended and supplemented by this
      Supplemental Indenture. The Trustee makes no representation or warranty as
      to
      the validity or sufficiency of this Supplemental Indenture or as to the accuracy
      of the recitals to this Supplemental Indenture.

     

     

    Section
      3.2  All
      covenants and agreements in this Supplemental Indenture by the Issuers, the
      Guarantors and the Trustee shall bind their respective successors and assigns,
      whether so expressed or not. 

     

     

    Section
      3.3  In
      case
      any provisions in this Supplemental Indenture shall be invalid, illegal or
      unenforceable, the validity, legality and enforceability of the remaining
      provisions shall not in any way be affected or impaired thereby. 

     

     

    Section
      3.4  Nothing
      in this Supplemental Indenture is intended or shall be construed to give any
      Person, other than the Holders and the Trustee, any legal or equitable right,
      remedy or claim under or in respect of any Guarantee by Avis Budget Group or
      any
      provision contained herein or in Article XIII of the Indenture.

     

     

    Section
      3.5  The
      parties hereto may sign one or more copies of this Supplemental Indenture in
      counterparts, all of which together shall constitute one and the same
      agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      3.6  THIS
      SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
      THE
      LAWS OF THE STATE OF NEW YORK. THE TRUSTEE, THE COMPANY, ANY OTHER OBLIGOR
      IN
      RESPECT OF THE NOTES AND (BY THEIR ACCEPTANCE OF THE NOTES) THE HOLDERS AGREE
      TO
      SUBMIT TO THE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED
      IN THE BOROUGH OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING
      ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE. 

     

     

    Section
      3.7  Except
      as
      expressly amended hereby, the Indenture is in all respects ratified and
      confirmed and all the terms, conditions and provisions thereof shall remain
      in
      full force and effect. This Supplemental Indenture shall form a part of the
      Indenture for all purposes, and every Holder of Notes heretofore or hereafter
      authenticated and delivered shall be bound hereby. 

     

     

    Section
      3.8  The
      Section headings herein are for convenience of reference only and shall not
      be
      deemed to alter or affect the meaning or interpretation of any provisions
      hereof.

     

     

    
      
        
           

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
      to
      be duly executed as of the date first written above. 

     

    

      
        	 	 	 	
                AVIS
                  BUDGET CAR RENTAL, LLC

                AVIS
                  BUDGET FINANCE, INC.

                 

              
	 	 	
                By:

              	 /s/
                David B. Wyshner
	 	 	 	
                Name:
                  David B. Wyshner

                Title: Executive
                  Vice President, 

                Chief
                  Financial Officer and

                Treasurer

              

      

    

     

     

     

    

      
        	 	 	 	
                AVIS BUDGET GROUP, INC.

                AVIS
                  BUDGET HOLDINGS, LLC

                 

              
	 	 	
                By:

              	 /s/
                David B. Wyshner
	 	 	 	
                Name:
                  David B. Wyshner

                Title: Executive
                  Vice President, 

                Chief
                  Financial Officer and

                Treasurer

              

      

    

     

     

     

    

      
        	 	 	 	AVIS ASIA
                AND PACIFIC,
                LIMITED
                AVIS
                  CAR RENTAL GROUP, LLC

                AVIS
                  CARIBBEAN, LIMITED

                AVIS
                  ENTERPRISES, INC.

                AVIS
                  GROUP HOLDINGS, LLC

                AVIS
                  INTERNATIONAL, LTD.

                AVIS
                  LEASING CORPORATION

                AVIS
                  RENT A CAR SYSTEM, LLC

                PF
                  CLAIMS MANAGEMENT, LTD.

                WIZARD
                  CO., INC.

                 

              
	 	 	
                By:

              	/s/
                F. Robert Salerno
	 	 	 	
                Name:
                  F. Robert Salerno 

                Title: President

              

      

    

     

     

     

    

      
        	 	 	 	
                 AB CAR RENTAL SERVICES, INC.

                 

              
	 	 	
                By:

              	/s/
                David B. Wyshner
	 	 	 	
                Name:
                  David B. Wyshner

                Title: Treasurer

              

      

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    

      
        	 	 	 	ARACS
                LLC 
                AVIS
                  OPERATIONS, LLC

                 

              
	 	 	
                By:

              	/s/
                F. Robert Salerno 
	 	 	 	
                Name:
                  F. Robert Salerno 

                Title: President

              

      

    

     

     

     

    

      
        	 	 	 	
                BGI
                  LEASING, INC.

                BUDGET
                  RENT A CAR SYSTEM, INC.

                 

              
	 	 	
                By:

              	/s/
                David B. Wyshner
	 	 	 	
                Name:
                  David B. Wyshner

                Title: Executive
                  Vice President, 

                Chief
                  Financial Officer and

                Treasurer

              

      

    

     

     

    

      
        	 	 	 	
                 BUDGET TRUCK RENTAL LLC

                 

              
	 	 	
                By:

              	/s/
                David B. Wyshner
	 	 	 	
                Name:
                  David B. Wyshner

                Title: Executive
                  Vice President, 

                Chief
                  Financial Officer and

                Treasurer

              

      

    

     

    
      
        
          
            	
                    Signature
                      Page to Supplemental Indenture

                  

          

           

          

          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

     

     

    

      
        	 	 	 	 

                THE
                  BANK OF NOVA SCOTIA TRUST

                COMPANY
                  OF NEW YORK, as Trustee

                 

              
	 	 	
                By:

              	 /s/
                Warren Goshine
	 	 	 	
                Authorized
                  OfficerNote and Warrant Purchase Agreement

    EXHIBIT
      10.34

     

    

     

    NOTE
      AND
      WARRANT PURCHASE

     

    AGREEMENT

     

    Dated
      as
      of February 5, 2007

     

    by
      and
      among

     

    COMMUNICATION
      INTELLIGENCE CORPORATION

     

    and

     

    THE
      PURCHASERS LISTED ON EXHIBIT A

     

    

     

    
      
        
           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    
      TABLE
        OF
        CONTENTS

       

      Page

      

    

    
      

        
          	
                  ARTICLE
                    I PURCHASE AND SALE OF NOTES AND WARRANTS

                
	
                  Section
                    1.1 

                	
                  Purchase
                    and Sale of Notes and Warrants.

                	
                  1

                
	
                  Section
                    1.2

                	
                  Execution
                    and Borrowing

                	
                  1

                
	
                  Section
                    1.3

                	
                  Warrant
                    Shares

                	
                  2

                
	
                   

                  ARTICLE
                    II REPRESENTATIONS AND WARRANTIES 

                
	
                  Section
                    2.1

                	
                  Representations
                    and Warranties of the Company

                	
                  2

                
	
                  Section
                    2.2

                	
                  Representations
                    and Warranties of the Purchasers

                	
                  12

                
	
                   

                  ARTICLE
                    III COVENANTS 

                	 	
                   

                
	
                  Section
                    3.1

                	
                  Securities
                    Compliance

                	
                  14

                
	
                  Section
                    3.2

                	
                  Registration
                    and Listing

                	
                  14

                
	
                  Section
                    3.3

                	
                  Compliance
                    with Laws

                	
                  14

                
	
                  Section
                    3.4

                	
                  Keeping
                    of Records and Books of Account

                	
                  14

                
	
                  Section
                    3.5

                	
                  Reporting
                    Requirements

                	
                  15

                
	
                  Section
                    3.6

                	
                  Other
                    Agreements

                	
                  15

                
	
                  Section
                    3.7

                	
                  Use
                    of Proceeds

                	
                  15

                
	
                  Section
                    3.8

                	
                  Reporting
                    Status

                	
                  15

                
	
                  Section
                    3.9

                	
                  Disclosure
                    of Transaction

                	
                  15

                
	
                  Section
                    3.10

                	
                  Disclosure
                    of Material Information

                	
                  16

                
	
                  Section
                    3.11

                	
                  Amendments

                	
                  16

                
	
                  Section
                    3.12

                	
                  Reservation
                    of Shares

                	
                  16

                
	
                  Section
                    3.13

                	
                  Disposition
                    of Assets

                	
                  16

                
	
                  Section
                    3.14

                	
                  Non-Shorting

                	
                  16

                
	
                   

                  ARTICLE
                    IV CONDITIONS

                	 	
                   

                
	
                  Section
                    4.1

                	
                  Conditions
                    Precedent to the Obligation of the Company to Close and
                    to Sell the Securities

                	
                  16

                
	
                  Section
                    4.2

                	
                  Conditions
                    Precedent to the Obligation of the Purchasers to Close and
                    to Purchase the Securities

                	
                  17

                
	
                   

                  ARTICLE
                    V CERTIFICATE LEGEND

                
	
                  Section
                    5.1

                	
                  Legend

                	
                  18

                
	
                   

                  ARTICLE
                    VI INDEMNIFICATION

                
	
                  Section
                    6.1

                	
                  General
                    Indemnity

                	
                  19

                
	
                  Section
                    6.2

                	
                  Indemnification
                    Procedure

                	
                  19

                
	
                   

                  ARTICLE
                    VII MISCELLANEOUS 

                
	
                  Section
                    7.1

                	
                  Fees
                    and Expenses

                	
                  20

                
	
                  Section
                    7.2

                	
                  Specific
                    Performance; Consent to Jurisdiction; Venue

                	
                  21

                
	
                  Section
                    7.3

                	
                  Entire
                    Agreement; Amendment

                	
                  21

                
	
                  Section
                    7.4

                	
                  Notices

                	
                  21

                
	
                  Section
                    7.5

                	
                  Waivers

                	
                  22

                
	
                  Section
                    7.6

                	
                  Headings

                	
                  22

                
	
                  Section
                    7.7

                	
                  Successors
                    and Assigns

                	
                  22

                
	
                  Section
                    7.8

                	
                  No
                    Third Party Beneficiaries

                	
                  22

                
	
                  Section
                    7.9

                	
                  Governing
                    Law

                	
                  22

                
	
                  Section
                    7.10

                	
                  Survival

                	
                  23

                
	
                  Section
                    7.11

                	
                  Counterparts

                	
                  23

                
	
                  Section
                    7.12

                	
                  Publicity

                	
                  23

                
	
                  Section
                    7.13

                	
                  Severability

                	
                  23

                
	
                  Section
                    7.14

                	
                  Further
                    Assurances

                	
                  23

                
	 	 	 

        

        
          

            
              
                
                   

                

                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

        

      

    

    NOTE
      AND
      WARRANT PURCHASE AGREEMENT

     

    This
      NOTE
      AND WARRANT PURCHASE AGREEMENT dated as of February 5, 2007 (this “Agreement”)
      by and
      between Communication Intelligence Corporation, a Delaware corporation (the
      “Company”),
      and
      each of the purchasers of the promissory notes of the Company whose names are
      set forth on Exhibit
      A
      attached
      hereto (each a “Purchaser”
and
      collectively, the “Purchasers”).

     

    The
      parties hereto agree as follows:

     

    ARTICLE
      I  

     

    PURCHASE
      AND SALE OF NOTES AND WARRANTS

     

    Section
      1.1  Purchase
      and Sale of Notes and Warrants.

     

    (a)  Upon
      the
      following terms and conditions, the Company shall issue and sell to the
      Purchasers, and the Purchasers shall purchase from the Company, promissory
      notes
      in the aggregate principal amount of up to Six Hundred Thousand Dollars
      ($600,000) bearing interest at the rate of fifteen percent (15%) per annum,
      in
      substantially the form attached hereto as Exhibit B (the “Notes”). The Company
      and the Purchasers 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 U.S. Securities Act of 1933, as amended, and the rules and
      regulations promulgated thereunder (the “Securities Act”), including Regulation
      D (“Regulation D”), and/or upon such other exemption from the registration
      requirements of the Securities Act as may be available with respect to any
      or
      all of the investments to be made hereunder.

     

    (b)  Upon
      the
      following terms and conditions, the Purchasers shall be issued (i) Warrants,
      in
      substantially the form attached hereto as Exhibit
      C
      (the
“Warrants”),
      to
      purchase the number of shares of Common Stock set forth opposite such
      Purchaser’s name on Exhibit
      A
      attached
      hereto. The Warrants shall have an exercise price equal to the Warrant Price
      (as
      defined in the respective Warrant) and shall be exercisable as stated therein.
      Each Warrant shall have a term of three (3) years from the later of i) the
      date
      it is issued (the “Issuance Date”) or ii) June 30, 2007.

     

    Section
      1.2  Execution
      and Borrowing

     

    (a) The
      execution of this Agreement shall take place at the offices of Davis Wright
      Tremaine LLP, 1300 S.W. Fifth Avenue, 23rd
      Floor,
      Portland, Oregon 97201 (the “Execution”) at 10:00 a.m., Pacific Daylight Time
      (i) on or before February 5, 2007; provided, that all of the conditions set
      forth in Article IV hereof and applicable to the Closing shall have been
      fulfilled or waived in accordance herewith, or (ii) at such other time and
      place
      or on such date as the Purchasers and the Company may agree upon (the “Execution
      Date”). 

     

    (b) During
      the period commencing on the Execution Date and terminating on March 31, 2007
      (the Borrowing Period) and subject to the terms and conditions of this
      Agreement, the Company may issue and sell the Notes and Warrants to the
      Purchasers in an amount not to exceed $600,000 (such amount, the “Purchase
      Price”) by giving notice thereof to each Purchaser. Within seven (7) business
      days of receipt of such notice, the Company shall deliver or cause to be
      delivered to each Purchaser (x) its Note for the amount of the Purchase Price
      being drawn upon and (y) a Warrant to purchase the pro rata number of shares
      of
      Common Stock corresponding to the Purchase Price (the maximum number of shares
      to be issued pursuant to such warrants shall be 3,111,000 if the full $600,000
      in notes are issued) and each Purchaser shall deliver its Purchase Price by
      wire
      transfer to an account designated by the Company. Each Note issued under this
      Section 1.2 shall be due and payable eighteen months after the date of issuance.
      If the Company has not requested the full amount available, by March 31, 2007,
      the Purchasers shall be entitled to receive, based upon the amount not drawn
      to
      the amount available, a pro rata portion of 250,000 shares of Common Stock
      as a
      standby commitment fee not later than April 30, 2007. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    Section
      1.3  Warrant
      Shares

     

    .
      If at
      any time any Warrant is exercised and the number of the shares available is
      insufficient to effect the exercise, the Company shall seek authorization at
      the
      next scheduled annual meeting of its shareholders to increase the number of
      the
      shares available to effect the exercise of the Warrants and shall reserve such
      number of shares for that purpose. Any shares of Common Stock issuable upon
      exercise of the Warrants (and such shares when issued) are herein referred
      to as
      the “Warrant Shares.” The Notes, the Warrants and the Warrant Shares are
      sometimes collectively referred to herein as the “Securities”. 

    
 

    ARTICLE
      II  

     

    REPRESENTATIONS
      AND WARRANTIES

     

    Section
      2.1  Representations
      and Warranties of the Company

     

    .
      The
      Company hereby represents and warrants to the Purchasers, as of the date hereof
      and the Closing Date (except as set forth on the Schedule of Exceptions attached
      hereto with each numbered Schedule corresponding to the section number herein),
      as follows:

     

    (a)  Organization,
      Good Standing and Power.
      The
      Company is a corporation duly incorporated, validly existing and in good
      standing under the laws of the State of Delaware and has the requisite corporate
      power to own, lease and operate its properties and assets and to conduct its
      business as it is now being conducted. The Company does not have any
      Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in
      any
      other entity except as set forth on Schedule
      2.1(g)
      hereto.
      The Company and each such Subsidiary (as defined in Section 2.1(g)) is duly
      qualified as a foreign corporation to do business and is in good standing in
      every jurisdiction in which the nature of the business conducted or property
      owned by it makes such qualification necessary except for any jurisdiction(s)
      (alone or in the aggregate) in which the failure to be so qualified will not
      have a Material Adverse Effect. For the purposes of this Agreement,
“Material
      Adverse Effect”
means
      any effect on the business (including a material change in management), results
      of operations, prospects, properties, assets or condition (financial or
      otherwise) of the Company that is material and adverse to the Company and its
      subsidiaries, taken as a whole, and/or any condition, circumstance, factor
      or
      situation (including, without limitation, an investigation by the Securities
      and
      Exchange Commission (the “Commission”))
      that
      would prohibit or otherwise materially interfere with the ability of the Company
      from entering into and performing any of its obligations under the Transaction
      Documents (as defined below) in any material respect.

     

    (b)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and
      perform this Agreement, the Notes, the Warrants, the Registration Rights
      Agreement by and among the Company and the Purchasers, dated as of the date
      hereof, substantially in the form of Exhibit
      E
      attached
      hereto (the “Registration
      Rights Agreement”)
      (collectively, the “Transaction
      Documents”)
      and to
      issue and sell the Securities in accordance with the terms hereof. The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by it of the transactions contemplated thereby have been
      duly and validly authorized by all necessary corporate action, and, except
      as
      set forth on Schedule
      2.1(b),
      no
      further consent or authorization of the Company, its Board of Directors or
      stockholders is required. When executed and delivered by the Company and each
      Purchaser, each of the Transaction Documents shall constitute a valid and
      binding obligation of the Company enforceable against the Company in accordance
      with its terms, except as such enforceability may be limited by applicable
      bankruptcy, reorganization, moratorium, liquidation, conservatorship,
      receivership or similar laws relating to, or affecting generally the enforcement
      of, creditor’s rights and remedies or by other equitable principles of general
      application.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (c)  Capitalization.
      The
      authorized capital stock of the Company as of December 31, 2006 is set forth
      on
Schedule
      2.1(c)
      hereto.
      All of the outstanding shares of the Common Stock and any other outstanding
      security of the Company have been duly and validly authorized. Except as set
      forth in this Agreement and as set forth on Schedule
      2.1(c)
      hereto,
      no shares of Common Stock or any other security of the Company are entitled
      to
      preemptive rights or registration rights and there are no outstanding options,
      warrants, scrip, rights to subscribe to, call or commitments of any character
      whatsoever relating to, or securities or rights convertible into, any shares
      of
      capital stock of the Company. Furthermore, except as set forth in this Agreement
      and as set forth on Schedule
      2.1(c)
      hereto,
      there are no contracts, commitments, understandings, or arrangements by which
      the Company is or may become bound to issue additional shares of the capital
      stock of the Company or options, securities or rights convertible into shares
      of
      capital stock of the Company. Except for customary transfer restrictions
      contained in agreements entered into by the Company in order to sell restricted
      securities or as provided on Schedule
      2.1(c)
      hereto,
      the Company is not a party to or bound by any agreement or understanding
      granting registration or anti-dilution rights to any person with respect to
      any
      of its equity or debt securities. Except as set forth on Schedule
      2.1(c),
      the
      Company is not a party to, and it has no knowledge of, any agreement or
      understanding restricting the voting or transfer of any shares of the capital
      stock of the Company.

     

    (d)  Issuance
      of Securities.
      The
      Notes and the Warrants to be issued have been duly authorized by all necessary
      corporate action and, when paid for or issued in accordance with the terms
      hereof, the Notes shall be validly issued and outstanding, free and clear of
      all
      liens, encumbrances and rights of refusal of any kind. When the Warrant Shares
      are issued and paid for in accordance with the terms of this Agreement and
      as
      set forth in the Warrants, such shares will be duly authorized by all necessary
      corporate action and validly issued and outstanding, fully paid and
      non-assessable, free and clear of all liens, encumbrances and rights of refusal
      of any kind and the holders shall be entitled to all rights accorded to a holder
      of Common Stock.

     

    (e)  No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company,
      the performance by the Company of its obligations under the Notes and the
      consummation by the Company of the transactions contemplated hereby and thereby,
      and the issuance of the Securities as contemplated hereby, do not and will
      not
      (i) violate or conflict with any provision of the Company’s Certificate of
      Incorporation (the “Certificate”)
      or
      Bylaws (the “Bylaws”),
      each
      as amended to date, or any Subsidiary’s comparable charter documents, (ii)
      conflict with, or constitute a default (or an event which with notice or lapse
      of time or both would become a default) under, or give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      mortgage, deed of trust, indenture, note, bond, license, lease agreement,
      instrument or obligation to which the Company or any of its Subsidiaries is
      a
      party or by which the Company or any of its Subsidiaries’ respective properties
      or assets are bound, or (iii) result in a violation of any federal, state,
      local
      or foreign statute, rule, regulation, order, judgment or decree (including
      federal and state securities laws and regulations) applicable to the Company
      or
      any of its Subsidiaries or by which any property or asset of the Company or
      any
      of its Subsidiaries are bound or affected, except, in all cases, for such
      conflicts, defaults, terminations, amendments, acceleration, cancellations
      and
      violations as would not, individually or in the aggregate, have a Material
      Adverse Effect (other than violations pursuant to clauses (i) or (iii) (with
      respect to federal and state securities laws)). Neither the Company nor any
      of
      its Subsidiaries is required under federal, state, foreign or local law, rule
      or
      regulation to obtain any consent, authorization or order of, or make any filing
      or registration with, any court or governmental agency in order for it to
      execute, deliver or perform any of its obligations under the Transaction
      Documents or issue and sell the Securities in accordance with the terms hereof
      (other than any filings, consents and approvals which may be required to be
      made
      by the Company under applicable state and federal securities laws, rules or
      regulations or any registration provisions provided in the Registration Rights
      Agreement).

     

    
      
        
        

      

      
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    (f)  Commission
      Documents, Financial Statements.
      The
      Common Stock of the Company is registered pursuant to Section 12(b) or 12(g)
      of
      the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      and
      the Company has timely filed all reports, schedules, forms, statements and
      other
      documents required to be filed by it with the Commission pursuant to the
      reporting requirements of the Exchange Act (all of the foregoing including
      filings incorporated by reference therein being referred to herein as the
“Commission
      Documents”).
      At
      the times of their respective filings, the Form 10-Q for the fiscal quarters
      ended March 31, 2006, June 30, 2006 and September 30, 2006 (collectively the
      “Form
      10-Q”)
      and
      the Form 10-K for the fiscal year ended December 31, 2005 as filed on March
      30,
      2006, as amended on Form 10-K/A as filed on March 31, 2006 (collectively, the
      “Form
      10-K”)
      complied in all material respects with the requirements of the Exchange Act
      and
      the rules and regulations of the Commission promulgated thereunder and other
      federal, state and local laws, rules and regulations applicable to such
      documents, and the Form 10-Q and Form 10-K did not contain any untrue statement
      of a material fact or omit to state a material fact required to be stated
      therein or necessary in order to make the statements therein, in light of the
      circumstances under which they were made, not misleading. As of their respective
      dates, the financial statements of the Company included in the Commission
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the
      Commission or other applicable rules and regulations with respect thereto.
      Such
      financial statements have been prepared in accordance with generally accepted
      accounting principles (“GAAP”)
      applied on a consistent basis during the periods involved (except (i) as may
      be
      otherwise indicated in such financial statements or the Notes thereto or (ii)
      in
      the case of unaudited interim statements, to the extent they may not include
      footnotes or may be condensed or summary statements), and fairly present in
      all
      material respects the financial position of the Company and its Subsidiaries
      as
      of 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
      year-end audit adjustments).

     

    (g)  Subsidiaries.
      Schedule
      2.1(g)
      hereto
      sets forth each Subsidiary of the Company, showing the jurisdiction of its
      incorporation or organization and showing the percentage of each person’s
      ownership of the outstanding stock or other interests of such Subsidiary. For
      the purposes of this Agreement, “Subsidiary”
shall
      mean any corporation or other entity of which at least a majority of the
      securities or other ownership interest having ordinary voting power (absolutely
      or contingently) for the election of directors or other persons performing
      similar functions are at the time owned directly or indirectly by the Company
      and/or any of its other Subsidiaries. All of the outstanding shares of capital
      stock of each Subsidiary have been duly authorized and validly issued, and
      are
      fully paid and non-assessable. There are no outstanding preemptive, conversion
      or other rights, options, warrants or agreements granted or issued by or binding
      upon any Subsidiary for the purchase or acquisition of any shares of capital
      stock of any Subsidiary or any other securities convertible into, exchangeable
      for or evidencing the rights to subscribe for any shares of such capital stock.
      Neither the Company nor any Subsidiary is subject to any obligation (contingent
      or otherwise) to repurchase or otherwise acquire or retire any shares of the
      capital stock of any Subsidiary or any convertible securities, rights, warrants
      or options of the type described in the preceding sentence except as set forth
      on Schedule
      2.1(g)
      hereto.
      Neither the Company nor any Subsidiary is party to, nor has any knowledge of,
      any agreement restricting the voting or transfer of any shares of the capital
      stock of any Subsidiary.

     

    (h)  No
      Material Adverse Change.
      Since
      September 30, 2006, the Company has not experienced or suffered any Material
      Adverse Effect, except as disclosed on Schedule
      2.1(h)
      hereto.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (i)  No
      Undisclosed Liabilities.
      Except
      as disclosed on Schedule
      2.1(i)
      hereto,
      neither the Company nor any of its Subsidiaries has incurred any liabilities,
      obligations, claims or losses (whether liquidated or unliquidated, secured
      or
      unsecured, absolute, accrued, contingent or otherwise) other than those incurred
      in the ordinary course of the Company’s or its Subsidiaries respective
      businesses or which, individually or in the aggregate, are not reasonably likely
      to have a Material Adverse Effect.

     

    (j)  No
      Undisclosed Events or Circumstances.
      Since
      September 30, 2006, except as disclosed on Schedule
      2.1(j)
      hereto,
      no event or circumstance has occurred or exists with respect to the Company
      or
      its Subsidiaries or their respective businesses, properties, prospects,
      operations or financial condition, which, under applicable law, rule or
      regulation, requires public disclosure or announcement by the Company but which
      has not been so publicly announced or disclosed.

     

    (k)  Indebtedness.
      Schedule
      2.1(k)
      hereto
      sets forth as of the date hereof all outstanding secured and unsecured
      Indebtedness of the Company or any Subsidiary, or for which the Company or
      any
      Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess
      of
      $300,000 (other than trade accounts payable incurred in the ordinary course
      of
      business), (b) all guaranties, endorsements and other contingent obligations
      in
      respect of Indebtedness of others, whether or not the same are or should be
      reflected in the Company’s balance sheet (or the notes thereto), except
      guaranties by endorsement of negotiable instruments for deposit or collection
      or
      similar transactions in the ordinary course of business; and (c) the present
      value of any lease payments in excess of $25,000 due under leases required
      to be
      capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
      is
      in default with respect to any Indebtedness.

     

    (l)  Title
      to Assets.
      Each of
      the Company and the Subsidiaries has good and valid title to all of its real
      and
      personal property reflected in the Commission Documents, free and clear of
      any
      mortgages, pledges, charges, liens, security interests or other encumbrances,
      except for those indicated on Schedule
      2.1(l)
      hereto
      or such that, individually or in the aggregate, do not cause a Material Adverse
      Effect. All said leases of the Company and each of its Subsidiaries are valid
      and subsisting and in full force and effect.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (m)  Actions
      Pending.
      There
      is no action, suit, claim, investigation, arbitration, alternate dispute
      resolution proceeding or other proceeding pending or, to the knowledge of the
      Company, threatened against the Company or any Subsidiary which questions the
      validity of this Agreement or any of the other Transaction Documents or any
      of
      the transactions contemplated hereby or thereby or any action taken or to be
      taken pursuant hereto or thereto. Except as set forth on Schedule
      2.1(m)
      hereto,
      there is no action, suit, claim, investigation, arbitration, alternate dispute
      resolution proceeding or other proceeding pending or, to the knowledge of the
      Company, threatened against or involving the Company, any Subsidiary or any
      of
      their respective properties or assets, which individually or in the aggregate,
      would reasonably be expected, if adversely determined, to have a Material
      Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
      or decrees of any court, arbitrator or governmental or regulatory body against
      the Company or any Subsidiary or any officers or directors of the Company or
      Subsidiary in their capacities as such, which individually or in the aggregate,
      could reasonably be expected to have a Material Adverse Effect.

     

    (n)  Compliance
      with Law.
      The
      business of the Company and the Subsidiaries has been and is presently being
      conducted in accordance with all applicable federal, state and local
      governmental laws, rules, regulations and ordinances, except as set forth in
      the
      Commission Documents or on Schedule
      2.1(n)
      hereto
      or such that, individually or in the aggregate, the noncompliance therewith
      could not reasonably be expected to have a Material Adverse Effect. The Company
      and each of its Subsidiaries have all franchises, permits, licenses, consents
      and other governmental or regulatory authorizations and approvals necessary
      for
      the conduct of its business as now being conducted by it unless the failure
      to
      possess such franchises, permits, licenses, consents and other governmental
      or
      regulatory authorizations and approvals, individually or in the aggregate,
      could
      not reasonably be expected to have a Material Adverse Effect.

     

    (o)  Taxes.
      The
      Company and each of the Subsidiaries has accurately prepared and filed all
      federal, state and other tax returns required by law to be filed by it, has
      paid
      or made provisions for the payment of all taxes shown to be due and all
      additional assessments, and adequate provisions have been and are reflected
      in
      the financial statements of the Company and the Subsidiaries for all current
      taxes and other charges to which the Company or any Subsidiary is subject and
      which are not currently due and payable. Except as disclosed on Schedule
      2.1(o)
      hereto,
      none of the federal income tax returns of the Company or any Subsidiary have
      been audited by the Internal Revenue Service. The Company has no knowledge
      of
      any additional assessments, adjustments or contingent tax liability (whether
      federal or state) of any nature whatsoever, whether pending or threatened
      against the Company or any Subsidiary for any period, nor of any basis for
      any
      such assessment, adjustment or contingency.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (p)  Certain
      Fees.
      Except
      as set forth on Schedule
      2.1(p)
      hereto,
      the Company has not employed any broker or finder or incurred any liability
      for
      any brokerage or investment banking fees, commissions, finders’ structuring
      fees, financial advisory fees or other similar fees in connection with the
      Transaction Documents.

     

    (q)  Disclosure.
      To the
      best of the Company’s knowledge, neither this Agreement or the Schedules hereto
      nor any other documents, certificates or instruments furnished to the Purchasers
      by or on behalf of the Company or any Subsidiary in connection with the
      transactions contemplated by this Agreement contain any untrue statement of
      a
      material fact or omit to state a material fact necessary in order to make the
      statements made herein or therein, in the light of the circumstances under
      which
      they were made herein or therein, not misleading.

     

    (r)  Operation
      of Business.
      Except
      as set forth on Schedule
      2.1(r)
      hereto,
      the Company and each of the Subsidiaries owns or possesses the rights to all
      patents, trademarks, domain names (whether or not registered) and any patentable
      improvements or copyrightable derivative works thereof, websites and
      intellectual property rights relating thereto, service marks, trade names,
      copyrights, licenses and authorizations which are necessary for the conduct
      of
      its business as now conducted without any conflict with the rights of
      others.

     

    (s)  Environmental
      Compliance.
      The
      Company and each of its Subsidiaries have obtained all material approvals,
      authorization, certificates, consents, licenses, orders and permits or other
      similar authorizations of all governmental authorities, or from any other
      person, that are required under any Environmental Laws. “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment
      including, without limitation, all requirements pertaining to reporting,
      licensing, permitting, controlling, investigating or remediating emissions,
      discharges, releases or threatened releases of hazardous substances, chemical
      substances, pollutants, contaminants or toxic substances, materials or wastes,
      whether solid, liquid or gaseous in nature, into the air, surface water,
      groundwater or land, or relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of hazardous
      substances, chemical substances, pollutants, contaminants or toxic substances,
      material or wastes, whether solid, liquid or gaseous in nature. To the best
      of
      the Company’s knowledge, the Company has all necessary governmental approvals
      required under all Environmental Laws as necessary for the Company’s business or
      the business of any of its subsidiaries. To the best of the Company’s knowledge,
      the Company and each of its subsidiaries are also in compliance with all other
      limitations, restrictions, conditions, standards, requirements, schedules and
      timetables required or imposed under all Environmental Laws. Except for such
      instances as would not individually or in the aggregate have a Material Adverse
      Effect, there are no past or present events, conditions, circumstances,
      incidents, actions or omissions relating to or in any way affecting the Company
      or its subsidiaries that violate or may violate any Environmental Law after
      the
      Closing Date or that may give rise to any environmental liability, or otherwise
      form the basis of any claim, action, demand, suit, proceeding, hearing, study
      or
      investigation (i) under any Environmental Law, or (ii) based on or related
      to
      the manufacture, processing, distribution, use, treatment, storage (including
      without limitation underground storage tanks), disposal, transport or handling,
      or the emission, discharge, release or threatened release of any hazardous
      substance.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (t)  Books
      and Records; Internal Accounting Controls.
      The
      records and documents of the Company and its Subsidiaries accurately reflect
      in
      all material respects the information relating to the business of the Company
      and the Subsidiaries, the location and collection of their assets, and the
      nature of all transactions giving rise to the obligations or accounts receivable
      of the Company or any Subsidiary. The Company and each of its Subsidiaries
      maintain a system of internal accounting controls sufficient, in the judgment
      of
      the Company’s board of directors, to provide reasonable assurance that (i)
      transactions are executed in accordance with management’s general or specific
      authorizations, (ii) transactions are recorded as necessary to permit
      preparation of financial statements in conformity with generally accepted
      accounting principles and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management’s general or specific
      authorization and (iv) the recorded accountability for assets is compared with
      the existing assets at reasonable intervals and appropriate actions are taken
      with respect to any differences.

     

    (u)  Material
      Agreements.
      Except
      for the Transaction Documents (with respect to clause (i) only), as disclosed
      in
      the Commission Documents or as set forth on Schedule
      2.1(u)
      hereto,
      or as would not be reasonably likely to have a Material Adverse Effect, (i)
      the
      Company and each of its Subsidiaries have performed all obligations required
      to
      be performed by them to date under any written or oral contract, instrument,
      agreement, commitment, obligation, plan or arrangement, filed or required to
      be
      filed with the Commission (the “Material
      Agreements”),
      (ii)
      neither the Company nor any of its Subsidiaries has received any notice of
      default under any Material Agreement and, (iii) to the best of the Company’s
      knowledge, neither the Company nor any of its Subsidiaries is in default under
      any Material Agreement now in effect.

     

    (v)  Transactions
      with Affiliates.
      Except
      as set forth on Schedule
      2.1(v)
      hereto
      and in the Commission Documents, there are no loans, leases, agreements,
      contracts, royalty agreements, management contracts or arrangements or other
      continuing transactions between (a) the Company, any Subsidiary or any of their
      respective customers or suppliers on the one hand, and (b) on the other hand,
      any officer, employee, consultant or director of the Company, or any of its
      Subsidiaries, or any person owning at least 5% of the outstanding capital stock
      of the Company or any Subsidiary or any member of the immediate family of such
      officer, employee, consultant, director or stockholder or any corporation or
      other entity controlled by such officer, employee, consultant, director or
      stockholder, or a member of the immediate family of such officer, employee,
      consultant, director or stockholder which, in each case, is required to be
      disclosed in the Commission Documents or in the Company’s most recently filed
      definitive proxy statement on Schedule 14A, that is not so disclosed in the
      Commission Documents or in such proxy statement.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (w)  Securities
      Act of 1933.
      Based
      in material part upon the representations herein of the Purchasers, the Company
      has complied and will comply with all applicable federal and state securities
      laws in connection with the offer, issuance and sale of the Securities
      hereunder. Neither the Company nor anyone acting on its behalf, directly or
      indirectly, has or will sell, offer to sell or solicit offers to buy any of
      the
      Securities or similar securities to, or solicit offers with respect thereto
      from, or enter into any negotiations relating thereto with, any person, or
      has
      taken or will take any action so as to bring the issuance and sale of any of
      the
      Securities under the registration provisions of the Securities Act and
      applicable state securities laws, and neither the Company nor any of its
      affiliates, nor any person acting on its or their behalf, has engaged in any
      form of general solicitation or general advertising (within the meaning of
      Regulation D under the Securities Act) in connection with the offer or sale
      of
      any of the Securities.

     

    (x)  Employees.
      Neither
      the Company nor any Subsidiary has any collective bargaining arrangements or
      agreements covering any of its employees, except as set forth on Schedule
      2.1(x)
      hereto.
      Except as set forth on Schedule
      2.1(x)
      hereto,
      neither the Company nor any Subsidiary has any employment contract, agreement
      regarding proprietary information, non-competition agreement, non-solicitation
      agreement, confidentiality agreement, or any other similar contract or
      restrictive covenant, relating to the right of any officer, employee or
      consultant to be employed or engaged by the Company or such Subsidiary required
      to be disclosed in the Commission Documents that is not so disclosed. No
      officer, consultant or key employee of the Company or any Subsidiary whose
      termination, either individually or in the aggregate, would be reasonably likely
      to have a Material Adverse Effect, has terminated or, to the knowledge of the
      Company, has any present intention of terminating his or her employment or
      engagement with the Company or any Subsidiary.

     

    (y)  Absence
      of Certain Developments.
      Except
      as provided on Schedule
      2.1(y)
      hereto,
      since September 30, 2006, neither the Company nor any Subsidiary
      has:

     

    (i)  issued
      any stock, bonds or other corporate securities or any right, options or warrants
      with respect thereto;

     

    (ii)  borrowed
      any amount in excess of $300,000 or incurred or become subject to any other
      liabilities in excess of $100,000 (absolute or contingent) except current
      liabilities incurred in the ordinary course of business which are comparable
      in
      nature and amount to the current liabilities incurred in the ordinary course
      of
      business during the comparable portion of its prior fiscal year, as adjusted
      to
      reflect the current nature and volume of the business of the Company and its
      Subsidiaries;

     

    (iii)  discharged
      or satisfied any lien or encumbrance in excess of $250,000 or paid any
      obligation or liability (absolute or contingent) in excess of $250,000, other
      than current liabilities paid in the ordinary course of business;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (iv)  declared
      or made any payment or distribution of cash or other property to stockholders
      with respect to its stock, or purchased or redeemed, or made any agreements
      so
      to purchase or redeem, any shares of its capital stock, in each case in excess
      of $50,000 individually or $100,000 in the aggregate;

     

    (v)  sold,
      assigned or transferred any other tangible assets, or canceled any debts or
      claims, in each case in excess of $250,000, except in the ordinary course of
      business;

     

    (vi)  sold,
      assigned or transferred any patent rights, trademarks, trade names, copyrights,
      trade secrets or other intangible assets or intellectual property rights in
      excess of $250,000, or disclosed any proprietary confidential information to
      any
      person except to customers in the ordinary course of business or to the
      Purchasers or their representatives;

     

    (vii)  suffered
      any material losses or waived any rights of material value, whether or not
      in
      the ordinary course of business, or suffered the loss of any material amount
      of
      prospective business;

     

    (viii)  made
      any
      changes in employee compensation except in the ordinary course of business
      and
      consistent with past practices;

     

    (ix)  made
      capital expenditures or commitments therefor that aggregate in excess of
      $500,000;

     

    (x)  entered
      into any material transaction, whether or not in the ordinary course of
      business;

     

    (xi)  made
      charitable contributions or pledges in excess of $25,000;

     

    (xii)  suffered
      any material damage, destruction or casualty loss, whether or not covered by
      insurance;

     

    (xiii)  experienced
      any material problems with labor or management in connection with the terms
      and
      conditions of their employment; or

     

    (xiv)  entered
      into an agreement, written or otherwise, to take any of the foregoing
      actions.

     

    (z)  Public
      Utility Holding Company Act and Investment Company Act Status.
      The
      Company is not a “holding company” or a “public utility company” as such terms
      are defined in the Public Utility Holding Company Act of 1935, as amended.
      The
      Company is not, and as a result of and immediately upon the Closing will not
      be,
      an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
      amended.

     

    (aa)  ERISA.
      No
      liability to the Pension Benefit Guaranty Corporation has been incurred with
      respect to any Plan by the Company or any of its Subsidiaries which is or would
      be materially adverse to the Company and its Subsidiaries. The execution and
      delivery of this Agreement and the issuance and sale of the Securities will
      not
      involve any transaction which is subject to the prohibitions of Section 406
      of
      the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or in
      connection with which a tax could be imposed pursuant to Section 4975 of the
      Internal Revenue Code of 1986, as amended, provided that, if any of the
      Purchasers, or any person or entity that owns a beneficial interest in any
      of
      the Purchasers, is an “employee pension benefit plan” (within the meaning of
      Section 3(2) of ERISA) with respect to which the Company is a “party in
      interest” (within the meaning of Section 3(14) of ERISA), the requirements of
      Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
      this
      Section 2.1(aa), the term “Plan” shall mean an “employee pension benefit plan”
(as defined in Section 3 of ERISA) which is or has been established or
      maintained, or to which contributions are or have been made, by the Company
      or
      any Subsidiary or by any trade or business, whether or not incorporated, which,
      together with the Company or any Subsidiary, is under common control, as
      described in Section 414(b) or (c) of the Code.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (bb)  Independent
      Nature of Purchasers.
      The
      Company acknowledges that the obligations of each Purchaser under the
      Transaction Documents are several and not joint with the obligations of any
      other Purchaser, and no Purchaser shall be responsible in any way for the
      performance of the obligations of any other Purchaser under the Transaction
      Documents. The Company acknowledges that the decision of each Purchaser to
      purchase Securities pursuant to this Agreement has been made by such Purchaser
      independently of any other purchase and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company or of its Subsidiaries which may have
      made or given by any other Purchaser or by any agent or employee of any other
      Purchaser, and no Purchaser or any of its agents or employees shall have any
      liability to any Purchaser (or any other person) relating to or arising from
      any
      such information, materials, statements or opinions. The Company acknowledges
      that nothing contained herein, or in any Transaction Document, and no action
      taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
      the Purchasers as a partnership, an association, a joint venture or any other
      kind of entity, or create a presumption that the Purchasers are in any way
      acting in concert or as a group with respect to such obligations or the
      transactions contemplated by the Transaction Documents. The Company acknowledges
      that it has elected to provide all Purchasers with the same terms and
      Transaction Documents for the convenience of the Company and not because it
      was
      required or requested to do so by the Purchasers. The Company acknowledges
      that
      such procedure with respect to the Transaction Documents in no way creates
      a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to the Transaction Documents or the transactions contemplated
      hereby or thereby.

     

    (cc)  No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would cause
      the offering of the Securities pursuant to this Agreement to be integrated
      with
      prior offerings by the Company for purposes of the Securities Act which would
      prevent the Company from selling the Securities pursuant to Regulation D and
      Rule 506 thereof under the Securities Act, or any applicable exchange-related
      stockholder approval provisions, nor will the Company or any of its affiliates
      or subsidiaries take any action or steps that would cause the offering of the
      Securities to be integrated with other offerings. Except as set forth on
Schedule
      2.1(cc),
      the
      Company does not have any registration statement pending before the Commission
      or currently under the Commission’s review and, except as set forth on
Schedule
      2.1(cc),
      since
      March 31, 2006, the Company has not offered or sold any of its equity securities
      or debt securities convertible into shares of Common Stock.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (dd)  Sarbanes-Oxley
      Act

     

    .
      The
      Company is in substantial compliance with the applicable provisions of the
      Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
      Act”),
      and
      the rules and regulations promulgated thereunder, that are effective and intends
      to comply substantially with other applicable provisions of the Sarbanes-Oxley
      Act, and the rules and regulations promulgated thereunder, upon the
      effectiveness of such provisions.

     

    Section
      2.2  Representations
      and Warranties of the Purchasers

     

    .
      Each of
      the Purchasers hereby represents and warrants to the Company with respect solely
      to itself and not with respect to any other Purchaser as follows as of the
      date
      hereof and as of the Closing Date:

     

    (a)  Organization
      and Standing of the Purchasers.
      If the
      Purchaser is an entity, such Purchaser is a corporation, limited liability
      company or partnership duly incorporated or organized, validly existing and
      in
      good standing under the laws of the jurisdiction of its incorporation or
      organization.

     

    (b)  Authorization
      and Power.
      Each
      Purchaser has the requisite power and authority to enter into and perform the
      Transaction Documents and to purchase the Securities being sold to it hereunder.
      The execution, delivery and performance of the Transaction Documents by each
      Purchaser and the consummation by it of the transactions contemplated hereby
      have been duly authorized by all necessary corporate or partnership action,
      and
      no further consent or authorization of such Purchaser or its Board of Directors,
      stockholders, or partners, as the case may be, is required. When executed and
      delivered by the Purchasers and the Company, the other Transaction Documents
      shall constitute valid and binding obligations of each Purchaser enforceable
      against such Purchaser in accordance with their terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation, conservatorship, receivership or
      similar laws relating to, or affecting generally the enforcement of, creditor’s
      rights and remedies or by other equitable principles of general
      application.

     

    (c)  No
      Conflict.
      The
      execution, delivery and performance of the Transaction Documents by the
      Purchaser and the consummation by the Purchaser of the transactions contemplated
      thereby and hereby do not and will not (i) violate any provision of the
      Purchaser’s charter or organizational documents, (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, mortgage, deed of
      trust, indenture, note, bond, license, lease agreement, instrument or obligation
      to which the Purchaser is a party or by which the Purchaser’s respective
      properties or assets are bound, or (iii) result in a violation of any federal,
      state, local or foreign statute, rule, regulation, order, judgment or decree
      (including federal and state securities laws and regulations) applicable to
      the
      Purchaser or by which any property or asset of the Purchaser are bound or
      affected, except, in all cases, other than violations pursuant to clauses (i)
      or
      (iii) (with respect to federal and state securities laws) above, except, for
      such conflicts, defaults, terminations, amendments, acceleration, cancellations
      and violations as would not, individually or in the aggregate, materially and
      adversely affect the Purchaser’s ability to perform its obligations under the
      Transaction Documents.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (d)  Acquisition
      for Investment.
      Each
      Purchaser is purchasing the Securities solely for its own account for the
      purpose of investment and not with a view to or for sale in connection with
      distribution. Each Purchaser does not have a present intention to sell any
      of
      the Securities, nor a present arrangement (whether or not legally binding)
      or
      intention to effect any distribution of any of the Securities to or through
      any
      person or entity; provided,
      however,
      that by
      making the representations herein, such Purchaser does not agree to hold the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with Federal and state
      securities laws applicable to such disposition. Each Purchaser acknowledges
      that
      it (i) has such knowledge and experience in financial and business matters
      such
      that Purchaser is capable of evaluating the merits and risks of Purchaser’s
      investment in the Company, (ii) is able to bear the financial risks associated
      with an investment in the Securities and (iii) has been given full access to
      such records of the Company and the Subsidiaries and to the officers of the
      Company and the Subsidiaries as it has deemed necessary or appropriate to
      conduct its due diligence investigation.

     

    (e)  Rule
      144.
      Each
      Purchaser understands that the Securities must be held indefinitely unless
      such
      Securities are registered under the Securities Act or an exemption from
      registration is available. Each Purchaser acknowledges that such person is
      familiar with Rule 144 of the rules and regulations of the Commission, as
      amended, promulgated pursuant to the Securities Act (“Rule
      144”),
      and
      that such Purchaser has been advised that Rule144 permits resales only under
      certain circumstances. Each Purchaser understands that to the extent that Rule
      144 is not available, such Purchaser will be unable to sell any Securities
      without either registration under the Securities Act or the existence of another
      exemption from such registration requirement.

     

    (f)  General.
      Each
      Purchaser understands that the Securities are being offered and sold in reliance
      on a transactional exemption from the registration requirements of federal
      and
      state securities laws and the Company is relying upon the truth and accuracy
      of
      the representations, warranties, agreements, acknowledgments and understandings
      of such Purchaser set forth herein in order to determine the applicability
      of
      such exemptions and the suitability of such Purchaser to acquire the Securities.
      Each Purchaser understands that no United States federal or state agency or
      any
      government or governmental agency has passed upon or made any recommendation
      or
      endorsement of the Securities. None of the Purchasers has engaged in any short
      sale of the Company’s Common Stock prior to the consummation of the transaction
      contemplated by this Agreement.

     

    (g)  No
      General Solicitation.
      Each
      Purchaser acknowledges that the Securities were not offered to such Purchaser
      by
      means of any form of general or public solicitation or general advertising,
      or
      publicly disseminated advertisements or sales literature, including (i) any
      advertisement, article, notice or other communication published in any
      newspaper, magazine, or similar media, or broadcast over television or radio,
      or
      (ii) any seminar or meeting to which such Purchaser was invited by any of the
      foregoing means of communications. Each Purchaser, in making the decision to
      purchase the Securities, has relied upon independent investigation made by
      it
      and has not relied on any information or representations made by third
      parties.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (h)  Accredited
      Investor.
      Each
      Purchaser is an “accredited investor” (as defined in Rule 501 of Regulation D),
      and such Purchaser has such experience in business and financial matters that
      it
      is capable of evaluating the merits and risks of an investment in the
      Securities. Such Purchaser is not required to be registered as a broker-dealer
      under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer.
      Each Purchaser acknowledges that an investment in the Securities is speculative
      and involves a high degree of risk.

     

    (i)  Certain
      Fees.
      The
      Purchasers have not employed any broker or finder or incurred any liability
      for
      any brokerage or investment banking fees, commissions, finders’ structuring
      fees, financial advisory fees or other similar fees in connection with the
      Transaction Documents.

     

    (j)  Independent
      Investment.
      No
      Purchaser has agreed to act with any other Purchaser for the purpose of
      acquiring, holding, voting or disposing of the Securities purchased hereunder
      for purposes of Section 13(d) under the Exchange Act, and each Purchaser is
      acting independently with respect to its investment in the
      Securities.

     

    ARTICLE
      III  

     

    COVENANTS

     

    The
      Company covenants with each Purchaser as follows, which covenants are for the
      benefit of each Purchaser and their respective permitted assignees.

     

    Section
      3.1  Securities
      Compliance

     

    .
      The
      Company shall notify the Commission in accordance with its rules and
      regulations, of the transactions contemplated by any of the Transaction
      Documents and shall take all other necessary action and proceedings as may
      be
      required and permitted by applicable law, rule and regulation, for the legal
      and
      valid issuance of the Securities to the Purchasers, or their respective
      subsequent holders.

     

    Section
      3.2  Registration
      and Listing

     

    .
      The
      Company shall use its reasonable best efforts to cause its Common Stock to
      continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
      to
      comply in all respects with its reporting and filing obligations under the
      Exchange Act, to comply with all requirements related to any registration
      statement filed pursuant to this Agreement, and to not take any action or file
      any document (whether or not permitted by the Securities Act or the rules
      promulgated thereunder) to terminate or suspend such registration or to
      terminate or suspend its reporting and filing obligations under the Exchange
      Act
      or Securities Act, except as permitted herein. The Company shall use its
      reasonable best efforts to continue the listing or trading of its Common Stock
      on the OTC Bulletin Board or any successor market.

     

    Section
      3.3  Compliance
      with Laws

     

    .
      The
      Company shall comply, and cause each Subsidiary to comply, with all applicable
      laws, rules, regulations and orders, noncompliance with which would be
      reasonably likely to have a Material Adverse Effect.

     

    Section
      3.4  Keeping
      of Records and Books of Account

     

    .
      The
      Company shall keep and cause each Subsidiary to keep adequate records and books
      of account, in which complete entries will be made in accordance with GAAP
      consistently applied, reflecting all financial transactions of the Company
      and
      its Subsidiaries, and in which, for each fiscal year, all proper reserves for
      depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
      purposes in connection with its business shall be made.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Section
      3.5  Reporting
      Requirements

     

    .
      If the
      Company ceases to file its periodic reports with the Commission, or if the
      Commission ceases making these periodic reports available via the Internet
      without charge, then the Company shall furnish the following to each Purchaser
      so long as such Purchaser shall be obligated hereunder to purchase the
      Securities or shall beneficially own Warrant Shares:

     

    (a)  Quarterly
      Reports filed with the Commission on Form 10-Q as soon as available, and in
      any
      event within forty-five (45) days after the end of each of the first three
      fiscal quarters of the Company;

     

    (b)  Annual
      Reports filed with the Commission on Form 10-K as soon as available, and in
      any
      event within ninety (90) days after the end of each fiscal year of the Company;
      and

     

    (c)  Copies
      of
      all notices, information and proxy statements in connection with any meetings,
      that are, in each case, provided to holders of shares of Common Stock,
      contemporaneously with the delivery of such notices or information to such
      holders of Common Stock.

     

    Section
      3.6  Other
      Agreements

     

    .
      The
      Company shall not enter into any agreement in which the terms of such agreement
      would restrict or impair the right or ability to perform of the Company or
      any
      Subsidiary under any Transaction Document.

     

    Section
      3.7  Use
      of
      Proceeds

     

    .
      The
      proceeds from the sale of the Securities will be used by the Company for working
      capital and general corporate purposes.

     

    Section
      3.8  Reporting
      Status

     

    .
      So
      long
      as a Purchaser beneficially owns any of the Securities, the Company shall timely
      file all reports required to be filed with the Commission pursuant to the
      Exchange Act, and the Company shall not terminate its status as an issuer
      required to file reports under the Exchange Act even if the Exchange Act or
      the
      rules and regulations thereunder would permit such termination.

     

    Section
      3.9  Disclosure
      of Transaction

     

    .
      The
      Company shall issue a press release describing the material terms of the
      transactions contemplated hereby (the “Press Release”) on the day of the
      Closing; provided, however, that if Closing occurs after 4:00 P.M. Eastern
      Time
      on any Trading Day but in no event later than one hour after the Closing, the
      Company shall issue the Press Release no later than 9:00 A.M. Eastern Time
      on
      the first Trading Day following the Closing Date. The Company shall also file
      with the Commission a Current Report on Form 8-K (the “Form 8-K”) describing the
      material terms of the transactions contemplated hereby (and attaching as
      exhibits thereto this Agreement, the Note, the Registration Rights Agreement
      and
      the form of Warrant) as soon as practicable following the date of execution
      of
      this Agreement but in no event more than two (2) Trading Days following the
      date
      of execution of this Agreement. “Trading Day” means any day during which the
      principal exchange on which the Common Stock is traded shall be open for
      trading.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    Section
      3.10  Disclosure
      of Material Information

     

    .
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf has provided or will provide any Purchaser or its agents or counsel
      with
      any information that the Company believes constitutes material non-public
      information, unless prior thereto such Purchaser shall have executed a written
      agreement regarding the confidentiality and use of such information.  The
      Company understands and confirms that each Purchaser shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company.

     

    Section
      3.11  Amendments

     

    .
      The
      Company shall not amend or waive any provision of the Certificate or Bylaws
      of
      the Company in any way that would adversely affect exercise rights, voting
      rights, conversion rights, prepayment rights or redemption rights of the holder
      of the Notes.

     

    Section
      3.12  Reservation
      of Shares

     

    .
      So long
      as any of the Notes or Warrants remain outstanding, the Company shall take
      all
      action necessary to seek authorization at the next scheduled annual meeting
      of
      its shareholders to increase the aggregate number of shares of Common Stock
      needed to provide for the issuance of the Warrant Shares.

     

    Section
      3.13  Disposition
      of Assets

     

    .
      So long
      as the Notes remain outstanding, neither the Company nor any subsidiary shall
      sell, transfer or otherwise dispose of any of its properties, assets and rights
      including, without limitation, its software and intellectual property, to any
      person except for sales to customers in the ordinary course of business or
      with
      the prior written consent of the holders of a majority of the Notes then
      outstanding.

     

    Section
      3.14  Non-Shorting

     

    .
      So long
      as the Notes or Warrants remain outstanding, each Purchaser covenants and agrees
      that it will not engage in any short sales of the Company’s Common
      Stock.

     

    ARTICLE
      IV  

     

    CONDITIONS

     

    Section
      4.1  Conditions
      Precedent to the Obligation of the Company to Close and to Sell the
      Securities

     

    .
      The
      obligation hereunder of the Company to close and issue and sell the Securities
      to the Purchasers at the Closing is subject to the satisfaction or waiver,
      at or
      before the Closing of the conditions set forth below. These conditions are
      for
      the Company’s sole benefit and may be waived by the Company at any time in its
      sole discretion.

     

    (a)  Accuracy
      of the Purchasers’ Representations and Warranties.
      The
      representations and warranties of each Purchaser shall be true and correct
      in
      all material respects as of the date when made and as of the Closing Date as
      though made at that time, except for representations and warranties that are
      expressly made as of a particular date, which shall be true and correct in
      all
      material respects as of such date.

     

    (b)  Performance
      by the Purchasers.
      Each
      Purchaser shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by this Agreement to
      be
      performed, satisfied or complied with by the Purchasers at or prior to the
      Closing Date.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (c)  No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction which prohibits the consummation of any
      of
      the transactions contemplated by this Agreement.

     

    (d)  Delivery
      of Transaction Documents.
      The
      Transaction Documents shall have been duly executed and delivered by the
      Purchasers to the Company.

     

    Section
      4.2  Conditions
      Precedent to the Obligation of the Purchasers to Close and to Purchase the
      Securities

     

    .
      The
      obligation hereunder of the Purchasers to purchase the Securities and consummate
      the transactions contemplated by this Agreement is subject to the satisfaction
      or waiver, at or before the Closing, of each of the conditions set forth below.
      These conditions are for the Purchasers’ sole benefit and may be waived by the
      Purchasers at any time in their sole discretion.

     

    (a)  Accuracy
      of the Company’s Representations and Warranties.
      Each of
      the representations and warranties of the Company in this Agreement and the
      Registration Rights Agreement shall be true and correct in all material respects
      as of the Closing Date, except for representations and warranties that speak
      as
      of a particular date, which shall be true and correct in all material respects
      as of such date.

     

    (b)  Performance
      by the Company.
      The
      Company shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by this Agreement to
      be
      performed, satisfied or complied with by the Company at or prior to the Closing
      Date.

     

    (c)  No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction which prohibits the consummation of any
      of
      the transactions contemplated by this Agreement.

     

    (d)  No
      Proceedings or Litigation.
      No
      action, suit or proceeding before any arbitrator or any governmental authority
      shall have been commenced, and no investigation by any governmental authority
      shall have been threatened, against the Company or any Subsidiary, or any of
      the
      officers, directors or affiliates of the Company or any Subsidiary seeking
      to
      restrain, prevent or change the transactions contemplated by this Agreement,
      or
      seeking damages in connection with such transactions.

     

    (e)  Secretary’s
      Certificate.
      The
      Company shall have delivered to the Purchasers a secretary’s certificate, dated
      as of the Closing Date, as to (i) the resolutions adopted by the Board of
      Directors approving the transactions contemplated hereby, (ii) the Certificate,
      (iii) the Bylaws, each as in effect at the Closing, and (iv) the authority
      and
      incumbency of the officers of the Company executing the Transaction Documents
      and any other documents required to be executed or delivered in connection
      therewith.

     

    (f)  Officer’s
      Certificate.
      On the
      Closing Date, the Company shall have delivered to the Purchasers a certificate
      signed by an executive officer on behalf of the Company, dated as of the Closing
      Date, confirming the accuracy of the Company’s representations, warranties and
      covenants as of the Closing Date and confirming the compliance by the Company
      with the conditions precedent set forth in paragraphs (b)-(d) of this Section
      4.2 as of the Closing Date (provided that, with respect to the matters in
      paragraph (d) of this Section 4.2, such confirmation shall be based on the
      knowledge of the executive officer after due inquiry).

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (g)  Registration
      Rights Agreement.
      As of
      the Closing Date, the parties shall have entered into the Registration Rights
      Agreement.

     

    (h)  Material
      Adverse Effect.
      No
      Material Adverse Effect shall have occurred at or before the Closing
      Date.

     

    ARTICLE
      V  

     

    CERTIFICATE
      LEGEND

     

    Section
      5.1  Legend

     

    .
      Each
      certificate representing the Securities shall be stamped or otherwise imprinted
      with a legend substantially in the following form (in addition to any legend
      required by applicable state securities or “blue sky” laws):

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) 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.

     

    The
      Company agrees to reissue certificates representing any of the Warrant Shares,
      without the legend set forth above if at such time, prior to making any transfer
      of any such Warrant Shares, such holder thereof shall give written notice to
      the
      Company describing the manner and terms of such transfer and removal as the
      Company may reasonably request. Such proposed transfer and removal will not
      be
      effected until: (a) either (i) the Company has received an opinion of counsel
      reasonably satisfactory to the Company, to the effect that the registration
      of
      the Warrant Shares 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 Company with the
      Commission and has become effective under the Securities Act, (iii) the Company
      has received other evidence reasonably satisfactory to the Company that such
      registration and qualification under the Securities Act and state securities
      laws are not required, or (iv) the holder provides the Company with reasonable
      assurances that such security can be sold pursuant to Rule 144 under the
      Securities Act; and (b) either (i) the Company has received an opinion of
      counsel reasonably satisfactory to the Company, 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, (ii) compliance with
      applicable state securities or “blue sky” laws has been effected, or (iii) the
      holder provides the Company with reasonable assurances that a valid exemption
      exists with respect thereto. The Company will respond to any such notice from
      a
      holder within five (5) business days. In the case of any proposed transfer
      under
      this Section 5.1, the Company will use reasonable 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, (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 subject, or (z) to comply
      with state securities or “blue sky” laws of any state for which registration by
      coordination is unavailable to the Company. The restrictions on transfer
      contained in this Section 5.1 shall be in addition to, and not by way of
      limitation of, any other restrictions on transfer contained in any other section
      of this Agreement. Whenever
      a
      certificate representing the Warrant Shares is required to be issued to a
      Purchaser without a legend, in lieu of delivering physical certificates
      representing the Warrant Shares, provided the Company’s transfer agent is
      participating in the Depository Trust Company (“DTC”)
      Fast
      Automated Securities Transfer program, the Company shall use its reasonable
      best
      efforts to cause its transfer agent to electronically transmit the Warrant
      Shares to a Purchaser by crediting the account of such Purchaser’s Prime Broker
      with DTC through its Deposit Withdrawal Agent Commission (“DWAC”)
      system
      (to the extent not inconsistent with any provisions of this
      Agreement).

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    ARTICLE
      VI  

     

    

     

    INDEMNIFICATION

     

    Section
      6.1  General
      Indemnity

     

    .
      The
      Company agrees to indemnify and hold harmless the Purchasers (and their
      respective directors, officers, affiliates, agents, successors and assigns)
      from
      and against any and all losses, liabilities, deficiencies, costs, damages and
      expenses (including, without limitation, reasonable attorneys’ fees, charges and
      disbursements) incurred by the Purchasers as a result of any inaccuracy in
      or
      breach of the representations, warranties or covenants made by the Company
      herein. Each Purchaser severally but not jointly agrees to indemnify and hold
      harmless the Company and its directors, officers, affiliates, agents, successors
      and assigns from and against any and all losses, liabilities, deficiencies,
      costs, damages and expenses (including, without limitation, reasonable
      attorneys’ fees, charges and disbursements) incurred by the Company as result of
      any inaccuracy in or breach of the representations, warranties or covenants
      made
      by such Purchaser herein. The maximum aggregate liability of each Purchaser
      pursuant to its indemnification obligations under this Article VI shall not
      exceed the portion of the Purchase Price paid by such Purchaser hereunder.
      The
      maximum aggregate liability of the Company pursuant to its indemnification
      obligations under this Article VI shall not exceed the aggregate Purchase Price,
      including any actual moneys paid by the Purchasers for the Warrant
      Shares.

     

    Section
      6.2  Indemnification
      Procedure

     

    .
      Any
      party entitled to indemnification under this Article VI (an “indemnified party”)
      will give written notice to the indemnifying party of any matter giving rise
      to
      a claim for indemnification; provided, that the failure of any party entitled
      to
      indemnification hereunder to give notice as provided herein shall not relieve
      the indemnifying party of its obligations under this Article VI except to the
      extent that the indemnifying party is actually prejudiced by such failure to
      give notice. In case any such action, proceeding or claim is brought against
      an
      indemnified party in respect of which indemnification is sought hereunder,
      the
      indemnifying party shall be entitled to participate in and, unless in the
      reasonable judgment of the indemnifying party a conflict of interest between
      it
      and the indemnified party exists with respect to such action, proceeding or
      claim (in which case the indemnifying party shall be responsible for the
      reasonable fees and expenses of one separate counsel for the indemnified
      parties), to assume the defense thereof with counsel reasonably satisfactory
      to
      the indemnified party. In the event that the indemnifying party advises an
      indemnified party that it will not contest such a claim for indemnification
      hereunder, or fails, within thirty (30) days of receipt of any indemnification
      notice to notify, in writing, such person of its election to defend, settle
      or
      compromise, at its sole cost and expense, any action, proceeding or claim (or
      discontinues its defense at any time after it commences such defense), then
      the
      indemnified party may, at its option, defend, settle or otherwise compromise
      or
      pay such action or claim. In any event, unless and until 

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

       

       

      the
        indemnifying party elects in writing to assume and does so assume the defense
        of
        any such claim, proceeding or action, the indemnified party’s costs and expenses
        arising out of the defense, settlement or compromise of any such action,
        claim
        or proceeding shall be losses subject to indemnification hereunder. The
        indemnified party shall cooperate fully with the indemnifying party in
        connection with any negotiation or defense of any such action or claim by
        the
        indemnifying party and shall furnish to the indemnifying party all information
        reasonably available to the indemnified party which relates to such action
        or
        claim. The indemnifying party shall keep the indemnified party fully apprised
        at
        all times as to the status of the defense or any settlement negotiations
        with
        respect thereto. If the indemnifying party elects to defend any such action
        or
        claim, then the indemnified party shall be entitled to participate in such
        defense with counsel of its choice at its sole cost and expense. The
        indemnifying party shall not be liable for any settlement of any action,
        claim
        or proceeding effected without its prior written consent. Notwithstanding
        anything in this Article VI to the contrary, the indemnifying party shall
        not,
        without the indemnified party’s prior written consent, settle or compromise any
        claim or consent to entry of any judgment in respect thereof which imposes
        any
        future obligation on the indemnified party or which does not include, as
        an
        unconditional term thereof, the giving by the claimant or the plaintiff to
        the
        indemnified party of a release from all liability in respect of such claim.
        The
        indemnification obligations to defend the indemnified party required by this
        Article VI shall be made by periodic payments of the amount thereof during
        the
        course of investigation or defense, as and when bills are received or expense,
        loss, damage or liability is incurred, so long as the indemnified party shall
        refund such moneys if it is ultimately determined by a court of competent
        jurisdiction that such party was not entitled to indemnification. The indemnity
        agreements contained herein shall be in addition to (a) any cause of action
        or
        similar rights of the indemnified party against the indemnifying party or
        others, and (b) any liabilities the indemnifying party may be subject to
        pursuant to the law. No indemnifying party will be liable to the indemnified
        party under this Agreement to the extent, but only to the extent that a loss,
        claim, damage or liability is attributable to the indemnified party’s breach of
        any of the representations, warranties or covenants made by such party in
        this
        Agreement or in the other Transaction Documents.

    

     

    ARTICLE
      VII  

     

    MISCELLANEOUS

     

    Section
      7.1  Fees
      and Expenses .
      Each
      party shall pay the fees and expenses of its advisors, counsel, accountants
      and
      other experts, if any, and all other expenses, incurred by such party incident
      to the negotiation, preparation, execution, delivery and performance of this
      Agreement.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    Section
      7.2  Specific
      Performance; Consent to Jurisdiction; Venue.

     

    (a)  The
      Company and the Purchasers acknowledge and agree that irreparable damage would
      occur in the event that any of the provisions of this Agreement or the other
      Transaction Documents were not performed in accordance with their specific
      terms
      or were otherwise breached. It is accordingly agreed that the parties shall
      be
      entitled to an injunction or injunctions to prevent or cure breaches of the
      provisions of this Agreement or the other Transaction Documents and to enforce
      specifically the terms and provisions hereof or thereof, this being in addition
      to any other remedy to which any of them may be entitled by law or
      equity.

     

    (b)  The
      parties agree that venue for any dispute arising under this Agreement will
      lie
      exclusively in the state or federal courts located in California and the parties
      irrevocably waive any right to raise forum
      non conveniens
      or any
      other argument that California is not the proper venue. The parties irrevocably
      consent to personal jurisdiction in the state and federal courts of the state
      of
      California. The Company and each Purchaser consent to process being served
      in
      any such suit, action or proceeding by mailing a copy thereof to such party
      at
      the address in effect for notices to it under this Agreement and agrees that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing in this Section 7.2 shall affect or limit any right to serve
      process in any other manner permitted by law. The Company and the Purchasers
      hereby agree that the prevailing party in any suit, action or proceeding arising
      out of or relating to the Securities, this Agreement or the Registration Rights
      Agreement, shall be entitled to reimbursement for reasonable legal fees from
      the
      non-prevailing party.

     

    Section
      7.3  Entire
      Agreement; Amendment

     

    .
      This
      Agreement and the Transaction Documents contain the entire understanding and
      agreement of the parties with respect to the matters covered hereby and, except
      as specifically set forth herein or in the other Transaction Documents, neither
      the Company nor any Purchaser make any representation, warranty, covenant or
      undertaking with respect to such matters, and they supersede all prior
      understandings and agreements with respect to said subject matter, all of which
      are merged herein. No provision of this Agreement may be waived or amended
      other
      than by a written instrument signed by the Company and the Purchasers holding
      at
      least a majority of the principal amount of the Notes then held by the
      Purchasers. Any amendment or waiver effected in accordance with this Section
      7.3
      shall be binding upon each Purchaser (and their permitted assigns) and the
      Company.

     

    Section
      7.4  Notices

     

    .
      Any
      notice, demand, request, waiver or other communication required or permitted
      to
      be given hereunder shall be in writing and shall be effective (a) upon hand
      delivery by telecopy or facsimile at the address or number designated below
      (if
      delivered on a business day during normal business hours where such notice
      is to
      be received), or the first business day following such delivery (if delivered
      other than on a business day during normal business hours where such notice
      is
      to be received) or (b) on the second business day following the date of mailing
      by express courier service, fully prepaid, addressed to such address, or upon
      actual receipt of such mailing, whichever shall first occur. The addresses
      for
      such communications shall be:

     

    
      
        
        

      

      
        
          21

        

        
          

        

      

      
        
        

      

    

    If
      to the
      Company:  Communication
      Intelligence Corporation

    275
      Shoreline Drive, Suite 500

    Redwood
      Shores, California 94065

    Attention:
      Frank Dane

    Tel.
      No.:
      (650) 802-7888

    Fax
      No.:
      (650) 802-7777

     

    with
      copies (which copies

    shall
      not
      constitute notice

    to
      the
      Company) to:  Davis
      Wright Tremaine LLP

    1300
      S.W.
      Fifth Ave., 23rd
      Floor

    Portland,
      Oregon 97201

    Attention:
      Michael C. Phillips, Esq.

    Tel.
      No.
      (503) 241-2300

    Fax
      No.:
      (503) 778-5299

     

    If
      to any
      Purchaser: At
      the
      address of such Purchaser set forth on Exhibit
      A
      to this
      Agreement, with copies to Purchaser’s counsel as set forth on Exhibit
      A. 

     

    Any
      party
      hereto may from time to time change its address for notices by giving written
      notice of such changed address to the other party hereto.

     

    Section
      7.5  Waivers

     

    .
      No
      waiver by either party of any default with respect to any provision, condition
      or requirement of this Agreement shall be deemed to be a continuing waiver
      in
      the future or a waiver of any other provision, condition or requirement hereof,
      nor shall any delay or omission of any party to exercise any right hereunder
      in
      any manner impair the exercise of any such right accruing to it
      thereafter.

     

    Section
      7.6  Headings

     

    .
      The
      article, section and subsection headings in this Agreement are for convenience
      only and shall not constitute a part of this Agreement for any other purpose
      and
      shall not be deemed to limit or affect any of the provisions
      hereof.

     

    Section
      7.7  Successors
      and Assigns

     

    .
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. After the Closing, the assignment by a party
      to
      this Agreement of any rights hereunder shall not affect the obligations of
      such
      party under this Agreement. Subject to Section 5.1 hereof, the Purchasers may
      assign the Securities and its rights under this Agreement and the other
      Transaction Documents and any other rights hereto and thereto without the
      consent of the Company.

     

    Section
      7.8  No
      Third Party Beneficiaries

     

    .
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    Section
      7.9  Governing
      Law

     

    .
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of California, without giving effect to any of the conflicts
      of law principles which would result in the application of the substantive
      law
      of another jurisdiction. This Agreement shall not be interpreted or construed
      with any presumption against the party causing this Agreement to be
      drafted.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    Section
      7.10  Survival

     

    .
      The
      representations and warranties of the Company and the Purchasers shall survive
      the execution and delivery hereof and the Closing until the first anniversary
      of
      the Closing Date, except the agreements and covenants set forth in Articles
      I,
      III, V, VI and VII of this Agreement shall survive the execution and delivery
      hereof and the Closing hereunder.

     

    Section
      7.11  Counterparts

     

    .
      This
      Agreement may be executed in any number of counterparts, all of which taken
      together shall constitute one and the same instrument and shall become effective
      when counterparts have been signed by each party and delivered to the other
      parties hereto, it being understood that all parties need not sign the same
      counterpart.

     

    Section
      7.12  Publicity

     

    .
      The
      Company agrees that it will not disclose, and will not include in any public
      announcement, the names of the Purchasers without the consent of the Purchasers,
      which consent shall not be unreasonably withheld or delayed, or unless and
      until
      such disclosure is required by law, rule or applicable regulation, including
      without limitation any disclosure pursuant to a registration statement
      registering the Warrant Shares, and then only to the extent of such
      requirement.

     

    Section
      7.13  Severability

     

    .
      The
      provisions of this Agreement are severable and, in the event that any court
      of
      competent jurisdiction shall determine that any one or more of the provisions
      or
      part of the provisions contained in this Agreement shall, for any reason, be
      held to be invalid, illegal or unenforceable in any respect, such invalidity,
      illegality or unenforceability shall not affect any other provision or part
      of a
      provision of this Agreement and this Agreement shall be reformed and construed
      as if such invalid or illegal or unenforceable provision, or part of such
      provision, had never been contained herein, so that such provisions would be
      valid, legal and enforceable to the maximum extent possible.

     

    Section
      7.14  Further
      Assurances

     

    .
      From
      and after the date of this Agreement, upon the request of the Purchasers or
      the
      Company, the Company and each Purchaser shall execute and deliver such
      instruments, documents and other writings as may be reasonably necessary or
      desirable to confirm and carry out and to effectuate fully the intent and
      purposes of this Agreement and the other transaction Documents.

     

    [SIGNATURE
      PAGE FOLLOWS]

    

    
      
        
           

        

        
        

      

      
        23

        
          

        

      

      
        
        

        
          

        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Note and Warrant Purchase
      Agreement to be duly executed by their respective authorized officers as of
      the
      date first above written.

     

    COMMUNICATION
      INTELLIGENCE CORPORATION

     

    By:___________________________

    Name:
      Frank Dane

    Title:
      Chief Financial and Legal Officer

     

                                                                   
      PURCHASER:

     

    By:_____________________________________

    Name:

    Title:

     

    

    
      
        
           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

        

      

    

    EXHIBIT
      A

    LIST
      OF
      PURCHASERS

     

    Names
      and
      Addresses      Investment
      Amount and Number of

    of
      Purchasers       Warrants
      Purchased

     

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    FORM
      OF
      NOTE

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      C

    FORM
      OF
      WARRANT

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      D

    FORM
      OF
      REGISTRATION RIGHTS AGREEMENT

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(b)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(c)

    CAPITALIZATION

    

    Preferred
      Shares Authorized: 10,000,000

    

    Common
      Shares Authorized: 125,000,000

    

    No
      exceptions from public filings

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(g)

    SUBSIDIARIES

    

    CICI
      Limited, Incorporated in Bermuda, 100% owned by CIC

    

    Communication
      Intelligence Computer Corporation, Ltd., Joint Venture in China, 90% owned
      by
      CIC, 10% owned by Jiangsu Hongtu Electronics Company, Ltd.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(h)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(i)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(j)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(k)

    

    

    $1,382,692
      in Convertible debt to nine (9) investors. If not converted the debt is payable
      in October 2007. 

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(l)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(m)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(n)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(o)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(p)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(r)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(u)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(v)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(x)

    

    None.

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.1(y)

    

    A
      total
      of 495,000 options were issued to two employees subsequent to September 30,
      2006.

    
      	·  	
              SCHEDULE
                2.1(cc)

            

    

    

    None.

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