Document:

Exhibit 10.49

 

EXECUTION COPY

 

 

 

EXCHANGE AGREEMENT

 

BETWEEN

 

COMMUNICATION INTELLIGENCE CORPORATION,

 

PHOENIX VENTURE FUND LLC,

 

MICHAEL ENGMANN,

 

RONALD GOODMAN

 

AND

 

THE PARTIES SIGNATORY HERETO

 

DATED AS OF JUNE 21, 2010

 

 

 

 

Table of Contents

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Authorization of Securities

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Exchange of Indebtedness for
  Series B Preferred Stock

  	
  1

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Closing

  	
  2

  
	
   

  	
   

  	
   

  
	
  4.

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

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Organization; Authority

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Validity

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Brokers

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Investment Representations and
  Warranties

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Acquisition for Own Account

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Ability to Protect Its Own
  Interests and Bear Economic Risks

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Accredited Investor

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Access to Information

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Restricted Securities

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.10

  	
  Residence

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Representations and Warranties
  by the Company

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Capitalization

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Due Issuance and Authorization
  of Capital Stock

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Organization

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Subsidiaries

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Consents

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
  Power and Authorization

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Enforcement

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.8

  	
  No Conflicts

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.9

  	
  Material Contracts

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10

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

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Previous Issuances

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  No Integrated Offering

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.13

  	
  SEC Reports; Financial
  Statements

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.14

  	
  No Undisclosed Material
  Liabilities

  	
  9

  

 

i

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
  5.15

  	
  Litigation

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.16

  	
  Taxes

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.17

  	
  Employee Matters

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.18

  	
  Compliance with Laws

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.19

  	
  Brokers

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.20

  	
  Environmental Matters

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.21

  	
  Intellectual Property Matters

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.22

  	
  Related-Party Transactions

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.23

  	
  Title to Property and Assets

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.24

  	
  Absence of Changes

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.25

  	
  Illegal Payments

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.26

  	
  Suppliers and Customers

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.27

  	
  Regulatory Permits

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.28

  	
  Insurance

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.29

  	
  Investment Company

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.30

  	
  Listing and Maintenance
  Requirements

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.31

  	
  Accountants

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.32

  	
  Application of Takeover
  Protections

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.33

  	
  Stock Options

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.34

  	
  Disclosure

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Pre-Closing Covenants

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Conduct of Business

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Notice of Certain Events

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Salary Incentive Plan

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Conditions of Parties’
  Obligations

  	
  23

  
	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Conditions of the Lenders’
  Obligations

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Conditions of the Company’s
  Obligations

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Conditions of Each Party’s
  Obligations

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Covenants; Nomination of Third
  Series B Director; Termination

  	
  27

  
	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Preparation of Proxy Statement;
  Stockholders Meeting

  	
  27

  

 

ii

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Reporting Requirements; Access
  to Records

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Integration

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.4

  	
  Securities Laws Disclosure;
  Publicity

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.5

  	
  Reservation of Common Stock

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.6

  	
  Listing of Common Stock

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.7

  	
  Filings

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.8

  	
  Appointment of Chief Executive
  Officer

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.9

  	
  Nomination of Third
  Series B Director

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.10

  	
  Termination of Agreement

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.11

  	
  Procedure and Effect of
  No-Default Termination

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Transfer Restrictions;
  Restrictive Legend

  	
  30

  
	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Transfer Restrictions

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Unlegended Certificates

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Registration, Transfer and
  Substitution of Certificates for Securities

  	
  30

  
	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Stock Register; Ownership of
  Securities

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2

  	
  Replacement of Certificates

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Definitions

  	
  31

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Enforcement

  	
  35

  
	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Cumulative Remedies

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.2

  	
  No Implied Waiver

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Confidentiality

  	
  35

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Miscellaneous

  	
  36

  
	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Waivers and Amendments

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.2

  	
  Notices

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.3

  	
  Indemnification; Survival

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.4

  	
  No Waivers

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.5

  	
  Successors and Assigns

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.6

  	
  Headings

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.7

  	
  Governing Law

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.8

  	
  Fees and Expenses

  	
  38

  

 

iii

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.9

  	
  Jurisdiction

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.10

  	
  Waiver of Jury Trial

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.11

  	
  Counterparts; Effectiveness

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.12

  	
  Entire Agreement

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.13

  	
  Severability

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.14

  	
  Independent Nature of Lenders’
  Obligations and Rights

  	
  40

  

 

Exhibits and Schedules

 

	
  Schedule I

  	
   

  	
  Schedule of Lenders

  
	
   

  	
   

  	
   

  
	
  Schedule II

  	
   

  	
  Disclosure Schedule

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Certificate of Designation
  (Series B)

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  By-law Amendment

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Charter Amendment

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Investor Rights Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
   

  	
  Registration Rights Agreement

  

 

iv

 

EXCHANGE AGREEMENT

 

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

 

W I T N E S S E T H

 

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

 

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

 

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

 

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

 

2.             Exchange of Indebtedness for Series B Preferred Stock.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

4.9           Restricted Securities.

 

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

 

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

 

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

 

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

 

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

 

5.1           Capitalization.

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

8

 

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

 

5.13         SEC Reports; Financial Statements.

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

5.17         Employee Matters.

 

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

 

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

 

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

 

10

 

 

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

 

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

 

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

 

5.20         Environmental Matters.

 

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

 

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

 

11

 

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

 

5.21         Intellectual Property Matters.

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

 

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

 

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

 

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

 

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

 

6.             Pre-Closing Covenants.

 

6.1           Conduct of Business.

 

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

 

21

 

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

 

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

 

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

 

22

 

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

 

7.             Conditions of Parties’ Obligations.

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

25

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

26

 

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

 

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

 

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

 

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

 

27

 

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

 

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

 

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

 

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

 

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

 

28

 

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

 

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

 

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

 

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

 

8.10         Termination of Agreement.

 

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

 

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

 

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

 

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

 

29

 

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

 

9.             Transfer Restrictions; Restrictive Legend.

 

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

 

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

 

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

 

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

 

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

 

30

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

32

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

“PCAOB”
means the Public Company Accounting Oversight Board.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“SEC” means the Securities and Exchange Commission.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

12.           Enforcement.

 

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

 

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

 

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

 

35

 

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

 

14.           Miscellaneous.

 

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

 

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

 

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

 

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

 

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

 

Pillsbury Winthrop Shaw Pittman LLP 

1540 Broadway

New York, New York 10036

Attention: Jonathan J. Russo, Esq. 

Facsimile No.: (212) 858-1500

 

If to the Company:

 

Communication Intelligence Corporation

275 Shoreline Drive, Suite 500

Redwood Shores, CA 94065 

Attention: Francis V. Dane 

Facsimile No.: (650) 802-7777

 

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

 

Davis Wright Tremaine LLP

1300 SW Fifth Avenue, Suite 2300

 

36

 

Portland, OR 97201 

Attention: Michael C. Phillips, Esq.

Facsimile No.: (503) 778-5299

 

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

 

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

 

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

 

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

 

37

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

38

 

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

 

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

 

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

 

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

 

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

 

39

 

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

 

[Remainder of Page Intentionally
Left Blank]

 

40

 

 

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

 

 

	
   

  	
  THE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMMUNICATION INTELLIGENCE 

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Guido DiGregorio

  
	
   

  	
  Name: Guido DiGregorio

  
	
   

  	
  Title: Chairman and Chief Executive Officer

  

 

 

Signature Page to Exchange Agreement

 

 

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

 

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  PHOENIX
  VENTURE FUND LLC

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  SG
  Phoenix Ventures LLC,

  
	
   

  	
   

  	
  its
  Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrea Goren

  
	
   

  	
  Name:
  Andrea Goren

  
	
   

  	
  Title:
  Member

  

 

 

Signature Page to Exchange Agreement

 

 

 

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

 

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  MICHAEL
  ENGMANN

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael W. Engmann

  
	
   

  	
  Name:
  Michael Engmann

  

 

 

Signature Page to Exchange Agreement

 

 

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

 

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  RONALD
  GOODMAN

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald Goodman

  
	
   

  	
  Name:
  Ronald Goodman

  

 

 

Signature Page to Exchange Agreement

 

 

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

 

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  KENDU
  PARTNERS COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael W. Engmann

  
	
   

  	
  Name:
  

  	
  Michael
  W. Engmann

  
	
   

  	
  Title:

  	
  General
  Partner

  
				

 

 

Signature Page to Exchange Agreement

 

 

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

 

 

	
   

  	
  LENDER

  
	
   

  	
   

  
	
   

  	
  MDNH
  PARTNERS L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael W. Engmann

  
	
   

  	
  Name:
  

  	
  Michael
  W. Engmann

  
	
   

  	
  Title:

  	
  General
  Partner

  
				

 

 

Signature Page to Exchange Agreement

 

 

Schedule I

 

	
  Lender

  	
   

  	
  Number of

  Exchange Shares

  	
   

  	
  Indebtedness

  To Be Exchanged

  	
   

  
	
  Phoenix
  Venture Fund LLC

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Michael
  Engmann

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ronald
  Goodman

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kendu
  Partners Company

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MDNH
  Partners L.P.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TotalExhibit 10.50

 

EXECUTION COPY

 

 

SERIES B PREFERRED STOCK
PURCHASE AGREEMENT

 

BETWEEN

 

COMMUNICATION INTELLIGENCE
CORPORATION,

 

PHOENIX VENTURE FUND LLC

 

AND

 

THE INVESTORS SIGNATORY HERETO

 

DATED AS OF JUNE 21, 2010

 

 

 

Table of Contents

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Authorization
  of Securities

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Sale and
  Purchase of the Series B Preferred Stock

  	
  1

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Closing;
  Payment of Purchase Price; Use of Proceeds

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Closing

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Use of
  Proceeds

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

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

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Organization;
  Authority

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Validity

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Brokers

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4

  	
  Investment
  Representations and Warranties

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Acquisition
  for Own Account

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Ability to
  Protect Its Own Interests and Bear Economic Risks

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Accredited
  Investor

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.8

  	
  Access to
  Information

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Restricted
  Securities

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.10

  	
  Residence

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Representations
  and Warranties by the Company

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Capitalization

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Due Issuance
  and Authorization of Capital Stock

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Organization

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Subsidiaries

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Consents

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
  Power and
  Authorization

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Enforcement

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.8

  	
  No Conflicts

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.9

  	
  Material
  Contracts

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10

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

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Previous
  Issuances

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  No Integrated
  Offering

  	
  8

  
	
   

  	
   

  	
   

  	
   

  

 

i

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.13

  	
  SEC Reports;
  Financial Statements

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.14

  	
  No
  Undisclosed Material Liabilities

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.15

  	
  Litigation

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.16

  	
  Taxes

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.17

  	
  Employee
  Matters

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.18

  	
  Compliance
  with Laws

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.19

  	
  Brokers

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.20

  	
  Environmental
  Matters

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.21

  	
  Intellectual
  Property Matters

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.22

  	
  Related-Party
  Transactions

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.23

  	
  Title to
  Property and Assets

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.24

  	
  Absence of
  Changes

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.25

  	
  Illegal
  Payments

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.26

  	
  Suppliers and
  Customers

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.27

  	
  Regulatory
  Permits

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.28

  	
  Insurance

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.29

  	
  Investment
  Company

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.30

  	
  Listing and
  Maintenance Requirements

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.31

  	
  Accountants

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.32

  	
  Application
  of Takeover Protections

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.33

  	
  Stock Options

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.34

  	
  Disclosure

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Pre-Closing
  Covenants

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Conduct of
  Business

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Notice of
  Certain Events

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Salary
  Incentive Plan

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Conditions of
  Parties’ Obligations

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Conditions of
  the Purchasers’ Obligations

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Conditions of
  the Company’s Obligations

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Conditions of
  Each Party’s Obligations

  	
  26

  

 

ii

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Covenants;
  Nomination of Third Series B Director; Termination

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Preparation
  of Proxy Statement; Stockholders Meeting

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.2

  	
  Reporting
  Requirements; Access to Records

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.3

  	
  Integration

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.4

  	
  Securities
  Laws Disclosure; Publicity

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.5

  	
  Reservation of
  Common Stock

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.6

  	
  Listing of
  Common Stock

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.7

  	
  Filings

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.8

  	
  Appointment
  of Chief Executive Officer

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.9

  	
  Nomination of
  Third Series B Director

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.10

  	
  Termination
  of Agreement

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.11

  	
  Procedure and
  Effect of No-Default Termination

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Transfer
  Restrictions; Restrictive Legend

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Transfer
  Restrictions

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Unlegended
  Certificates

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Registration,
  Transfer and Substitution of Certificates for Securities

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Stock
  Register; Ownership of Securities

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.2

  	
  Replacement
  of Certificates

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Definitions

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Enforcement

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Cumulative
  Remedies

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.2

  	
  No Implied
  Waiver

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Confidentiality

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Miscellaneous

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Waivers and
  Amendments

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.2

  	
  Notices

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.3

  	
  Indemnification;
  Survival

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.4

  	
  No Waivers

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.5

  	
  Successors
  and Assigns

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.6

  	
  Headings

  	
  37

  

 

iii

 

Table of Contents

(Continued)

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.7

  	
  Governing Law

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.8

  	
  Fees and
  Expenses

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.9

  	
  Jurisdiction

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.10

  	
  Waiver of
  Jury Trial

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.11

  	
  Counterparts;
  Effectiveness

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.12

  	
  Entire
  Agreement

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.13

  	
  Severability

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.14

  	
  Independent
  Nature of Purchasers’ Obligations and Rights

  	
  39

  

 

Exhibits and
Schedules

 

	
  Schedule I

  	
  Schedule of
  Purchasers

  
	
   

  	
   

  
	
  Schedule II

  	
  Disclosure
  Schedule

  
	
   

  	
   

  
	
  Exhibit A

  	
  Certificate
  of Designation (Series B)

  
	
   

  	
   

  
	
  Exhibit B

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

  
	
   

  	
   

  
	
  Exhibit C

  	
  By-law
  Amendment

  
	
   

  	
   

  
	
  Exhibit D

  	
  Charter
  Amendment

  
	
   

  	
   

  
	
  Exhibit E

  	
  Investor
  Rights Agreement

  
	
   

  	
   

  
	
  Exhibit F

  	
  Registration
  Rights Agreement

  

 

iv

 

SERIES B PREFERRED STOCK
PURCHASE AGREEMENT

 

This SERIES B PREFERRED STOCK PURCHASE
AGREEMENT (this “Agreement”)
is made and entered into this 21st day
of June, 2010, by and between Communication Intelligence Corporation, a
Delaware corporation (the “Company”),
Phoenix Venture Fund LLC, a Delaware limited liability company (“Phoenix”) and the
other entities and individuals listed on Schedule I hereto (Phoenix
together with such other entities and individuals, the “Purchasers” and each,
a “Purchaser”). Certain terms used and
not otherwise defined in the text of this Agreement are defined in
Section 10 hereof.

 

W I T N E S S E T H

 

WHEREAS, the Company desires to issue and to
sell to each of the Purchasers, and the Purchasers desire to purchase from the
Company, the shares of Series B Preferred Stock set forth on the Schedule
I attached hereto in the column Shares Purchased, all in accordance with
the terms and provisions of this Agreement;

 

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

 

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

 

2.             Sale
and Purchase of the Series B Preferred Stock. 
Upon the terms and subject to the conditions herein contained, the
Company agrees to sell to the Purchasers, and each Purchaser agrees, severally
and not jointly, to purchase from the Company, at the Closing, the number of
shares of Series B Preferred Stock set forth in the column “Number of
Shares Purchased” opposite such Purchaser’s name on Schedule I attached
hereto, for a purchase price per share equal to $1.00 (the “Purchase Price”),
which shall be paid in cash, as set forth in the column “Aggregate Purchase
Price” opposite each Purchaser’s name on Schedule I attached
hereto.  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 Securities Act and Rule 506 of Regulation D promulgated thereunder.

 

1

 

3.             Closing;
Payment of Purchase Price; Use of Proceeds.

 

3.1           Closing. 
Upon the terms and subject to the satisfaction of the conditions
contained in Section 7 hereof and concurrently with the closing of
the Recapitalization (as defined below), the closing (the “Closing”) with
respect to the transaction contemplated in Section 2 hereof shall
take place at the offices of Pillsbury Winthrop Shaw Pittman LLP, 1540
Broadway, New York, New York at 10:00 a.m. local time, or another mutually
acceptable time and location, on the date that is five (5) Business Days
after the date on which the last of the conditions precedent to Closing set
forth in Section 7 hereof have been either satisfied or waived by
the party for whose benefit such conditions precedent exist or at such other
date and time as the Company and Purchasers may agree (the “Closing Date”).  At the Closing, the Company shall deliver to
each Purchaser certificates representing the Series B Preferred Stock
which such Purchaser is purchasing at the Closing as set forth on Schedule I
attached hereto, registered in the name of such Purchaser, against delivery to
the Company by such Purchaser of a wire transfer in the amount of the Purchase
Price therefor.

 

3.2           Use
of Proceeds.  The Company shall use the proceeds from the
sale of Purchased Shares hereunder for general corporate and working capital
purposes.

 

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

 

4.1           Organization;
Authority.  (a)  Each Purchaser that is an entity is
duly formed or organized, validly existing and in good standing under the laws
of its jurisdiction of organization or formation, and has all requisite
corporate, limited liability company, partnership or trust (as the case may be)
power and authority to enter into and deliver this Agreement and the other
Transaction Documents and instruments referred to herein to which it is a party
and to consummate the transactions contemplated hereby and thereby.

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

4.7           Accredited
Investor.  Each Purchaser is an “accredited investor” as
that term is defined in Regulation D promulgated under the Securities
Act.  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 Purchased Shares is speculative and involves a high
degree of risk.

 

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

 

4.9           Restricted
Securities.

 

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

 

3

 

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

 

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

 

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

 

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

 

5.1           Capitalization.

 

(a)           As
of the date hereof, the authorized capital stock of the Company consists of
285,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share, of which 2,000,000 shares
are designated Series A-1 Preferred Stock. As of the date hereof, the
Company has 190,776,482 issued shares of Common Stock, of which no shares are
held by the Company as treasury shares and 190,776,482 are outstanding; 766,195
shares of Series A-1 Preferred Stock are outstanding; 4,000,000 shares of
Common Stock are reserved for issuance under the Company’s 1999 Stock Option
Plan, under which 2,223,368 shares are subject to outstanding options and no
further grants will be made; 7,000,000 shares of Common Stock are reserved for
issuance under the Company’s 2009 Stock Compensation Plan, under which
3,465,640 shares are subject to outstanding awards and 3,461,375 shares are
available for grant; 4,129,443 shares are subject to outstanding non-plan
options and 31,374,223 shares of Common Stock are reserved for issuance upon
the exercise of warrants and other convertible securities outstanding on the
date hereof. As of the date hereof the Company has no other shares of capital
stock authorized, issued, outstanding or reserved.  A capitalization table presenting the
capitalization of the Company as of the date hereof is set forth on Schedule
5.1(a) hereto.

 

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

 

4

 

$0.01 per share, of which 2,000,000 shares are designated Series A-1
Preferred Stock and 14,000,000 shares are designated Series B Preferred
Stock.

 

 

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

 

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

 

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

 

5.3           Organization. The Company and each of its Subsidiaries
(a) is duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its formation, (b) is
duly qualified to do business as a foreign entity and is in good standing in
each jurisdiction where the nature of the property owned or leased by it or the
nature 

 

5

 

of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect, and
(c) has all requisite corporate power and authority to own or lease and
operate its assets and carry on its business as presently being conducted. The
Company has its principal place of business and chief executive office in
Redwood Shores, California.

 

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

 

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

 

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

 

5.7           Enforcement. 
This Agreement has been duly executed and delivered by the Company, and
the Certificate of Designation (Series B), the Amended and Restated 

 

6

 

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

 

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

 

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

 

5.10         Right
of First Refusal; Stockholders Agreement; Voting and Registration Rights. 
Except as set forth in the Certificate of Designation (Series B),
no party has any right of 

 

7

 

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

 

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

 

5.12         No
Integrated Offering.  Neither the Company, nor any of its
Affiliates or any other Person acting on the Company’s behalf, has directly or
indirectly engaged in any form of general solicitation or general advertising
with respect to the Series B Preferred Stock, the Purchased Shares or the
Conversion Shares nor have any of such Persons made any offers or sales of any
security of the Company or its Affiliates or solicited any offers to buy any
security of the Company or its Affiliates under circumstances that would
require registration of the Series B Preferred Stock, the Purchased Shares
or the Conversion Shares under the Securities Act or cause this offering of
Purchased Shares to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

5.13         SEC
Reports; Financial Statements.

 

(a)           The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof since
January 1, 2008 (the foregoing materials, including the exhibits thereto
and documents incorporated by reference therein, being collectively referred to
herein as the “SEC
Reports”) on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension.  As of their
respective dates, the SEC Reports complied as to form in all material respects
with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when 

 

8

 

filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.  All Material
Contracts to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject that are
required to be included as part of or specifically identified in the SEC
Reports are so included or specifically identified.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

return of
the Company or any Subsidiary, or claims now pending or matters under
discussion between the Company or any Subsidiary and any taxing authority in
respect of any tax of the Company or any Subsidiary.

 

5.17         Employee
Matters.

 

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

 

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

 

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

 

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

 

5.18         Compliance
with Laws.  The Company and each of its Subsidiaries have
been and are in compliance in all material respects with the terms of all
franchises, permits, licenses and other rights and privileges necessary to
conduct the Company’s and each of its Subsidiaries’ present and proposed
business and is in compliance with and have not violated, in

 

10

 

any
respect, any applicable provisions of any laws, statutes, ordinances or
regulations material to its respective business or the terms of any judgments,
orders, decrees, injunctions or writs.

 

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

 

5.20         Environmental
Matters.

 

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

 

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

 

5.21         Intellectual
Property Matters.

 

(a)           “Intellectual Property”
means any and all of the following arising under the laws of the United States,
any other jurisdiction or any treaty regime: (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereon, and all patents, patent applications and patent
disclosures and all reissuances, continuations, continuations-in-part,
divisionals, revisions, extensions and reexaminations thereof, (ii) all
trademarks, service marks, trade dress, logos, trade names and corporate names
and all translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith (collectively, “Trademarks”), (iii) all
copyrightable works, mask works or moral rights, all copyrights and all
applications, registrations and renewals in connection therewith, (iv) all
trade secrets and confidential business information (including, without
limitation, ideas, research and development, know-how, 

 

11

 

formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (v) all computer software, including, without limitation, all software
implementations of algorithms, models and methodologies, whether in source code
or object code, all databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, all descriptions,
schematics, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, and all documentation, including user manuals
and training materials, relating to any of the foregoing (“Software”), (vi) all other proprietary rights,
(vii) all copies and tangible embodiments of the foregoing (in whatever
form or medium) and (viii) all licenses or agreements in connection with
the foregoing.  “Company Intellectual Property”
means all Intellectual Property which is used or usable in the business of the
Company or any of its Subsidiaries.

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

the conduct of the business or
operations of the Company or any Subsidiary did prior to Closing, or will when
conducted in the same manner following the Closing, infringe upon, violate or
constitute the unauthorized use of the Intellectual Property rights of any
third party.

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

(j)            The
Company Intellectual Property comprises all Intellectual Property necessary to
the business of the Company and each of its Subsidiaries as presently conducted
or proposed to be conducted.  It is not
necessary for the Company or any Subsidiary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company or a Subsidiary, except for valid and enforceable
inventions, trade secrets or proprietary information that have been assigned to
the Company or a Subsidiary.

 

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

 

15

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(9)           any
liability incurred, or any loans or advances made, by the Company or any
Subsidiary, other than advances of travel and other business 

 

18

 

expenses in the ordinary course involving not more than $5,000 individually
or $25,000 in the aggregate;

 

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

 

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

 

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

 

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

 

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

 

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

 

5.25         Illegal
Payments.  Neither the Company nor any Subsidiary has,
nor, to the knowledge of the Company, has any director, officer, agent or
employee of the Company or any Subsidiary, paid, caused to be paid, or agreed
to pay, directly or indirectly, in connection with the business of the Company
or any Subsidiary: (a) to any government or agency thereof, any agent or
any supplier or customer, any bribe, kickback or other similar payment;
(b) any contribution to any political party or candidate (other than from
personal funds of directors, officers or employees not reimbursed by their
respective employers or as otherwise permitted by applicable law); or
(c) intentionally established or maintained any unrecorded fund or asset
or made any false entries on any books or records for any purpose.

 

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

 

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

 

19

 

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

 

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

 

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

 

5.31         Accountants.  GHP
Horwath, P.C. has delivered an unqualified audit report to the Company with
respect to its audited consolidated financial statements included in the SEC
Reports for the years ended December 31, 2008 and 2009, and are independent
accountants as required by the Securities Act and the rules and
regulations promulgated thereunder. During the last two fiscal years, there
have been no disagreements of any kind and none are reasonably anticipated by
the Company to arise, between the Company and GHP Horwath, P.C. and the Company
is current with respect to any fees owed to such accounting firm.

 

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

 

5.33         Stock
Options.  With respect to stock options issued pursuant
to the Company’s Employee Benefit Plans (i) each stock option designated
by the Company at the time

 

20

 

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

 

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

 

6.             Pre-Closing
Covenants.

 

6.1           Conduct
of Business.

 

(a)           From
the date of this Agreement through the Closing Date, except as Phoenix may
otherwise approve (which approval shall not be unreasonably withheld) or as
otherwise expressly provided by this Agreement, the Company shall, and shall
cause each of its Subsidiaries to, (i) conduct their businesses in the
ordinary course in accordance with past practice, (ii)  use commercially
reasonable efforts to preserve intact their respective business organizations
and goodwill and assets, (iii) use commercially reasonable efforts to keep
available the services provided by their respective present officers and key
employees, (iv) use their commercially reasonable efforts to maintain
satisfactory relationships with others having business relationships with the
Company and any of its Subsidiaries, and (v) observe and perform all of
its obligations and comply with all terms and provisions of any and all leases,
licenses and other agreements to which it is a party.

 

(b)           Except as described in Schedule 6.1(b) or
as expressly provided by this Agreement, or to the extent Phoenix otherwise
consents in writing, during the period from the date of this Agreement to the
Closing Date (which consent shall not be unreasonably withheld), the Company
shall not, and shall not cause or permit any of its Subsidiaries, to directly
or indirectly (i) incur indebtedness for borrowed money, other than under
the terms of the Credit Agreement, (ii) grant any Encumbrances on its
assets, (iii) enter into any Material Contract or terminate or amend any
Material Contract to which any such Person becomes or is a party or transfer or
license any Company Intellectual Property, in each case, other than in the
ordinary course of business consistent with past practice, (iv) dispose of
any assets of any such Person, (v) other than issuances of additional
shares of Series A-1 Preferred Stock in connection with the payment of
accrued dividends on shares of Series A-1 Preferred Stock outstanding as
of 

 

21

 

the date hereof, make any distribution in respect of the equity
securities of or other ownership interest in such Person, (vi) make or
revoke any election under the Code, (vii) other than (a) the issuance
of secured promissory notes under the terms of the Credit Agreement, (B) the
issuance of additional warrants to purchase Common Stock in connection with the
payment of accrued interest through the issuance of additional secured
promissory notes under the terms of the Credit Agreement, or (C) the
issuance of additional shares of Series A-1 Preferred Stock in connection
with the payment of accrued dividends on shares of Series A-1 Preferred
Stock outstanding as of the date hereof, authorize, issue, or agree or
otherwise commit to authorize or issue, any shares of stock of any class, or
any bonds, debentures or notes, or any securities convertible into,
exchangeable for or having option rights to purchase any shares of capital
stock of the Company securities other than pursuant to the exercise of options
or warrants or the conversion of Series A-1 Preferred Stock, in each case,
outstanding on the date hereof pursuant to their terms, (viii) amend its
Charter Documents or comparable governance documents, (ix) make any
capital expenditure in excess of $100,000, (x) decrease the amount of any
insurance coverage, (xi) make any alteration to its business plan, (xii) increase
the compensation of any of its employees, (xiii) waive, compromise, or
settle any claim, or (xiv) voluntarily incur any liability or obligation
in excess of $50,000 individually or $250,000 in the aggregate.

 

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

 

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

 

7.             Conditions
of Parties’ Obligations.

 

7.1           Conditions
of the Purchasers’ Obligations.  The obligations of the
Purchasers to purchase the Purchased Shares set forth on Schedule I
attached hereto at the Closing are subject to the fulfillment prior to the
Closing Date of all of the following conditions, any of which may be waived in
whole or in part by Phoenix in its absolute discretion.

 

22

 

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

 

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

 

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

 

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

 

(e)           Recapitalization. 
Concurrently with the Closing hereunder, the holders of all of the
outstanding Indebtedness shall have exchanged such Indebtedness into shares of Series B
Preferred Stock (the “Recapitalization”)
pursuant to the terms and subject to the conditions of that certain Exchange
Agreement, of even date herewith, by and between the Company, Phoenix, Michael
Engmann, Ronald Goodman and the other signatories thereto (the “Exchange Agreement”).

 

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

 

(g)           Certificates
of Designation. Prior to
the Closing, (i)(A) the Certificate of Designation (Series B) and (B) the
Amended and Restated Certificate of Designation (Series A-1) shall have
been filed with the Secretary of State of the State of 

 

23

 

Delaware, and (ii) the Purchasers shall have received confirmation
from the Secretary of State of the State of Delaware reasonably satisfactory to
it that such filings has occurred.

 

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

 

(i)            Minimum
Subscription.  The Company shall have received from the
Purchasers not less than $1,400,000 in immediately available funds for the
purchase of the Purchased Shares in accordance with the terms of this
Agreement.

 

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

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

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

 

(s)           Supporting
Documents.  The Purchasers at the Closing shall have
received the following:

 

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

 

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

 

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

 

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

 

(5)           A
certificate of incumbency executed by the Secretary of the Company
(A) certifying the names, titles and signatures of the officers authorized
to execute the documents referred to in subparagraphs (3) and 

 

25

 

(4) above and (B) further certifying that the Certificate of
Designation (Series B) delivered to the Purchasers at the time of the
execution of this Agreement has been validly adopted and has not been amended
or modified.

 

(t)            Fees
of Purchasers’ Counsel and Consultants.  The Company shall have paid all
of the fees, expenses and disbursements of Phoenix and its Affiliate, SG
Phoenix LLC, and otherwise satisfied its obligations under Section 14.8
hereof and the Fee Letter in full.

 

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

 

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

 

(b)           Investor
Rights Agreement. The
Persons listed on the signature pages thereto shall have executed and
delivered the Investor Rights Agreement.

 

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

 

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

 

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

 

8.1           Preparation
of Proxy Statement; Stockholders Meeting.   As promptly as reasonably
practicable following the date of this Agreement, but no later than June 25,
2010, the Company shall prepare and cause to be filed with the SEC a
preliminary proxy statement to be sent to the stockholders of the Company
relating to the Company’s stockholders meeting 

 

 

26

 

(together
with any amendments or supplements thereto, the “Proxy Statement”).  The Company shall use
its reasonable best efforts to finalize the Proxy Statement as promptly as
possible after such filing.  The Company
shall promptly notify Phoenix upon the receipt of any comments from the SEC or
any request from the SEC for amendments or supplements to the Proxy Statement
and shall provide Phoenix with copies of all correspondence between it and its
representatives, on the one hand, and the SEC, on the other hand.  Phoenix shall have the opportunity to review
and approve in its reasonable discretion the proxy statement and all amendments
thereto and all correspondence from the Company and its representatives to the
SEC related to the Company stockholders meeting (the “Stockholders
Meeting”) prior to filing with the SEC. The Company shall, as
soon as reasonably practicable following the date the SEC completes review of
the Proxy Statement or notifies the Company that it will not review the Proxy
Statement, duly call and give notice to the Company stockholders by mailing the
definitive Proxy Statement, convene and hold the Stockholders Meeting for the
purpose of seeking Company stockholder approval and to solicit such approval
from the stockholders. In connection with the Stockholders Meeting, the Company
shall, through the Board, recommend to its stockholders that they approve (a) an
increase in (i) its authorized shares of Common Stock to 519,000,000 and (ii) its
authorized shares of Preferred Stock to 16,000,000, (b) the Amended and
Restated Certificate of Designation (Series A-1) and (c) elect four
directors to the Board.  The Company
shall within one (1) Business Day of obtaining such stockholder approvals
in accordance with the terms of this Agreement, the Exchange Agreement and the
Investor Rights Agreement, take all requisite actions (including the filing of
the Charter Amendment, the Certificate of Designation (Series B) and the
Amended and Restated Certificate of Designation (Series A-1) with the
Secretary of State of the State of Delaware) to effect approvals and consummate
the transactions contemplated by this Agreement and the other Transaction
Documents, including the Exchange Agreement.

 

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

 

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

 

27

 

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

 

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

 

8.6           Listing
of Common Stock.  The Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on a Trading Market.  The Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Trading Market.

 

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

 

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

 

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

 

28

 

8.10         Termination
of Agreement.

 

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

 

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

 

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

 

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

 

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

 

9.             Transfer
Restrictions; Restrictive Legend.

 

9.1           Transfer
Restrictions.  The Purchasers understands that the Company
may, as a condition to the transfer of any of the Securities, require that the
request for transfer be accompanied by an opinion of counsel reasonably
satisfactory to the Company, to the effect that the proposed transfer does not
result in a violation of the Securities Act, unless such transfer is covered by
an effective registration statement or exempt under Rule 144 or Rule 144A
under the Securities Act; provided, however, that an opinion of counsel shall
not be required for a transfer

 

29

 

by a
Purchaser that is (A) a partnership transferring all of the assets owned
by it to its partners or former partners pro rata in accordance with
partnership interests, (B) a corporation transferring to a wholly owned
subsidiary or a parent corporation that owns all of the capital stock of such
Purchaser, (C) a limited liability company transferring all of the assets
owned by it to its members or former members pro rata in accordance with their
interest in the limited liability company, (D) an individual transferring
to such Purchaser’s family member or trust for the benefit of such Purchaser,
or (E) transferring its Securities to any Affiliate of such Purchaser, in
the case of an institutional investor, or other Person under common management
with such Purchaser; and provided, further, that the transferee in each case
agrees to be subject to the restrictions in this Section 9. It is
understood that the certificates evidencing the Securities may bear
substantially the following legends:

 

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

 

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

 

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

 

10.1         Stock
Register; Ownership of Securities.  The Company will keep at its
principal office a register in which the Company will provide for the
registration or transfers of the Securities. The Company may treat the Person
in whose name any of the Securities are registered on such register as the
owner thereof and the Company shall not be affected by any notice to the
contrary. All references in this Agreement to a “holder” of any Securities
shall mean the Person in whose name such Securities are at the time registered
on such register.

 

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

 

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

 

Except as otherwise expressly provided, all
accounting terms used in this Agreement, whether or not defined in this
Section 11, shall be construed in accordance with GAAP. If and so 

 

30

 

long as the Company has one or more
Subsidiaries, such accounting terms shall be determined on a consolidated basis
for the Company and each of its Subsidiaries, and the financial statements and
other financial information to be furnished by the Company pursuant to this
Agreement shall be consolidated and presented with consolidating financial
statements of the Company and each of its Subsidiaries.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“knowledge” of the Company or any similar
phrase means, with respect to any fact, circumstance, event or other matter in
question, the knowledge of such fact, circumstance, event or other matter after
reasonable inquiry of Guido DiGregorio, Francis Dane, Craig Hutchison, Russel
Davis, Bill Macy or Beth Selling.  Any
such individual will be deemed to have knowledge of a particular fact,
circumstance, event or other matter if (a) such fact, circumstance, 

 

32

 

event or other matter is contained in one or
more documents (whether written or electronic, including electronic mails sent
to or by such individual) in the possession of such individual, including his
or her personal files, or (b) such knowledge would reasonably be expected
to be obtained from reasonable inquiry of the persons employed by the Company
charged with administrative or operational responsibility for such matters for
the Company.

 

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

 

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

 

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

 

“PCAOB”
means the Public Company Accounting Oversight Board.

 

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

 

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

 

“Principal Investors”
means Phoenix, Michael Engmann and MDNH Partners L.P.

 

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

 

“Purchase Price” has the meaning assigned to
it in Section 2 hereof.

 

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

 

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

 

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

 

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

 

33

 

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

 

“SEC” means the Securities and Exchange
Commission.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12.           Enforcement.

 

12.1         Cumulative
Remedies.  None of the rights, powers or remedies
conferred upon the Purchasers on the one hand or the Company on the other hand
shall be mutually exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy, whether
conferred by this Agreement, any of the other Transaction Documents, the
Certificate of Incorporation, the Certificate of Designation (Series B) or
the Amended and Restated Certificate of Designation (Series A-1) or now or
hereafter available at 

 

34

 

law, in
equity, by statute or otherwise. In addition to being entitled to exercise all
rights provided herein or granted at law, including recovery of damages, the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents, the Certificate of Incorporation and the Certificate of
Designation (Series B). The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate or the posting of a bond.

 

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

 

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

 

14.           Miscellaneous.

 

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

 

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

 

35

 

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

 

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

 

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

 

Pillsbury Winthrop Shaw Pittman LLP 

1540 Broadway

New York, New York 10036

Attention: Jonathan J. Russo, Esq. 

Facsimile No.: (212) 858-1500

 

If to the Company:

 

Communication Intelligence Corporation

275 Shoreline Drive, Suite 500

Redwood Shores, CA 94065 

Attention: Francis V. Dane 

Facsimile No.: (650) 802-7777

 

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

 

Davis Wright Tremaine LLP

1300 SW Fifth Avenue, Suite 2300

Portland, OR 97201 

Attention: Michael C. Phillips, Esq.

Facsimile No.: (503) 778-5299

 

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

 

14.3         Indemnification;
Survival.  The Company shall indemnify, save and hold
harmless each Purchaser, its directors, officers, members, stockholders,
employees, partners, representatives, advisors, attorneys and agents (each, a “Purchaser Indemnified Party”)
from and against (and shall promptly reimburse such indemnified persons for)
any and all liability, loss, cost, damage, fine, penalty, amount paid in
settlement, reasonable attorneys’ and accountants’ fees and expenses, court
costs and all other out-of-pocket expenses incurred (collectively, “Losses”) in
connection with or arising from claims, actions, suits, proceedings, 

 

36

 

investigations
or similar claims by any person or entity (other than any Purchaser Indemnified
Party) associated, arising out of or relating to (i) the execution,
delivery and performance of this Agreement, any of the other Transaction
Documents or the Certificate of Designation (Series B), (ii) the
transactions contemplated hereby or thereby, (iii) the ownership by such
Purchaser of the Securities or (iv) the rights of the Purchasers to elect
directors to the Company’s Board.  This
indemnification provision shall be in addition to the rights of the Purchaser
to bring an action against the Company for breach of any term of this
Agreement, the other Transaction Documents or the Certificate of Designation (Series B).
All representations and warranties of the Company in this Agreement or the
Transaction Documents shall survive the Closing until the date that is two (2) years
after the Closing Date; provided, however,
that the representations and warranties of the Company contained in Sections
5.2 (Due Issuance and Authorization of Capital Stock),
5.16 (Taxes), 5.17 (Employee Matters) and 5.21 (Intellectual
Property Matters) shall survive the Closing until the sixty (60)
days after the expiration of the applicable statute of limitations period
(after giving effect to any waivers or extensions thereof).  All covenants of the Company in this
Agreement, except to the extent otherwise expressly provided, shall survive the
Closing indefinitely.

 

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

 

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

 

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

 

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

 

14.8         Fees
and Expenses.  The Company agrees to pay, reimburse and hold
the Phoenix, on behalf of the Purchasers, harmless from liability for the
payment of all out-of-pocket fees and expenses incurred by it in connection
with its diligence investigation of the Company, the preparation and
negotiation of this Agreement and the consummation of the transactions
contemplated hereby (including the Recapitalization), regardless of whether the
purchase of shares of Series B Preferred Stock by the Purchasers pursuant
to this Agreement is consummated in accordance with the terms of this
Agreement.  Phoenix may deduct such fees
and expenses from the aggregate amount to be paid by Phoenix at the Closing for
the shares of Series B

 

37

 

Preferred
Stock to be purchased by it hereunder. 
The fees and expenses of the Phoenix may include, without limitation:

 

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

 

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

 

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

 

14.9         Jurisdiction.  Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall
be brought in any federal or state court located in the State of New York, and
each of the parties hereby consents to the jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 14.2
shall be deemed effective service of process on such party.

 

14.10       Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, THE PURCHASERS AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE PURCHASERS WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT OR THE
SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PURCHASERS AND THE COMPANY HEREUNDER OR THEREUNDER, IN
EACH CASE WHETHER NOW 

 

38

 

EXISTING OR
HEREAFTER ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges
that it has been informed by the Purchasers that the provisions of this Section 14.10
constitute a material inducement upon which the Purchasers is relying and will
rely in entering into this Agreement. The Purchasers or the Company may file an
original counterpart or a copy of this Section 14.10 with any court
as written evidence of the consent of the Purchasers and the Company to the
waiver of the right to trial by jury.

 

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

 

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

 

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

 

14.14       Independent Nature
of Purchasers’ Obligations and Rights. 
The obligations of each Purchaser under this Agreement and any other
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other Purchaser under
this Agreement and any other Transaction Document.  The decision of each Purchaser to purchase
shares of Series B Preferred Stock pursuant to this Agreement and the
other Transaction Documents has been made by such Purchaser independently of
any other Purchaser.  Nothing contained
herein or in any other Transaction Document, and no action taken by any
Purchaser pursuant 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
this Agreement and the other Transaction Documents.  Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.

 

[Remainder of
Page Intentionally Left Blank]

 

39

 

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

 

 

	
   

  	
  THE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMMUNICATION INTELLIGENCE

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Guido DiGregorio

  
	
   

  	
  Name: Guido DiGregorio

  
	
   

  	
  Title: Chairman and Chief
  Executive Officer

  

 

 

Signature Page to Series B Preferred Stock Purchase Agreement

 

 

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

 

 

	
   

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  [OMITTED]

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telephone No.:

  
	
   

  	
   

  
	
   

  	
  Facsimile No.:

  
	
   

  	
   

  
	
   

  	
  Email Address:

  
	
   

  	
   

  
	
   

  	
  Number of Shares:

  
	
   

  	
   

  
	
   

  	
  Aggregate Purchase Price:

  
	
   

  	
   

  
	
   

  	
  SSN/TIN:

  

 

 

Signature Page to Series B Preferred Stock
Purchase Agreement

 

 

Schedule I

 

[OMITTED]

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