DEF 14A 1 def_proxy2013.htm COMMUNICATION INTELLIGENCE CORPORATION DEF 14A def_proxy2013.htm
 
 
COMMUNICATION INTELLIGENCE CORPORATION
275 Shoreline Drive, Suite 500
Redwood Shores, California 94065
 

 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 

NOVEMBER 20, 2013
 

To the Stockholders of Communication Intelligence Corporation:
 
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Communication Intelligence Corporation, a Delaware corporation (the “Company”), will be held at the Company’s Headquarters, 275 Shoreline Drive, Suite 500, Redwood Shores, California 94065, on November 20, 2013, at 1:00 p.m. Pacific Time, for the following purposes, all as more fully described in the attached Proxy Statement:
 
 
1.
To elect five directors;
 
 
2.
To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Seried D-1 Preferred Stock;
 
 
3.
To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Seried D-2 Preferred Stock;
 
 
4.
To ratify the appointment of PMB Helin Donovan, LLP as the Company’s independent auditors for the year ending December 31, 2013; and
 
 
5.
To transact such other business as may properly come before the Annual Meeting.
 
You are urged to carefully read the attached Proxy Statement and the additional information concerning the matters to be considered at the meeting. The Board of Directors has fixed the close of business on September 23, 2013, as the record date. Only stockholders of record at the close of business on the record date will be entitled to notice of and to vote at the Annual Meeting or any postponements or adjournments thereof. A list of the stockholders will be available for inspection at the Company’s Headquarters, 275 Shoreline Drive, Suite 500, Redwood Shores, California 94065, at least ten days before the Annual Meeting and at the Annual Meeting.
 
YOUR VOTE IS IMPORTANT
 
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS STILL IMPORTANT THAT YOUR SHARES BE REPRESENTED. PLEASE SUBMIT A PROXY TO VOTE YOUR SHARES IN ONE OF THREE WAYS: VIA INTERNET, TELEPHONE OR MAIL. IF YOU CHOOSE TO SUBMIT YOUR PROXY BY MAIL, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AT YOUR EARLIEST CONVENIENCE. IF YOU DO ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT THAT TIME.
 
Redwood Shores, California
November 1, 2013
By Order of the Board of Directors
   
   /s/ Philip S. Sassower
   
 
Philip S. Sassower
Chairman and Chief Executive Officer
 

 
 

 
 
 
COMMUNICATION INTELLIGENCE CORPORATION
275 Shoreline Drive, Suite 500
Redwood Shores, California 94065
 

 
PROXY STATEMENT
 

ANNUAL MEETING OF STOCKHOLDERS
 

INTRODUCTION
 
This Proxy Statement and the accompanying proxy card are being furnished to stockholders of Communication Intelligence Corporation, a Delaware corporation (the “Company”), in connection with the solicitation of proxies by the Board of Directors for use in voting at the Company’s Annual Meeting of Stockholders to be held at the Company’s Headquarters, 275 Shoreline Drive, Suite 500, Redwood Shores California, 94065, on November 20, 2013, at 1:00 p.m. Pacific Time, and any adjournments or postponements thereof (the “Annual Meeting”).
 
At the Annual Meeting, stockholders of the Company will be asked to consider and vote upon the following:
 
 
1.
To elect five directors;
 
 
2.
To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Seried D-1 Preferred Stock;
 
 
3.
To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Seried D-2 Preferred Stock;
 
 
4.
To ratify the appointment of PMB Helin Donovan, LLP as the Company’s independent auditors for the year ending December 31, 2013; and
 
 
5.
To transact such other business as may properly come before the Annual Meeting.
 
    This Proxy Statement and the accompanying proxy card, together with a copy of the Company’s Annual Report to Stockholders, are first being mailed or delivered to stockholders of the Company on or about November 7, 2013.
 
WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO VOTE YOUR SHARES BY PROXY VIA INTERNET, TELEPHONE OR MAIL, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. SHARES CAN BE VOTED AT THE ANNUAL MEETING ONLY IF THE HOLDER IS REPRESENTED BY PROXY OR IS PRESENT.
 
VOTING SECURITIES
 
The Board of Directors has fixed September 23, 2013, as the record date (“Record Date”) for purposes of determining the stockholders entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. Accordingly, only holders of record of shares of the Company’s Common Stock (“Common Stock”) and Series A-1 Cumulative Convertible Preferred Stock (“Series A-1 Preferred Stock”), Series B Participating Convertible Preferred Stock (“Series B Preferred Stock”) and Series C Participating Convertible Preferred Stock (“Series C Preferred Stock”) at the close of business on such date are entitled to notice of, and to vote at, the Annual Meeting. At the close of business on the record date, there were approximately 812 beneficial owners of 225,824,328outstanding shares of our Common Stock, five beneficial owners of 991,103 outstanding shares of our Series A-1 Preferred Stock, 34 beneficial owners of 10,563,687 outstanding shares of our Series B Preferred Stock, 38 beneficial owners of 4,384,988 outstanding shares of our Series C Preferred Stock, 18 beneficial owners of 1,413,405 outstanding shares of Series D-1 Preferred Stock and 56 beneficial owners of 4,399,842 outstanding shares of Series D-2 Preferred Stock.  Each holder of Common Stock is entitled to one vote for each share of our Common Stock held by such holder. Except as otherwise required by law or our Certificate of
 
 
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Incorporation, Shares of Series A-1 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D-1 Preferred Stock and Series D-2 Preferred Stock vote with the holders of Common Stock on an as-converted basis.
 
As of the record date each share of (i) Series A-1 Preferred Stock is convertible into 7.1429 shares of Common Stock. Accordingly, the 991,103 outstanding shares of Series A-1 Preferred Stock are convertible into 7,079,350 shares of Common Stock, and the holders of Series A-1 Preferred Stock are entitled to 7,079,350 votes for their shares of Series A-1 Preferred Stock, (ii) Series B Preferred Stock are convertible into 23.0947 shares of Common Stock. Accordingly, the 10,563,687 outstanding shares of Series B Preferred Stock are convertible into 243,965,182 shares of Common Stock, and the holders of Series B Preferred Stock are entitled to 243,965,182 votes for their shares of Series B Preferred Stock, (iii) Series C Preferred Stock is convertible into 44.4444 shares of Common Stock. Accordingly, the 4,384,988 outstanding shares of Series C Preferred Stock are convertible into 194,888,161 shares of Common Stock, and the holders of Series C Preferred Stock are entitled to 194,888,161 votes for their shares of Series C Preferred Stock, (iv) Series D-1 Preferred Stock is convertible into 44.4444 shares of Common Stock. Accordingly, the 1,413,405 outstanding shares of Series D-1 Preferred Stock are convertible into 62,817,937 shares of Common Stock, and the holders of Series D-1 Preferred Stock are entitled to 62,817,937 votes for their shares of Series D-1 Preferred Stock and (v) Series D-2 Preferred Stock is convertible into 20.0000 shares of Common Stock. Accordingly, the 4,399,842 outstanding shares of Series D-2 Preferred Stock are convertible into 87,996,840 shares of Common Stock, and the holders of Series D-1 Preferred Stock are entitled to 87,996,840 votes for their shares of Series D-2 Preferred Stock on all matters to be voted on by the holders of the Common Stock. If a choice as to the matters coming before the Annual Meeting has been specified by a stockholder “FOR,” “AGAINST” or “ABSTAIN” on the proxy card, which is duly returned and properly executed, the shares will be voted accordingly. If no choice is specified on the returned and properly executed proxy card, the shares will be voted FOR each nominated director and FOR approval of all proposals described in the Notice of Annual Meeting and in this Proxy Statement. The Board of Directors does not know of any matters other than those described in the Notice of Annual Meeting that are to come before the Annual Meeting. The presence in person or by proxy of a majority of the total number of outstanding shares of Common Stock (including outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock being voted on an as- converted basis) entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. If less than a majority of outstanding shares entitled to vote are represented at the Annual Meeting, a majority of the shares present at the Annual Meeting may adjourn the Annual Meeting to another date, time or place, and notice need not be given of the new date, time or place if the new date, time or place is announced at the Annual Meeting before an adjournment is taken.
 
Whether or not you plan to attend the Annual Meeting, you may submit a proxy to vote your shares via Internet, telephone or mail as more fully described below:
 
 
By Internet: Go to www.proxyvote.com and follow the instructions. You will need your proxy card to submit your proxy.
 
 
By Telephone: Call 1-800-690-6903 and follow the voice prompts. You will need your proxy card to submit your proxy.
 
 
By Mail: Mark your vote, sign your name exactly as it appears on your proxy card, date your proxy card and return it in the envelope provided.
 
If you vote via the Internet or by telephone, your electronic vote authorizes the persons designated on the enclosed form of proxy in the same manner as if you signed, dated and returned your proxy card. If you vote by Internet or by telephone, do not return your proxy card.
 
If your shares are held in “street name” (that is, in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Internet and/or telephone voting also will be offered to stockholders owning shares through most banks and brokers.
 
Attendance at the meeting will not automatically revoke a previously-submitted, properly-executed proxy. A stockholder executing a proxy card pursuant to this solicitation may revoke his or her proxy at any time prior to its use by:
 
 
delivering to the Secretary of the Company a signed notice of revocation;
 
        ·  
delivering a properly executed proxy card with a later date than the proxy card being revoked;
 
 
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submitting a proxy by Internet or telephone at a later date than the proxy card being revoked; or
 
 
attending the meeting, revoking the previously-granted proxy and voting in person.
 
 
In order to be effective, all revocations or a subsequently filed proxy card must be delivered to the Company at the address listed above no later than November 19, 2013, 5:00 p.m., local time. All valid unrevoked proxies will be voted at the Annual Meeting and any adjournments or postponements thereof. Under Delaware law, stockholders are not entitled to appraisal rights with respect to any of the proposals set forth in this Proxy Statement.
 
Proxy cards marked as abstaining will be treated as present for the purpose of determining whether there is a quorum for the Annual Meeting, but will not be counted as voting on any matter as to which abstention is indicated. Broker “non-votes” (i.e., the submission of a proxy by a broker or nominee specifically indicating the lack of discretionary authority to vote on the matter) will not be treated as present for purposes of determining whether there is a quorum for the Annual Meeting unless the broker is given discretion to vote on at least one matter on the agenda.
 
If a quorum is present at the Annual Meeting:
 
(a)           (i) the three nominees for Preferred Stock Director (as identified in Proposal 1 below), two of which have been designated by Phoenix Venture Fund LLC (“Phoenix”) and the other of which has been designated by a majority of the outstanding shares of Series B Preferred Stock, will be elected by the outstanding shares of Series B Preferred Stock and Series C Preferred Stock, voting together as one class on an as-converted basis, and (ii) the two nominees for Common Stock Director (as identified in Proposal 1 below) receiving the greatest number of votes (a plurality) from the outstanding shares of Common Stock and Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, will be elected. Abstentions and broker non-votes will not affect whether director nominees have received the requisite number of affirmative votes.
 
 (b)           The proposal to amend the Certificate of Incorporation to increase the authorized number of shares of Seried D-1 Preferred Stock will be adopted if it receives the affirmative vote of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.  Abstentions and broker non-votes will have the effect of a “NO” vote.
 
(c)           The proposal to amend the Certificate of Incorporation to increase the authorized number of shares of Seried D-2Preferred Stock will be adopted if it receives the affirmative vote of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.  Abstentions and broker non-votes will have the effect of a “NO” vote.
 
 (d)           The proposal to ratify PMB Helin Donovan, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2013, will be approved if it receives more affirmative votes than negative votes from the outstanding shares of Common Stock and Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis. Abstentions and broker non-votes will not affect the passage of this proposal.
 
A proxy card gives discretionary authority to the persons named therein with respect to any amendments or modifications of the Company’s proposals and any other matters that may be properly proposed at the Annual Meeting. The shares represented by all valid non-revoked proxies will be voted in accordance with the instructions marked therein. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR ALL PROPOSALS. If any other matter properly comes before the Annual Meeting, the proxies solicited hereby will be exercised in accordance with the reasonable judgment
 
 
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of the proxy holders named therein. If the meeting is adjourned or postponed, your shares will be voted by the proxy holders on the new meeting date as well, unless you have revoked your proxy instructions before that date.
 
The Company will pay the cost of its proxy solicitation. Some of the Company’s employees may also solicit stockholders personally and by telephone. None of these employees will receive any additional or special compensation for doing this. Your cooperation in promptly submitting your proxy via Internet, telephone or mail will help to avoid additional expense.
 
If you are a stockholder of record and you plan to attend the Annual Meeting, please indicate this when you vote your shares via Internet, telephone or mail. If you are a beneficial owner of shares of Common Stock or Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock or Series D-2 Preferred Stock held by a bank, broker or other nominee, you will need proof of ownership to be admitted to the Annual Meeting. A recent brokerage statement or letter from the bank, broker or other nominee are examples of proof of ownership. If you want to vote in person your shares of the Company’s stock held in street name, you will have to obtain a proxy, executed in your favor, from the holder of record.
 
 
PROPOSAL 1
ELECTION OF DIRECTORS
 
The Bylaws of the Company provide that the Board of Directors shall consist of such number of directors, with a minimum of three, as the Board of Directors may determine from time to time. The authorized number of directors is five. The current Board of Directors consists of five persons, and no vacancies.
 
So long as 20% of the shares of Series B Preferred Stock originally issued in August 2010 remain outstanding, the Company’s Board will consist of (i) three Preferred Stock Directors (as identified below), two of which are designated by Phoenix and the other of which is designated by a majority of the outstanding shares of Series B Preferred Stock, who will be elected by the outstanding shares of Series B Preferred Stock and Series C Preferred Stock, voting together as one class on an as-converted basis, and (ii) two Common Stock Directors (as identified below), who will be elected by the outstanding shares of Common Stock and Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock voting together as one class on an as-converted basis.   Phoenix has designated Philip S. Sassower and Andrea Goren as Preferred Stock Director nominees, and holders of a majority of the shares of Series B Preferred Stock have designated Stanley Gilbert as the other Preferred Stock Director nominee.  Jeffrey Holtmeier and David Welch were selected as the Common Stock Director nominees by the independent directors of the Board, and their selection as Common Stock Director nominees was subsequently ratified by the full Board. Each director elected at this Annual Meeting will serve for one year or until his successor is duly elected and qualified or his earlier resignation, removal or disqualification.

Unless otherwise instructed, the proxy holders named in the proxy card will vote (i) the shares of Series B Preferred Stock and Series C Preferred Stock represented by proxies received by them for the election of the three Preferred Stock Director nominees to the Board of Directors, and (ii) the shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock represented by proxies received by them for the election of the two Common Stock Director nominees to the Board of Directors. In the event that any Preferred Stock Director or Common Stock Director nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the shares will be voted for the election of any nominee designated in accordance with the above parameters. The Company is not aware of any nominee who will be unable or will decline to serve as a director. THE BOARD OF DIRECTORS CONSIDERED THE PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF EACH OF THE DIRECTOR NOMINEES.
 
 
 
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Director Nominees
 
The following table sets forth certain information concerning the Directors of the Company (each of whom is also a Director Nominee):
 
PREFERRED STOCK DIRECTORS:
 
Name
 
 
Age
 
Year First Elected
or Appointed
 
Philip S. Sassower
73
2010
Andrea Goren
46
2010
Stanley Gilbert(1)(2)
74
2011
 
COMMON STOCK DIRECTORS:
Name
 
 
Age
 
Year First Elected
or Appointed
 
Jeffrey Holtmeier(1)(2)
55
2011
David E. Welch(1)(2)
66
2004

 
(1)
Member of the Audit Committee (Chairman David E. Welch)
 
 
(2)
Member of the Compensation Committee (Chairman Stanley Gilbert)
 
 The business experience of each of the directors for at least the past five years includes the following:
 
Philip S. Sassower has served as the Company’s Chairman and Chief Executive Officer since August 2010.  Mr. Sassower is a Managing Director of SG Phoenix LLC, a private equity firm, and has served in that capacity since May 2003.
 
Mr. Sassower has also been Chief Executive Officer of Phoenix Enterprises LLC, a private equity firm, and has served in that capacity since 1996. In addition, Mr. Sassower has served as Chief Executive Officer of Xplore Technologies Corp. (OTCQB: XLRT) since February 2006 and has been a director of Xplore Technologies Corp. and served as Chairman of its board of directors since December 2004. On May 13, 2008, Mr. Sassower was named Chairman of the Board of The Fairchild Corporation (NYSE: FA), a motorcycle accessories and aerospace parts and services company. On March 18, 2009, The Fairchild Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of Delaware. On January 7, 2010, The Fairchild Corporation’s plan of liquidation was declared effective and the company’s board of directors was relieved of its duties. Mr. Sassower also served as Chairman of the Board of the Company from 1998 to 2002 and as Co-Chief Executive Officer of the Company from 1997 to 1998. Mr. Sassower is co-manager of the managing member of Phoenix Venture Fund LLC. Mr. Sassower’s qualifications to serve on the Board of Directors include more than 40 years of business and investment experience. Mr. Sassower has developed extensive experience working with management teams and boards of directors, and in acquiring, investing in and building companies and implementing changes.
 
Andrea Goren has served as a director since August 2010.  Mr. Goren was appointed the Company’s Chief Financial Officer in December 2010.  Mr. Goren is a Managing Director of SG Phoenix LLC, a private equity firm, and has served in that capacity since May 2003. Prior to that, Mr. Goren served as Vice President of Shamrock International, Ltd., a private equity firm. Mr. Goren has been a director of Xplore Technologies Corp. (OTCQB: XLRT) since December 2004 and of The Fairchild Corporation (NYSE: FA) from May 2008 to January 2010. On March 18, 2009, The Fairchild Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of Delaware. On January 7, 2010, The Fairchild Corporation’s plan of liquidation was declared effective and the company’s board of directors was relieved of its duties. Mr. Goren is co-manager of the managing member of Phoenix Venture Fund LLC. Mr. Goren’s qualifications to serve on the Board of Directors include his experience and knowledge acquired in approximately 14 years of private equity investing. Mr. Goren has played a significant role in SG Phoenix LLC’s private equity investments and has developed extensive experience working with management teams and boards of directors, including at numerous public companies affiliated with SG Phoenix LLC.
 
Stanley L. Gilbert has served as a director since October 2011. Mr. Gilbert has more than 45 years of experience as a lawyer with primary specialties in wills, trusts, estate planning and administration, as well as tax planning. Mr. Gilbert is Founder, and, has been President of Stanley L. Gilbert PC since 1982. Mr. Gilbert has also been a partner of a number of law firms, including Nager Korobow, Bell Kallnick Klee and Green, and Migdal Pollack Rosenkrantz and Sherman. Mr. Gilbert has served as a Director of Planned Giving at Columbia University Medical Center’s Nathaniel Wharton Fund, which supports a broad variety of projects in basic research, clinical care and teaching since 2001. Mr. Gilbert was elected by a
 
 
 
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majority of CIC’s Series C and Series B Preferred stockholders voting together as a separate class on an as converted to common stock basis, and serves on CIC’s audit and compensation committees. Mr. Gilbert’s qualifications to serve on the Board of Directors include his significant tax and accounting expertise acquired through his years of practicing law.
 
Jeffrey Holtmeier has served as a director since August 2011. Mr. Holtmeier has more than 25 years of successful entrepreneurship in the technology and communications fields. As CEO of GENext from 2001 to present, and through its subsidiary China US Business Development, LLC, Mr. Holtmeier has assisted many US companies in establishing relationships in China, where he also co-founded Koncept International, Inc., a Chinese-based VoIP and digital media technology company. Prior to his involvement in the Chinese market, Mr. Holtmeier founded, built over seventeen years and successfully sold InfiNET in 2001 to Teligent, a NASDAQ listed company. Mr. Holtmeier was a recipient of the prestigious Ernst & Young, NASDAQ/USA Today “Entrepreneur of the Year” award in 1999, and has served on the boards of numerous corporations and non-profit organizations. He serves on CIC’s audit and compensation committees. Mr. Holtmeier’s qualifications to serve on the Board of Directors include his experience as a successful entrepreneur and his experience in establishing business relationships in China.
 
David E. Welch has served as a director since March 2004. From July 2002 to present Mr. Welch has been the principal of David E. Welch Consulting, a financial consulting firm. Mr. Welch has also been Vice President and Chief Financial Officer of American Millennium Corporation, Inc., a provider of satellite-based asset tracking and reporting equipment, from April 2004 to present. Mr. Welch was Vice President and Chief Financial Officer of Active Link Communications, a manufacturer of telecommunications equipment, from 1999 to 2002.  Mr. Welch has held positions as Director of Management Information Systems and Chief Information Officer with Micromedex, Inc. and Language Management International from 1995 through 1998. Mr. Welch other directorships have been with AspenBio Pharma, Inc., from 2004 to present, PepperBall Technologies, Inc. from January 2007 to January 2009 and Advanced Nutraceuticals, Inc., from 2003 to 2006. Mr. Welch is a Certified Public Accountant licensed in the state of Colorado. He serves on CIC’s audit
 
and compensation committees. Mr. Welch’s qualifications to serve on the Board of Directors include his significant accounting and financial expertise.
 
Executive Officers
 
The following table sets forth the name and age of each executive officer of the Company, or named executive officers, and all positions and offices of the Company presently held by each of them.
 
Name
 
 
Age
 
Positions Currently Held
 
Philip S. Sassower
73
Chairman of the Board and Chief Executive Officer
Andrea Goren
46
Chief Financial Officer
William Keiper
62
President and Chief Operating Officer
 
The business experience of each of the executive officers for at least the past five years includes the following:
 
Philip S. Sassower—see above under the heading “Proposal 1—Director Nominees.”
 
Andrea Goren—see above under the heading “Proposal 1—Director Nominees.”
 
William Keiper was appointed the Company’s President and Chief Operating Officer in December 2010. Mr. Keiper is Managing Partner of FirstGlobal Partners LLC where he specializes in working with investors and Boards of Directors in resolving issues related to business continuity, performance and sustainable value creation. Mr. Keiper has over 30 years of business experience, more than 18 of which have been in the management of software, technology and IT product distribution and services organizations. He was President and Chief Executive Officer of Hypercom Corporation (NYSE: HYC) from 2005 to 2007 and served as a member of its Board of Directors from 2000 to 2007. He was Chairman and Chief Executive Officer of Arrange Technology LLC, a software development services outsourcing company, from 2002 to 2005. From 1997 to 2002, he served as a principal in mergers and acquisitions firms serving middle market software and IT services companies. He was Chief Executive Officer of Artisoft, Inc., a public networking and communications software company, from 1993 to 1997, and its Chairman from 1995 to 1997. He held several executive positions, including President and Chief Operating Officer, of MicroAge, Inc., an indirect sales-based IT products distribution and services company, from 1986 to 1993, where he was a key executive in helping to profitably drive more than a billion dollar revenue increase over the course of his tenure with the company.
 
 
 
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BOARD OF DIRECTOR MEETINGS AND COMMITTEES
 
The Company’s affairs are managed under the direction of the Board of Directors. Members of the Board receive information concerning the Company’s affairs through oral and written reports by management, Board and committee meetings and other means. The Company’s directors generally attend Board of Directors meetings, committee meetings and informal meetings with management and others, participate in telephone conversations and have other communications with management and others regarding the Company’s affairs. During 2012, the Board of Directors held one in person meeting, six telephonic meetings and acted by unanimous written consent on two occasions. Except for the meetings of the Audit Committee, which were held separately, and in cases where the committees acted by unanimous consent, all committee meetings were held concurrently with the formal meetings of the Board of Directors. For the year ended December 31, 2012, each incumbent director participated in all of the formal meetings of the Board and each committee on which he served except Stanley Gilbert who missed one formal meeting.
 
Directors of the Company serve until their successors are duly elected and qualified or until their earlier resignation, removal or disqualification from the Board. There are no family relationships between the Company’s directors and executive officers.
 
Director Independence
 
The Board of Directors has determined that Messrs. Gilbert, Holtmeier, and Welch are “independent,” as defined under the rules of the NASDAQ Stock Market relating to director independence, and Messrs. Sassower and Goren are not independent under such rules. Messrs. Welch, Gilbert, and Holtmeier serve on the Compensation Committee of the Board of
 
Directors. Each of the members of the Compensation Committee is independent under the rules of the NASDAQ Stock Market relating to director independence.  Messrs. Welch, Gilbert and Holtmeier serve on the Audit Committee of the Board of Directors.  Under the applicable rules of the NASDAQ Stock Market and the SEC relating to independence of Audit Committee members, the Board of Directors has determined that Messrs. Welch and Gilbert are independent and Mr. Holtmeier is not.  Mr. Holtmeier's lack of independence stems solely from the fact that he was party to a consulting agreement under which he was paid $15,000 in the year ended December 31, 2011.  The Board has determined that the amount paid to Mr. Holtmeier under this contract is not material, and thus the Board determined that Mr. Holtmeier is suitable to serve on the Audit Committee.
 
Board Committees
 
The Company’s Board of Directors has two standing committees as set forth below. The members of each committee are appointed by the Board of Directors.
 
Audit Committee.  The Audit Committee assists the Board of Directors in the exercise of its fiduciary responsibility of providing oversight regarding the Company’s financial statements and the financial reporting processes, internal accounting and financial controls, the annual independent audit of the Company’s financial statements, and other aspects of the financial management of the Company, oversees our financial reporting process on behalf of the Board of Directors and reports to the Board of Directors the results of these activities, including the systems of internal controls that management and the Board of Directors have established. The Audit Committee, among other duties, engages the independent public accountants retained as the registered public accounting firm, pre-approves all audit and non-audit services provided by the independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, considers the compatibility of any non-audit services provided by the independent public accountants with the independence of such auditors and reviews the independence of the independent public accountants. The members of the Audit Committee are Messrs. Welch, Gilbert, and Holtmeier. Mr. Welch serves as the Audit Committee’s financial expert. Messrs. Welch and Gilbert are independent as defined under applicable rules of the NASDAQ Stock Market and the SEC relating to independence of Audit Committee member, whereas Mr. Holtmeier is not.  For the reasons outlined above, the Board has concluded that Mr. Holtmeier is suited to serving on the Audit Committee. The Audit Committee conducted four meeting in the year ended December 31, 2012 and all members attended that meeting. A copy of the Audit Committee charter can be found at our website, www.cic.com.
 
Compensation Committee.  The Compensation Committee generally reviews compensation matters with respect to executive and senior management arrangements and administers the Company’s stock option plans. The members of the Compensation Committee are Messrs. Welch, Gilbert, and Holtmeier. During 2012, the Compensation Committee held no
 
 
8

 
 
formal meetings, but acted by unanimous written consent on two occasions. The Board has adopted a Compensation Committee Charter, a copy of which can be found on our website, www.cic.com.
 
Nominating Committee.  The Company does not have a standing Nominating Committee.  Because a majority of the members of the Company’s Board of Directors are elected by holders of the outstanding shares of the Company’s Series B Preferred Stock and Series C Preferred Stock (referred to herein as the Preferred Stock Directors), the Board believes that it is unnecessary for the Company to have a separate standing Nominating Committee for selecting the two Common Stock Director nominees.  Instead, the Board believes having the full Board perform this function is a pragmatic and appropriate approach under the circumstances.  The independent members of the Board of Directors select and recommend to the full Board of Directors for approval nominees for the Common Stock Director positions. The Board then determines whether to approve of such nominations and present them to the Company’s stockholders for election to the Board of Directors. When selecting Common Stock Director nominees, the independent directors review the appropriate skills and characteristics required of directors in the context of prevailing business conditions. In general, the Company’s Board believes that all of its directors should possess the highest personal and professional ethics, integrity, and values, and that they should committed to representing the long-term interests of the stockholders. Directors should also have an inquisitive and objective perspective, practical wisdom, and mature judgment. We endeavor to have a Board representing diverse experience at policy-making levels in business, government, education, and technology, and in areas that are relevant to the Company’s business activities. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serving on the Board for an extended period of time.  While not maintaining a specific policy on Board diversity requirements, the Board believes that diversity is an important factor in determining the composition of the Board and, therefore, seeks a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board.

 
The Board does not currently engage any third-party director search firms for purposes of identifying candidates for Board service, but may do so in the future if it deems appropriate and in the best interests of the Company.  The Board annually evaluates the Board’s composition.  This evaluation enables the Board to update the skills and experience they seek in the Board as a whole and in individual directors, as the Company’s needs evolve and change over time.

Nominations of Common Stock Director candidates by stockholders of the Company may be submitted if such nominations are made with timely notice in writing to the Secretary.  For more information on this process, please see the information provided under the heading “Stockholder Proposals and Stockholder Nominations of Directors” below. The current Common Stock Director nominees were selected by the independent members of the Board of Directors, which Common Stock Director nominees were then ratified by the entire Board of Directors.  The independent directors will evaluate any Common Stock Director candidate submitted by a stockholder in the same manner in which they would evaluate a candidate selected by the independent directors, employing the criteria for Board service identified above in connection with their evaluations of all such candidates.

The Board does not currently have a charter or formal policy with respect to the consideration of Common Stock Director candidates recommended by stockholders.  The Board has not adopted a formal policy with respect to the consideration of Common Stock Director candidates, as it has concluded that the independent directors will fairly evaluate Common Stock Director candidates put forward by stockholders, notwithstanding the absence of a formal policy.

Leadership Structure of Board of Directors
 
The Company’s Chief Executive Officer Mr. Sassower also serves as its Chairman of the Board. The Board believes that, given the size of the Company and resources available to the Company, the interests of all stockholders have been appropriately taken into consideration by having the same person holding the positions of Chief Executive Officer and Chairman of the Board. The Company’s current Chief Executive Officer possesses an in-depth knowledge of the Company, its operations, and the array of business challenges faced by the Company, all of which have been gained through years of association with the Company. The Board believes that these experiences and other insights place the Chief Executive Officer in a position to provide broad leadership for the Board as it considers strategy and as it exercises its fiduciary responsibilities to its stockholders.
 
The Board has not previously designated a lead independent director because it concluded that it was unnecessary in light of the independence of a majority of the members of the Board. As indicated above, all directors other than Messrs. Sassower and Goren are independent. Each independent director may call meetings of the independent directors, and may request agenda topics to be added or considered with in more detail at meetings of the full Board or an appropriate Board committee. Accordingly, the oversight of critical matters, such as the integrity of the Company’s financial statements,
 
 
 
9

 
 
employee compensation, including compensation of the executive officers, the selection of directors and the evaluation of the Board and key committees is entrusted to independent directors.
 
Role of Board of Directors in Risk Oversight
 
The entire Board and each of its standing committees are involved in overseeing risk associated with the Company and its business. The Board monitors the Company’s governance by review with management and outside advisors, as considered necessary. The Board has delegated certain risk management responsibilities to the Board committees. The Board and the Audit Committee monitor the Company’s liquidity risk, regulatory risk, operational risk and enterprise risk by reviews with management and independent accountants and other advisors, as considered necessary. In its periodic meetings with the independent accountants, the Audit Committee discusses the scope and plan for the audit and includes management in its review of accounting and financial controls, assessment of business risks and legal and ethical compliance programs. As part of its responsibilities as set forth in its charter, the Compensation Committee reviews the impact of the Company’s executive compensation program and the associated incentives to determine whether they present a significant risk to the Company.
 
Communications to the Board
 
The Board of Directors welcomes and encourages stockholders to share their thoughts regarding the Company. Towards that end, the Board of Directors has adopted a policy whereby all communications should first be directed to Investor Relations. Investor Relations will then, for other than routine communications, distribute a copy of the communication to the Chairman of the Board, the Chairman of the Audit Committee and the Company’s Chief Financial Officer. Based on the input and decision of these persons, along with the entire Board, if it is deemed necessary, the
 
 
Company will respond to the communications. Stockholders should not communicate with individual directors unless requested to do so.
 
See STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS, page 25, for information regarding the process for stockholders to nominate individuals for election to the Board of Directors.
 
DIRECTOR COMPENSATION
 
For their service as directors of the Company, all non-employee directors receive a fee of $1,000 for each meeting of the Board of Directors attended, in person, and all directors are reimbursed for all reasonable out-of-pocket expenses incurred in connection with attending such meetings. Generally, each non-employee director receives an option to acquire 1,000,000 shares of Common Stock upon joining the Board, and may receive additional options thereafter so long as they continue to serve as a member of the Board of Directors. The exercise price of all options granted to directors is equal to the market closing price on the date of grant; the options vest quarterly over three years and have a seven-year term.
 
The following table provides information regarding the compensation of the Company’s non-employee directors for the year ended December 31, 2012:

 
 
 
Current Directors
 
 
Fees Earned or Paid in Cash
 
 
 
 
Stock Awards
 
 
Option Awards
 
Non-Equity Incentive Plan Compensation
Non-qualified Deferred Compensation Earnings
 
 
All Other Compensation
 
 
 
Total
 
                       
Stanley Gilbert  (1)
  $ 1,000  
$        ─
$         ─
$        ─
$         ─
$         ─
  $ 1,000  
Jeffrey Holtmeier (2)
  $ 1,000  
$        ─
$         ─
$        ─
$         ─
$         ─
  $ 1,000  
David Welch (3)
  $ 1,000  
$        ─
$         ─
$        ─
$         ─
$         ─
  $ 1,000  

(1)  
Mr. Gilbert received a stock option grant on November 7, 2011, to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price of $0.023 per share. The shares vest quarterly over three years and have a seven-year life from the date of grant. The aggregate number of option awards outstanding for Mr. Gilbert as of December 31, 2012 is 1,000,000.
 
(2)  
Mr. Holtmeier received a stock option grant on August 11, 2011, to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price of $0.025 per share. The shares vest quarterly over three years and have a seven-year life from the date of grant. The aggregate number of option awards outstanding for Mr. Holtmeier as of December 31, 2012 is 1,000,000.
 
(3)  
Mr. Welch received a stock option grant on January 28, 2011, to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price of $0.06 per share. The shares vest quarterly over three years and have a seven-year life from the date of grant. The aggregate number of option awards outstanding for Mr. Welch as of December 31, 2012 is 1,050,000.
 
 
10

 

 

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth information as of September 23, 2013, with respect to the beneficial ownership of (i) any person known to be the beneficial owner of more than 5% of any class of voting securities of the Company, (ii) each director and director nominee of the Company, (iii) each of the current executive officers of the Company named in the Summary Compensation Table under the heading "Executive Compensation" and (iv) all directors and executive officers of the Company as a group.  Except as indicated in the footnotes to this table (i) each person has sole voting and investment power with respect to all shares attributable to such person and (ii) each person’s address is c/o Communication Intelligence Corporation, 275 Shoreline Drive, Suite 500, Redwood Shores, California 94065-1413. The amounts are not stated in thousands.

 
 
Common Stock
 
Series A-1 Preferred Stock
 
Series B    Preferred Stock
 
Series C Preferred Stock
 
Series D-1 Preferred Stock
 
Series D-2 Preferred Stock
 
 
Name of Beneficial Owner
 
Number of Shares (1)
 
Percent Of Class (1)
 
 
Number of Shares (2)
 
Percent Of Class (2)
 
 
Number of Shares (3)
 
Percent Of Class (3)
 
 
Number of Shares (4)
 
Percent Of Class (4)
 
 
Number of Shares (5)
 
Percent of Class (5)
 
 
Number of Shares (6)
 
Percent of Class (6)
Philip S. Sassower (7)
410,018,855
64.5%
 
 
6,426,557
60.8%
 
1,943,331
44.3%
 
611,128
10.5%
     
Andrea Goren (8)
397,260,258
63.8%
 
 
6,454,010
61.1%
 
1,913,082
43.6%
 
673,331
11.6%
     
Stanley Gilbert (9)
44,275,005
16.4%
 
 
137,258
1.3%
 
371,531
8.5%
       
109,954
*%
Jeffrey Holtmeier (10)
2,347,570
*
 
 
 
       
23,616
*%
David E. Welch (11)
1,091,850
*
 
 
 
 
     
William Keiper (12)
28,605,668
11.24%
 
 
 
246,103
5.6%
 
     
                                   
All directors and executive officers as a group (6 persons) (13)
 
 
479,372,851
 
 
75.33%
 
 
 
 
 
 
 
 
6,591,268
 
 
62.4%
 
 
 
2,575,526
 
 
58.7%
 
 
 
673,331
 
 
11.6%
 
 
 
1,017,470
 
 
23.1%
                                   
5% Shareholders
                                 
Phoenix Venture Fund LLC (14)
344,707,422
67.3%
 
 
6,426,557
60.8%
 
1,898,521
43.3%
 
     
Michael W. Engmann (15)
43,095,536
16.58%
 
719,776
72.62%
 
780,028
7.4%
 
130,694
3.0%
 
41,514
1.0%
 
166,055
3.8%
___________
*           Less than 1%.
 
 
 
11

 

 
1.  
Shares of Common Stock beneficially owned and the respective percentages of beneficial ownership of Common Stock assumes the exercise or conversion of all options, warrants and other securities convertible into Common Stock, including shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock beneficially owned by such person or entity currently exercisable or exercisable within 60 days of September 23, 2013. Shares issuable pursuant to the exercise of stock options and warrants exercisable within 60 days of September 23, 2013, or securities convertible into Common Stock within 60 days of September 23, 2013 are deemed outstanding and held by the holder of such shares of Common Stock, options, warrants, or other convertible securities, including shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stockand Series D-2 Preferred Stock for purposes of computing the percentage of outstanding Common Stock beneficially owned by such person, but are not deemed outstanding for computing the percentage of outstanding Common Stock beneficially owned by any other person. The percentage of beneficial ownership of Common Stock beneficially owned is based on 225,824,325 shares of Common Stock, 991,103 shares of Series A-1 Preferred Stock, 10,563,687 shares of Series B Preferred Stock, 4,384,988 shares of Series C Preferred Stock, 1,413,405,shares of Series D-1 Preferred Stock and 4,399,842 shares of Series D-2 Preferred Stock outstanding as of September 23, 2013. The shares of Common Stock beneficially owned and the respective percentages of beneficial ownership of Common Stock stated in these columns assume conversion of shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock.

2.  
Each outstanding share of Series A-1 Preferred Stock is presently convertible into 7.1429 shares of Common Stock. The shares of Series A-1 Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series A-1 Preferred Stock stated in these columns reflect ownership of shares of Series A-1 Preferred Stock, and not shares of Common Stock issuable upon conversion of shares of Series A-1 Preferred Stock at this ratio. The percentage of beneficial ownership of Series A-1 Preferred Stock beneficially owned is based on 991,103 shares of Series A-1 Preferred Stock outstanding as of September 23, 2013.

3.  
Each outstanding share of Series B Preferred Stock is presently convertible into 23.0947 shares of Common Stock. The shares of Series B Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series B Preferred Stock stated in these columns reflect ownership of shares of Series B Preferred Stock, and not shares of Common Stock issuable upon conversion of shares of Series B Preferred Stock at this ratio. The percentage of beneficial ownership of Series B Preferred Stock beneficially owned is based on 10,563,687 shares of Series B Preferred Stock outstanding as of September 23, 2013.

4.  
Each outstanding share of Series C Preferred Stock is presently convertible into 44.444 shares of Common Stock. The shares of Series C Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series C Preferred Stock stated in these columns reflect ownership of shares of Series C Preferred Stock, and not shares of Common Stock issuable upon conversion of shares of Series C Preferred Stock at this ratio. The percentage of beneficial ownership of Series C Preferred Stock beneficially owned is based on 4,384,988 shares of Series C Preferred Stock outstanding as of September 23, 2013.

5.  
Each share of Series D-1 Preferred Stock is presently convertible into 44.444 shares of Common Stock and There are presently 1,413,405 shares of Series D-1 Preferred Stock outstanding The shares of Series D-1 Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series D-1 Preferred Stock stated in these columns reflect ownership of shares of Series D-1 Preferred Stock, and not shares of Common Stock issuable upon conversion of shares of Series D-1 Preferred Stock at the above ratios. The percentage of beneficial ownership of Series D-1 Preferred Stock beneficially owned is based on 1,413,402 shares of Series D-1 Preferred Stock outstanding as of September 23, 2013.

6.  
Each share of Series D-2 Preferred Stock is presently convertible into 20.000 shares of Common Stock. The shares of Series D-2 Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series D-2 Preferred Stock stated in these columns reflect ownership of shares of Series D-2 Preferred Stock, and not shares of Common Stock issuable upon conversion of shares of Series D-2 Preferred Stock at the above ratios. The percentage of beneficial ownership of Series D-2 Preferred Stock beneficially owned is based on 4,399,842 shares of Series D-2 Preferred Stock outstanding as of September 23, 2013.

7.  
Represents (a) 61,131,612 shares of Common Stock, (b) 2,543,649 shares issuable to Mr. Sassower upon the exercise of options exercisable within 60 days of September 23, 2013, (c) 148,419,406 shares of Common Stock issuable upon the conversion of 6,426,557 shares of Series B Preferred Stock, (d) 86,370,180 shares of Common Stock issuable upon the conversion of 1,943,331 shares of Series C Preferred Stock, (e) 41,994,564 shares of Common Stock issuable upon the conversion of 990,544 shares of Series D-1 Preferred Stock, and (f) 69,559,443 shares of Common Stock issuable upon the exercise of warrants (see table below for details), including securities beneficially owned by Phoenix, SG Phoenix Ventures LLC, SG Phoenix LLC, Phoenix Banner Holdings LLC and Phoenix Enterprises Family Fund. Please see footnote 14 below for information concerning shares of Common Stock beneficially owned by Phoenix. Along with Mr. Goren, Mr. Sassower is the co-manager of SG Phoenix Ventures LLC, which has the shared power to vote and dispose of the shares of Common Stock held by Phoenix and Phoenix Banner Holdings LLC, and, accordingly, Mr. Sassower may be deemed to be the beneficial owner of the shares owned by Phoenix and Phoenix Banner Holdings LLC. SG Phoenix Ventures LLC, Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares owned by Phoenix and Phoenix Banner Holdings LLC, except to the extent of their respective pecuniary interests therein. Mr. Sassower’s address is 110 East 59th Street, Suite 1901, New York, NY 10022.
 
 
 
12

 

 
   
 
Philip Sassower
   
SG Phoenix Ventures LLC
   
 
SG Phoenix LLC
   
 
Phoenix Venture Fund
   
Phoenix Enterprises Family Fund LLC
   
Phoenix Banner Holdings
   
 
 
Total
 
Common Shares
    2,555,556             2,792,494       55,783,562                   61,131,612  
Stock Options
    2,543,649                                         2,543,649  
Series B Preferred Stock As If Converted to Common Stock
                                148,419,406                         148,419,406  
                                                   
Series C Preferred Stock As If Converted to Common Stock
                                84,378,627             1,991,554                   86,370,181  
Series D-1 Preferred Stock As If Converted to Common Stock
          14,833,347                                           27,161,217             41,994,564  
Warrants
            9,115,000               53,333,333       1,555,555       5,555,555       69,559,443  
Total
    19,932,552       9,115,000       2,792,494       341,914,928       3,547,109       32,716,772       410,018,855  

8.  
Represents (a) 58,595,056 shares of Common Stock, (b) 5,418,099 shares issuable upon the exercise of options exercisable within 60 days of September 23, 2013, (c) 149,053,425 shares of Common Stock issuable upon the conversion of 6,454,010 shares of Series B Preferred Stock, (d) 85,025,782 shares of Common Stock issuable upon the conversion of 1,913,082 shares of Series C Preferred Stock, (e) 30,018,452 shares of Common Stock issuable upon the conversion of 682,203 shares of Series D-1 Preferred Stock, and (f) 69,059,444 shares of Common Stock issuable upon the exercise of warrants (see table below for details), including securities beneficially owned by Phoenix, SG Phoenix Ventures LLC, SG Phoenix LLC, Phoenix Banner Holdings LLC, Andax LLC and Mr. Goren. Please see footnote 14 below for information concerning Phoenix’s beneficial ownership. Mr. Goren is managing member Andax LLC and disclaims beneficial ownership of the shares except to the extent of his pecuniary interest therein. Along with Mr. Sassower, Mr. Goren is the co-manager of SG Phoenix Ventures LLC, which has the power to vote and dispose of the shares held by Phoenix and by Phoenix Banner Holdings LLC, and accordingly, Mr. Goren may be deemed to be the beneficial owner of the shares owned by Phoenix and Phoenix Banner Holdings LLC. SG Phoenix Ventures LLC, Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares owned by Phoenix and Phoenix Banner Holdings LLC, except to the extent of their respective pecuniary interests therein. Mr. Goren’s address is 110 East 59th Street, Suite 1901, New York, NY 10022.

   
 
Andrea Goren
   
 
Andax, LLC
   
SG Phoenix Ventures LLC
   
SG Phoenix LLC
   
Phoenix Venture Fund
   
Phoenix Banner Holdings
   
 
Total
 
Common Shares
    19,000             2,792,494       55,783,562                   58,595,056  
Stock Options
    5,418,099                                         5,418,099  
Series B Preferred Stock As If Converted to Common Stock
                  634,019                             148,419,406                   149,053,425  
Series C Preferred Stock As If Converted to Common Stock
                  647,155                             84,378,627                   85,025,782  
Series D-1 Preferred Stock As If Converted to Common Stock
                  2,764,575                                     27,161,217             29,925,792  
Series D-2 Preferred Stock As If Converted to Common Stock
                182,660                                           182,660  
Warrants
            1,055,556               9,115,000       53,333,333       5,555,555       69,059,444  
Total
    5,437,099       5,283,965       2,792,494       64,898,562       286,131,366       32,716,772       397,260,258  
 
 
 
13

 

 
9.  
Represents (a) 7,693,386 shares of Common Stock, (b) 791,950 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of September 23, 2013, (c) 3,169,932 shares of Common Stock issuable upon the conversion of 137,258 shares of Series B Preferred Stock, (d) 16,512,324 shares of Common Stock issuable upon the conversion of 371,531 shares of Series C Preferred Stock, (e) 2,199,080 shares of Common Stock issuable upon the conversion of 109,954 shares of Series D-2 Preferred Stock, and (f) 13,908,333 shares of Common Stock issuable upon the exercise of warrants (see table below for details). As manager of Galaxy LLC, Mr. Gilbert has the power to vote and dispose of the shares of Common Stock held by Galaxy LLC, and, accordingly, Mr. Gilbert may be deemed to be the beneficial owner of the shares owned by Galaxy LLC.

 
Stanley Gilbert
Stanley Gilbert PC
 
Galaxy LLC
 
Mrs. Gilbert
 
Total
Common Shares
3,734,749
28,485
1,783,035
2,147,117
7,693,386
 
Stock Options
 
791,950
     
 
791,950
 
Series B Preferred Stock As If Converted to Common Stock
 
 
3,169,932
     
 
 
3,169,932
 
Series C Preferred Stock As If Converted to Common Stock
 
 
16,512,324
     
 
 
16,512,324
 
Series D-2 Preferred Stock As If Converted to Common Stock
 
 
2,199,080
     
 
 
2,199,080
 
Warrants
 
13,908,333
     
 
13,908,333
 
Total
 
40,316,368
 
28,485
 
1,783,035
 
2,147,117
 
44,275,005

10.  
Represents (a) 875,250 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of September 23, 2013, (b) 472,320 shares of Common Stock issuable upon the conversion of 23,616 shares of Series D-2 Preferred Stock owned by Genext, LLC (“Genext”), and (c) 1,000,000 shares of Common Stock issuable upon the exercise of warrants exercisable within 60 days of September 23, 2013 beneficially owned by China U.S. Business Development, LLC (“CUBD”).  As manager of CUBD and Genext, Mr. Holtmeier has the power to vote and dispose of the shares of Common Stock held by CUBD and Genext, and, accordingly, Mr. Holtmeier may be deemed to be the beneficial owner of the shares owned by CUBD and Genext.

11.  
Represents 1,091,850 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of September 23, 2013.

12.  
Represents (a) 9,001,199 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of September 23, 2013, (b) 10,937,802 shares issuable upon the conversion of 246,103 shares of Series C Preferred Stock, and (c) an aggregate of 8,666,667 shares of Common Stock issuable upon exercise of warrants exercisable within 60 days of September 23, 2013 beneficially owned by FirstGlobal Partners LLC (“FirstGlobal”). As manager of FirstGlobal, Mr. Keiper has the power to vote and dispose of the shares of Common Stock held by FirstGlobal and, accordingly, Mr. Keiper may be deemed to be the beneficial owner of the shares owned by FirstGlobal.

13.  
Includes shares of Common Stock beneficially owned by Phoenix. Please see footnote 14 below for information concerning shares of Common Stock beneficially owned by Phoenix. Mr. Sassower and Mr. Goren are the co-managers of SG Phoenix Ventures LLC, which has the shared power to vote and dispose of the shares of Common Stock held by Phoenix and, accordingly, Mr. Sassower and Mr. Goren may be deemed to be the beneficial owner of the shares owned by Phoenix. SG Phoenix Ventures LLC, Mr. Sassower and Mr. Goren each disclaim beneficial ownership of the shares owned by Phoenix, except to the extent of their respective pecuniary interests therein. The amount stated above includes 7,961,748 shares issuable upon the exercise of options within 60 days of September 23, 2013.
 
 
 
14

 

 
14.  
Represents (a) 58,576,054 shares of Common Stock, (b) 148,419,406 shares of Common Stock issuable upon the conversion of 6,426,557 shares of Series B Preferred Stock, and (c) 84,378,627 shares of Common Stock issuable upon the conversion of 1,898,521 shares of Series C Preferred Stock and (d) 53,333,333 shares of Common Stock issuable upon the exercise of warrants exercisable within 60 days of September 23, 2013. See the table below for more detail.

SG Phoenix Ventures LLC is the Managing Member of Phoenix, with the power to vote and dispose of the shares of Common Stock held by Phoenix. Accordingly, SG Phoenix Ventures LLC may be deemed to be the beneficial owner of such shares. Andrea Goren is the co-manager of SG Phoenix Ventures LLC, has the shared power to vote and dispose of the shares of Common Stock held by Phoenix and, as such, may be deemed to be the beneficial owner of the common shares owned by Phoenix and by SG Phoenix LLC, of which he is a member. Philip Sassower is the co-manager of SG Phoenix Ventures LLC, has the shared power to vote and dispose of the shares of Common Stock held by Phoenix and, as such, may be deemed to be the beneficial owner of the common shares owned by Phoenix and by SG Phoenix LLC, of which he is a member. SG Phoenix Ventures LLC, Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares owned by Phoenix, and Mr. Goren and Mr. Sassower each disclaim beneficial ownership of the shares owned by SG Phoenix LLC, except to the extent of their respective pecuniary interests therein. The address of these stockholders is 110 East 59th Street, Suite 1901, New York, NY 10022.

   
Phoenix Venture Fund LLC
   
SG Phoenix Ventures LLC
   
 
Total
 
Common Shares
    55,783,562       2,792,492       58,576,054  
Stock Options
    -                  
Series B Preferred Stock As If Converted to Common Stock
    148,419,406               148,419,406  
Series C Preferred Stock As If Converted to Common Stock
    84,378,627               84,378,627  
Warrants
    53,333,333               53,333,333  
Total
    341,914,928       2,792,492       344,707,420  

15.  
Represents (a) 8,964,953 shares of Common Stock beneficially owned by Mr. Engmann, (b) 5,141,288 shares of Common Stock issuable upon the conversion of 719,776 shares of Series A-1 Preferred Stock beneficially owned by Mr. Engmann, (c) 18,014,513 shares of Common Stock issuable upon the conversion of 780,028 shares of Series B Preferred Stock beneficially owned by Mr. Engmann, (d) 5,808,615 shares of Common Stock issuable upon the conversion of 130,694 shares of Series C Preferred Stock beneficially owned by Mr. Engmann, (e) 1,845,067 shares of Common Stock issuable upon the conversion of 41,514 shares of Series D-1 Preferred Stock beneficially owned by Mr. Engmann, and (f) 3,321,100 shares of Common Stock issuable upon the conversion of 166,055 shares of Series D-2 Preferred Stock beneficially owned by Mr. Engmann. See the following table for more detail. Mr. Engmann’s address is 220 Bush Street, No. 660, San Francisco, CA 94104.

   
Michael Engmann
   
MDNH Partners, LP
   
KENDU Partners Company
   
 
Total
 
Common Shares
    3,680,249       4,041,140       1,243,564       8,964,953  
Stock Options
                               
Series A-1 Preferred Stock As If Converted to Common Stock
     43,265       1,560,609       3,537,414       5,141,288  
Series B Preferred Stock As If Converted to Common Stock
    4,890,164       9,658,019       3,466,330       18,014,513  
Series C Preferred Stock As If Converted to Common Stock
    121,598       5,687,017        -       5,808,615  
Series D-1 Preferred Stock As If Converted to Common Stock
    1,845,0677        -        -       1,845,067-  
Series D-2 Preferred Stock As If Converted to Common Stock
    3,321,100                       3,321,100  
Total
    13,901,443       20,946,785       8,247,308       43,095,536  
 
 
 
15

 

 
PROPOSAL 2
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF SERIES D-1 PREFERRED STOCK FROM 3,000,000 TO 6,000,000
 
At the Annual Meeting, stockholders will be asked to consider and vote upon a proposal to amend the Company’s Amended and Restated Certificate of Incorporation (the “Charter Amendment”) in order to increase the number of authorized shares of Series D-1 Preferred Stock from 3,000,000 to 6,000,000 shares.  Increasing the authorized number of shares of Series D-1 Preferred Stock requires that the Company amend its Amended and Restated Certificate of Incorporation in order to increase the authorized number of shares of capital stock from 1,536,000,000 to 1,540,000,000, increase the authorized number of shares of Preferred Stock from 36,000,000 to 40,000,000, and increase the authorized number of shares of Series D-1 Preferred Stock from 3,000,000 to 6,000,000.  As discussed in Proposal Three, stockholders will also be asked to consider and vote upon a proposal to increase the number of authorized shares of Series D-2 Preferred Stock from 8,000,000 to 9,000,000.  If the Charter Amendment is approved, the Company will have 1,500,000,000 authorized shares of Common Stock and 40,000,000 authorized shares of Preferred Stock, 2,000,000 of which will be designated as Series A-1 Preferred Stock, 14,000,000 of which will be designated as Series B Preferred Stock, 9,000,000 of which will be designated Series C Preferred Stock, 6,000,000 of which will be designated as Series D-1 Convertible Preferred Stock (“Series D-1 Preferred Stock”), and 9,000,000 of which will be designated Series D-2 Convertible Preferred Stock (“Series D-2 Preferred Stock”). The Board of Directors has unanimously approved the Charter Amendment, believes the Charter Amendment is in the best interests of the Company and its stockholders for the reasons set forth below, and recommends that the stockholders approve the Charter Amendment. The Charter Amendment will allow the Company to have additional shares of stock available for payment-in-kind dividends and in the event of future capital raising activities as may be approved by the Board of Directors.  At this time, the Company’s only known use of the additional shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock is to make payment of in-kind dividends on outstanding shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock.
 
The complete text of the form of the Charter Amendment is set forth in Appendix A to this proxy statement. The Charter Amendment is subject to revision for such changes as may be required by the Delaware Secretary of State and other changes consistent with this proposal that we may deem necessary or appropriate.
 
Stockholder approval of the Charter Amendment to increase the authorized shares of Series D-1 Preferred Stock will require the approval of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.
 
     Because Proposal Three also relates to approval of the Charter Amendment, the failure of stockholders to approve both Proposal Two and Proposal Three will result in the Charter Amendment not being approved and no increase in the authorized shares of Series D-1 Preferred Stock or the authorized shares of Series D-2 Preferred Stock.  For this reason, a description of the rights, preferences, and privileges Series D-1 Preferred Stock and Series D-2 Preferred Stock, the purpose of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock, and the effect of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock are presented together below.
 
Description of Rights, Preferences, and Privileges of Series D-1Preferred Stock and Series D-2 Preferred Stock
 
The rights, preferences, and privileges of the Series D-1 Preferred Stock and Series D-2 Preferred Stock are summarized below.  Where the rights of the Series D-1 Preferred Stock and Series D-2 Preferred Stock are identical and pari passu, the Series D-1 Preferred Stock and Series D-2 Preferred Stock are referred to collectively as the “Series D Preferred Stock.”
 
Authorized Shares and Liquidation Preference.  If the Charter Amendment is approved, the number of authorized shares of Series D-1 Preferred Stock will be 6,000,000, and the number of authorized shares of Series D-2 Preferred Stock will be 9,000,000. The shares of Series D Preferred Stock have a liquidation preference $1.00 plus any accrued and unpaid dividends.
 
 
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Ranking.  Shares of Series D Preferred Stock rank senior to our outstanding Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock and all shares of Common Stock with respect to dividend rights and rights on liquidation, winding-up and dissolution.
 
Dividends.  Shares of Series D Preferred Stock accrue dividends at the rate of 10% per annum, payable quarterly, in cash or additional shares of Series D Preferred Stock valued at $1.00 per share. No dividends may be paid on the Company’s Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Common Stock so long as any dividends on the Series D Preferred Stock remain unpaid, and any dividend other than required dividends are subject to the protective provisions set forth below.
 
Liquidation.  In the event the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series D Preferred Stock are entitled to receive, in preference to all other shares of the Company’s capital stock, liquidating distributions in the amount of $1.00 per share plus any accrued dividends. After receipt of the liquidation preference by the holders of Series D Preferred Stock and after payment of the Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock liquidation preferences, the shares of Series C Preferred Stock, Series B Preferred Stock, and Series A-1 Preferred Stock will participate with the Common Stock in remaining liquidation pro rata on an as-converted basis. A merger or consolidation (other than one in which the then current stockholders own a majority of the voting power in the surviving or acquiring corporation) or a sale, lease transfer, exclusive license or other disposition of all or substantially all of the assets of the Company will be treated as a liquidation event triggering the liquidation preference.
 
Voting Rights.  Holders of the Series D-1 Preferred Stock and Series D-2 Preferred Stock vote together with the holders of Common Stock and the holders of Series A-1 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock on an as-converted basis on all matters brought before the stockholders.  Each share of Series D-1 Preferred Stock is convertible into Common Stock at an initial conversion price of $0.0225 per share, which means that holders of Series D-1 Preferred Stock have approximately 44.444 votes for each share of Series D-1 Preferred Stock held by them when voting on an as-converted basis.  Each share of Series D-2 Preferred Stock is convertible into Common Stock at an initial conversion price of $0.05 per share, when means that holders of Series D-2 Preferred Stock have 20 votes for each share of Series D-2 Preferred held by them when voting on an as-converted basis.  In addition, holders of the Series D-1 Preferred Stock and Series D-2 Preferred Stock are entitled to vote separately as a class in connection with the protective provisions described below and as otherwise required by law or the Company’s Amended and Restated Certificate of Incorporation.
 
Protective Provisions.  So long as 20% shares of Series D Preferred Stock are outstanding (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, subdivision or other similar recapitalization affecting such shares), in addition to any other vote or approval required under the Company’s certificate of incorporation (“Charter”) or by applicable law, the Company will not, without the written consent or affirmative vote of holders of at least a majority of the then outstanding shares of Series D-1 Preferred Stock and at least a majority of the then outstanding shares of Series D-2 Preferred Stock, either directly or indirectly by amendment, merger, consolidation, or otherwise:
 
(i)  
liquidate, dissolve or wind-up the business and affairs of the Company or any subsidiary, or effect any sale or disposition of all or a significant portion of the capital stock or assets of the Company or a merger, consolidation, share exchange, reorganization or other similar transaction or consent to any of the foregoing;
 
(ii)  
amend, alter or repeal any provision of the Charter or Bylaws of the Company; or
 
(iii)  
authorize, create, designate or issue any equity securities or securities convertible into equity securities with equal or superior rights, preferences or privileges to those of the Series D Preferred Stock (including, debt that is convertible into capital stock and redeemable preferred stock that is not treated as Common Stock for tax purposes) or, other than the issuance of shares of Common Stock on exercise or conversion of securities outstanding on the closing date of the transactions, issue any shares of Common Stock or securities convertible into or exercisable (directly or indirectly) for Common Stock if at such time (or after giving effect to such issuance) the Company does not have sufficient shares of Common Stock available out of its authorized but unissued stock for the purpose of effecting the conversion of the Series D Preferred Stock into Common Stock and the exercise and conversion of all other securities convertible or exercisable (directly or indirectly) for Common Stock;
 
(iv)  
increase or decrease the number of authorized shares of Series D Preferred Stock or of any additional class or series of capital stock;
 
(v)  
reclassify, alter or amend any existing security that is junior to or on parity with the Series D Preferred Stock;
 
(vi)  
purchase or redeem, or declare or pay any dividends on, any capital stock or securities convertible or exchangeable into shares of capital stock, other than dividends required to be paid on shares of Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock under the terms of the certificates of designation for such stock;
 
 
17
 

 
 
 
(vii)  
incur any indebtedness, including capital leases, other than trade payables incurred in the ordinary course of business;
 
(viii)  
create or hold capital stock in any subsidiary that is not a wholly-owned subsidiary of the Company or dispose of any subsidiary stock or all or a significant portion of any subsidiary assets;
 
(ix)  
increase or decrease the size of the Board of Directors of the Company;
 
(x)  
make any material alteration to the Company’s business plan; or
 
(xi)  
except as otherwise approved by the Board of Directors, including a majority of the Preferred Stock Directors, authorize or adopt any stock option plan, restricted stock plan, stock incentive plan or other employee benefit plan or increase the number of shares of Common Stock issuable under any such plan in effect on the closing date of the transactions.
 
Conversion Rights.  Each share of Series D-1 Preferred Stock and each share of Series D-2 Preferred Stock initially converts into Common Stock at a conversion price of $0.0225 per share and a conversion price of $0.05 per share, respectively, at any time at the option of the holder, subject to adjustments for stock dividends, splits, combinations and similar events.
 
Mandatory Conversion.  Each share of Series D-1 Preferred Stock will automatically be converted into Common Stock at the then applicable conversion price upon the written consent of holders representing a majority of the shares of Series D-1 Preferred Stock then outstanding.  Each share of Series D-2 Preferred Stock will automatically be converted into Common Stock at the then applicable conversion price upon the written consent of holders representing a majority of the shares of Series D-2 Preferred Stock then outstanding. Each share of Series D-1 and D-2 Preferred Stock will automatically be converted into Common Stock at the then applicable conversion price upon the written consent of holders representing a majority of the shares of Series B Preferred Stock then outstanding with respect to the automatic conversion of the Series B Preferred Stock.
 
Purpose of the Increase in Number of Authorized Shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock
 
Currently, the Company’s Charter authorizes the issuance of 1,536,000,000 shares of capital stock, 1,500,000,000 of which are designated as Common Stock and 36,000,000 of which are designated as Preferred Stock. The Company has previously designated 2,000,000 shares as Series A-1 Preferred Stock, 14,000,000 shares of Series B Preferred Stock, 4,100,000 shares of Series C Preferred Stock, 3,000,000 shares of Series D-1 Preferred Stock and 8,000,000 shares of Series D-2 Preferred Stock. As of the record date, there were 225,824,328 shares of Common Stock outstanding, 991,103 shares of Series A-1 Preferred Stock convertible into 7,079,304 shares of Common Stock, 10,563,687 shares of Series B Preferred Stock convertible into 243,796,146 shares of Common Stock, 4,384,988 shares of Series C Preferred Stock convertible into 194,888,368 shares of Common Stock, 1,413,405 shares of Series D-1 Preferred Stock convertible into 62,818,011 shares of Common Stock, 4,399,842 shares of Series D-2 Preferred stock convertible into 87,996,831 shares of Common Stock and 205,831,370 shares of Common Stock reserved for issuance under outstanding compensation plans, options or warrants. The Company must amend its Charter to provide it with sufficient authorized shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock to provide for payment-in-kind dividends and in the event of future capital raising activities and other transactions that may be deemed advisable and in the best interests of the Company and its stockholders. The failure to approve the Charter Amendment will result in the eventual impairment of the Company’s ability to make payment of dividends in-kind through the issuance of additional shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock.  Assuming the Company does not enter into any other transactions involving the issuance of Series D-1 Preferred Stock or Series D-2 Preferred Stock, the impairment of the Company’s ability to make payment of dividends in-kind on shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock will occur on December 31, 2020 and June 30, 2019, respectively.  In
 
 
18
 

 
 
the event of such an impairment, the Company will be required to pay dividends in cash on shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock to satisfy the dividend obligation.
 
The Board of Directors has unanimously determined that Proposal 2 is desirable and in the stockholders’ best interest of the Company’s stockholders. The Board of Directors recommends that the stockholders approve the amendment of the Certificate of Incorporation to increase the number of authorized shares of capital stock.
 
Effects of Approval of the Increase in the Number of Authorized Shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock
 
The table below shows the capitalization of the Company as of June 30, 2013, on an actual and pro forma basis giving effect to the approval of Proposal 2, which would result in an increase of an additional 3,000,000 million authorized shares of Series D-1 Preferred Stock and an increase of an additional 1,000,000 authorized shares of Series D-2 Preferred Stock.
 

 
19

 
 
COMMUNICATION INTELLIGENCE CORPORATION
CAPITALIZATION
Actual and Pro Forma as of June 30, 2013
 
   
As of
June 30, 2013
   
Adjusted
   
Adjusted As of
June 30, 2013
 
SHARES AUTHORIZED
                 
Total Preferred Stock authorized
    36,000,000       4,000,000       40,000,000  
Total Preferred Stock designated Series A-1
    2,000,000               2,000,000  
Total Preferred Stock designated Series B
    14,000,000               14,000,000  
Total Preferred Stock Series C
    9,000,000               9,000,000  
Total Preferred Stock Series D-1
    3,000,000       3,000,000       6,000,000  
Total Preferred Stock Series D-2
    8,000,000       1,000,000       9,000,000  
Total Common Stock authorized
    1,500,000,000               1,500,000,000  
COMMON AND PREFERRED STOCK OUTSTANDING
                       
Series A-1 Convertible Preferred issued and outstanding (8% coupon)
    991,103               991,103  
Series B Convertible Preferred, issued and outstanding (10% coupon)
    10,563,687               10,563,687  
Series C Convertible Preferred, issued and outstanding (10% coupon)
    4,384,988               4,384,988  
Series D-1 Convertible Preferred, issued and outstanding (10% coupon)
    1,413,405               1,413,405  
Series D-2 Convertible Preferred issued and outstanding (10% coupon)
    4,399,842               4,399,842  
Common Stock issued and outstanding
    224,524,328               224,524,328  
Treasury Shares
    6,500,000               6,500,000  
COMMON STOCK OUTSTANDING FULLY DILUTED
                       
Series A-1 Convertible Preferred on an as-if-converted basis
    7,079,350               7,079,350  
Series B Convertible Preferred on an as if converted basis
    243,965,182               243,965,182  
Series C Convertible Preferred on an as if converted basis
    194,888,161               194,888,161  
Series D-1 Convertible Preferred on an as if converted basis
    62,817,937               62,817,937  
Series D-2 Convertible Preferred on an as if converted basis
    87,996,840               87,996,840  
Common Stock issued and outstanding
    224,524,328               224,524,328  
Stock options outstanding
    70,066,753               70,066,753  
Warrants outstanding
    129,334,531               129,334,531  
Total shares outstanding on a fully diluted basis
    1,020,673,082               1,020,673,082  

The Charter Amendment increases the authorized amount of Series D-1 Preferred Stock by 3,000,000 shares and increases the authorized amount of Series D-2 Preferred Stock by 1,000,000 shares.  The Company’s Series D Preferred Stock is senior to all other series of preferred stock.  If all such shares are subsequently issued by the Company, then the aggregate amount of senior liquidation preferences will increase by $4,000,000.
 
Each outstanding share of Series D-1 Preferred Stock is presently convertible into 44.4444 shares of Common Stock, and accordingly is entitled to an equivalent number of votes per share.  Each outstanding share of Series D-2 Preferred Stock is presently convertible into 20 shares of Common Stock, and accordingly is entitled to an equivalent number of votes per share.  The Charter Amendment increases the authorized amount of Series D-1 Preferred Stock by 3,000,000 shares and increases the authorized amount of Series D-2 Preferred Stock by 1,000,000 shares.  If all such shares are subsequently issued by the Company, then, at present applicable rates of conversion, such additional shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock would be convertible into 133,333,333 shares of Common Stock and 20,000,000 shares of Common Stock, respectively, and would be entitled to an equivalent number of votes per share.  Such additional shares would represent approximately 13.1% of the Company’s capitalization on a fully diluted basis.
 
 
Required Vote
 
The Charter Amendment will require the approval of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2
 
 
 
20

 
 
Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.  
 
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 2.
 
 

PROPOSAL 3
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF SERIES D-2 PREFERRED STOCK FROM 8,000,000 TO 9,000,000
 
At the Annual Meeting, stockholders will be asked to consider and vote upon a proposal to approve the Charter Amendment in order to increase the number of authorized shares of Series D-2 Preferred Stock from 8,000,000 to 9,000,000 shares.  Increasing the authorized number of shares of Series D-2 Preferred Stock requires that the Company amend its Amended and Restated Certificate of Incorporation in order to increase the authorized number of shares of capital stock from 1,536,000,000 to 1,540,000,000, increase the authorized number of shares of Preferred Stock from 36,000,000 to 40,000,000, and increase the authorized number of shares of Series D-2 Preferred Stock from 8,000,000 to 9,000,000.  As discussed in Proposal Two above, stockholders will also be asked to consider and vote upon a proposal to increase the number of authorized shares of Series D-1 Preferred Stock from 3,000,000 to 6,000,000.  If the Charter Amendment is approved, the Company will have 1,500,000,000 authorized shares of Common Stock and 40,000,000 authorized shares of Preferred Stock, 2,000,000 of which will be designated as Series A-1 Preferred Stock, 14,000,000 of which will be designated as Series B Preferred Stock, 9,000,000 of which will be designated Series C Preferred Stock, 6,000,000 of which will be designated as Series D-1 Preferred Stock, and 9,000,000 will be designated Series D-2 Convertible Preferred Stock. The Board of Directors has unanimously approved the Charter Amendment, believes the Charter Amendment is in the best interests of the Company and its stockholders for the reasons set forth below, and recommends that the stockholders approve the Charter Amendment. The Charter Amendment will allow the Company to have additional shares of stock available for payment-in-kind dividends and in the event of future capital raising activities as may be approved by the Board of Directors.  At this time, the Company’s only known use of the additional shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock is to make payment of in-kind dividends on outstanding shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock.
 
The complete text of the form of the Charter Amendment is set forth in Appendix A to this proxy statement. The Charter Amendment is subject to revision for such changes as may be required by the Delaware Secretary of State and other changes consistent with this proposal that we may deem necessary or appropriate.
 
Stockholder approval of the Charter Amendment to increase the authorized shares of Series D-2 Preferred Stock will require the approval of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.
 
Because Proposal Two also relates to approval of the Charter Amendment, the failure of stockholders to approve both Proposal Two and Proposal Three will result in the Charter Amendment not being approved and no increase in the authorized shares of Series D-1 Preferred Stock or the authorized shares of Series D-2 Preferred Stock.  For this reason, a description of the rights, preferences, and privileges Series D-1 Preferred Stock and Series D-2 Preferred Stock, the purpose of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock, and the effect of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock are presented together above.  For additional information on the rights, preferences, and privileges Series D-1 Preferred Stock and Series D-2 Preferred Stock, the purpose of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock, and the effect of the increase in shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock, please see the information provided in Proposal Two under the headings “Description of Rights, Preferences, and Privileges of Series D-1Preferred Stock and Series D-2 Preferred Stock,” “Purpose of the Increase in Number of Authorized Shares of Series D-1 Preferred Stock and Series D-2
 
21

 
Preferred Stock,” and “Effects of Approval of the Increase in the Number of Authorized Shares of Series D-1 Preferred Stock and Series D-2 Preferred Stock.”
 
Required Vote
 
The Charter Amendment will require the approval of (i)  a majority of outstanding shares of Common Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (ii) a majority of outstanding shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock, and Series D-2 Preferred Stock voting together as one class on an as-converted basis, (iii) a majority of outstanding shares of Series B Preferred Stock voting as a separate class, (iv) a majority of outstanding shares of Series C Preferred Stock voting as a separate class, (v) a majority of outstanding shares of Series D-1 Preferred Stock voting as a separate class, and (vi) a majority of outstanding shares of Series D-2 Preferred Stock voting as a separate class.
 
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 3.
 
 

 
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF PMB HELIN DONOVAN, LLP AS THE COMPANY’S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2013
 
The Audit Committee of the Board of Directors has appointed PMB Helin Donovan, LLP as the independent registered public accounting firm to audit the Company’s consolidated financial statements for the fiscal year ending December 31, 2013. The selection of independent auditors is being submitted to a vote of the stockholders. If the appointment of the independent auditor is not ratified by stockholder vote, the Audit Committee may appoint another independent auditor or may decide to maintain its appointment of PMB Helin Donovan, LLP.
 
The Audit Committee operates under a written charter adopted by the Board of Directors. The Committee has approved all services provided by PMB Helin Donovan, LLP and has reviewed and discussed with PMB Helin Donovan, LLP the fees paid to such firm, as described below.
 
A representative of PMB Helin Donovan, LLP will be present at the Annual Meeting to respond to appropriate questions from stockholders and will have the opportunity to make a statement if he or she so desires.
 
Audit and other Fees. PMB Helin Donovan has been the Company’s auditors since May 2011. During fiscal years 2011 and 2012, the estimated fees for audit and other services performed by PMB Helin Donovan and GHP Horwath for the Company were as follows:
             
Nature of Service
 
2012
   
2011
 
             
Audit Fees
  $ 71,000 (86%)   $ 65,000 (72%)
Audit-Related Fees
  $ 5,300 (6%)   $ 18,000 (20%)
Tax Fees
  $ 7,000 (8%)   $ 7,000 (8%)
All Other Fees
  $     $  
Total
  $ 83,300     $ 90,000  

 
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(1)  
Audit fees related to the audit of the Company’s annual consolidated financial statements for the years ended December 31, 2011 and 2012, and for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for such years.
 
(2)  
Audit-related fees pertaining to 2011 and 2012 primarily included fees for revenue recognition and analysis relating to stock option grants under the Company’s 2011 Stock Compensation Plan.
 
(3)  
Tax fees in both 2011 and 2012 included services related to the Company’s estimated tax payments and preparation of the Company’s tax returns.
 
 
Pre-Approval Policies.
 
It is the policy of the Company not to enter into any agreement with its auditors to provide any non-audit services unless (a) the agreement is approved in advance by the Audit Committee or (b) (i) the aggregate amount of all such non-audit services constitutes no more than 5% of the total amount the Company pays to the auditors during the fiscal year in which such services are rendered, (ii) such services were not recognized by the Company as constituting non-audit services at the time of the engagement of the non-audit services and (iii) such services are promptly brought to the attention of the Audit Committee and prior to the completion of the audit are approved by the Audit Committee or by one or more members of the Audit Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee.  The Audit Committee will not approve any agreement in advance for non-audit services unless (x) the procedures and policies are detailed in advance as to such services, (y) the Audit Committee is informed of such services prior to commencement and (z) such policies and procedures do not constitute delegation of the Audit Committee’s responsibilities to management under the Securities Exchange Act of 1934, as amended.
 
The Audit Committee has considered whether the provision of non-audit services has impaired the independence of PMB Helin Donovan, LLP and has concluded that PMB Helin Donovan, LLP is independent under applicable SEC and NASDAQ rules and regulations.
 
 Required Vote
 
Proposal 4 will be approved if there are more votes “FOR” the proposal than votes “AGAINST” the proposal.
 
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PMB HELIN DONOVAN LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2013.
 
AUDIT COMMITTEE REPORT
 
General.  Under the Company’s Audit Committee Charter, a copy of which can be found on our website, the general purpose of the Audit Committee is to assist the Board of Directors in the exercise of its fiduciary responsibility of providing oversight of the Company’s financial statements and the financial reporting processes, internal accounting and financial controls, the annual independent audit of the Company’s financial statements, and other aspects of the financial management of the Company. The Audit Committee is appointed by the Board of Directors and is to be comprised of at least three directors, each of whom is independent, as such term is defined under the listing standards of the Nasdaq Stock Market. All committee members must be financially literate at the time of their appointment, or within a reasonable period of time after appointment to the Committee. The Company believes all of the members of the Company’s Audit Committee are independent notwithstanding the fact that one of the directors is not independent under applicable NASDAQ and SEC rules. Mr. Welch is the Committee’s financial expert as such term is defined in applicable regulations and rules.

Responsibilities and Duties.  The Company’s management is responsible for preparing the Company’s financial statements and the independent auditors are responsible for auditing those financial statements. The Committee is responsible for overseeing the conduct of these activities by the Company’s management and the independent auditors. The financial management and the independent auditors of the Company have more time, knowledge and detailed information on the Company than do Committee members. Consequently, in carrying out its oversight responsibilities, the Committee does not provide any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditors’ work.
 
 
 
23

 
 
 
Specific Audit Committee Actions Related to Review of the Company’s Audited Financial Statements.  In discharging its duties, the Audit Committee, among other actions, has (i) reviewed and discussed the audited financial statements included in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2012 with management, (ii) discussed with the Company’s independent auditors the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standard, AU380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, related to such financial statements, (iii) received the written disclosures and the letter from the Company’s independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent auditors the independent auditor’s independence, (iv) considered whether the provision of service represented under the headings on “Tax Fees” and “All Other Fees” as set forth above is compatible with maintaining the independent auditor’s independence, and (v) based on such reviews and discussions, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2012.
 
 
The Audit Committee
of the Board of Directors
   
 
David E. Welch, Chairman
Jeffrey Holtmeier
Stanley Gilbert
 
 

 
24

 
 
EXECUTIVE COMPENSATION
 
The following table sets forth compensation awarded to, earned by or paid to the Company’s Principal Executive Officer, regardless of the amount of compensation, and each executive officer of the Company for the years ended December 31, 2012 and 2011 whose total annual salary, bonus and option awards for 2012 exceeded $100,000.
 
Summary Compensation Table (in dollars)
 
 
 
 
 
Name and
Principal
Position
 
 
 
 
 
 
 
Year
 
 
 
 
 
 
Salary
($)
 
 
 
 
 
 
Bonus
($)
 
 
 
 
 
Stock
Awards
($)
 
 
 
 
 
Option
Awards
($) (2)
 
 
 
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in
Pension Value
And
Nonqualified
Deferred Compensation
Earnings
($)
   
 
 
 
 
All Other
Compensation
($)
   
 
 
 
 
 
Total
($)
 
 
Philip S Sassower
Chairman and CEO
   
2012
2011
   
(1)
(1)
 
   
 
$
$
27,315 
   
   
     
 −
   
$
$
27,315
 
                                                             
1.  
Mr. Sassower was appointed Chairman of the Board and Chief executive officer on August 5, 2010, and receives no compensation.


2.  
The amounts provided in this column represent the aggregate grant date fair value of option awards granted to our officers, as calculated in accordance with FASB ASC Topic 718, Stock Compensation. Mr. Sassower has 666,800 options that are vested and exercisable within sixty days of December 31, 2012.  In accordance with applicable regulations, the value of such options does not reflect an estimate for features related to service-based vesting used by the Company for financial statement purposes. See footnote 10 in the Notes to Consolidated Financial Statements included with this report on Form 10-K.



Outstanding Equity Awards at Fiscal 2012 Year End
 
The following table summarizes the outstanding equity award holdings held by our named executive officers. The amounts are not stated in thousands.

 
 
 
 
Name and
Principal
Position
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
 
 
 
Option
Exercise
Price ($)
 
 
 
 
 
Option
Expiration
Date
Philip S. Sassower, Chairman and CEO
    666,800 (1)     333,200 (1)   $ 0.0649  
01/28/2018
                           
                           

 
(1)Mr. Sassower’s 1,000,000 options were granted on January 28, 2011, vest pro rata quarterly over three years, and expire on January 28, 2018.

 
 
 
25

 
 


Equity Compensation Plan Information
 
The following table provides information as of December 31, 2012, regarding our compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance:

   
Number of Securities To Be Issued Upon Exercise of Outstanding Options and Rights
   
Weighted-Average Exercise Price Of Outstanding Options and Rights
   
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans
 
Equity Compensation Plans Approved by Security Holders
                 
 
1999 Stock Option Plan
    345     $ 0.39        
                         
 
2011 Stock Compensation Plan
    43,109     $ 0.05       56,891  
 
Equity Compensation Plans Not Approved by Security Holders
                       
 
2009 Stock Compensation Plan
    425       0.11       6,502  
 
Non Plan Stock Options
    150       0.19        
Total:
    44,029     $ 0.05       63,393  

TRANSACTIONS WITH RELATED PERSONS
 
Phoenix is the beneficial owner of approximately 67.3% of the Common Stock of the Company when calculated in accordance with Rule 13d-3, and Michael W. Engmann, together with two affiliated entities, is the beneficial owner of approximately 14.3% of the Common Stock of the Company when calculated in accordance with Rule 13d-3.

In April 2013, the Company borrowed an aggregate of $250 from Phoenix Banner Holdings LLC (“PBH”) in the form of an unsecured demand note. This note had an interest rate of 10% per annum. The funds were used for working capital purposes. The note plus accrued interest was repaid in May 2013.

In August 2013, the Company borrowed $250 from Phoenix Banner Holdings LLC in the form of an unsecured demand note. On September 3, 2013, the Company borrowed $250 from Kendu Partners in the form of an unsecured demand note. On September 27, 2013, the Company borrowed $250 from Michael Engmann in the form of an unsecured demand note. These unsecured demand notes have the same terms, including an interest rate of 10% per annum. The funds raised are being used for working capital purposes.
 
In February 2012, for working capital purposes, the Company borrowed $25 from Phoenix in the form of an unsecured demand note carrying 10% interest per annum. This note in plus accrued interest was repaid in September 2012.

In March 2012, the Company borrowed an aggregate of $100 from Phoenix Banner Holdings LLC (“PBH”) in the form of an unsecured demand note. This note had an interest rate of 10% per annum. The funds were used for working capital purposes. The note plus accrued interest was repaid in September 2012.

In August and September 2012, the Company borrowed an aggregate of $50 and $50, respectively, from PBH in the form of unsecured demand notes. These notes had an interest rate of 10% per annum. The funds were used for working capital purposes.  These notes plus accrued interest were repaid in November 2012.

In April 2012, the Company entered into the April 2012 Purchase Agreement with the April 2011 Investors, which April 2011 Investors included Genext, LLC (”Genext”). Jeffrey Holtmeier is the managing member of Genext. Mr. Holtmeier was appointed to the Company’s board of directors on August 11, 2011. Under the terms of the April 2012 Purchase Agreement, the Company issued the April 2012 Notes to the April 2012 Investors.  The April 2012 Notes bore interest at the rate of 10% per annum and had a maturity date of December 20, 2012.  The December 2012 Notes were convertible at the option of the April 2012 Investors into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100.  In connection with the issuance of the April 2012 Notes, the Company also issued to the April 2012
 
 
26

 
 
 Investors warrants to purchase an aggregate of 5,000 shares of the Company’s Common Stock at an exercise price of $0.05 per share. The Company ascribed a value of $47 to these warrants, which was recorded as a discount to short-term debt in the balance sheet.

In July 2011, the Company signed an agreement with China-US Business Development Corporation, (“CUBD”), to provide certain advisory and consulting services in relation to expanding distribution for certain CIC products in the People’s Republic of China. Specifically, introductions to targeted IT service companies, as well as facilitating meetings and assistance in negotiations for prospective partnerships. Per the agreement, CUBD was paid $20 in installments based upon reaching certain milestones. In addition, CUBD was entitled to receive a performance fee equal to 7%, 5% and 3% of net revenue received from any customer and/or partners introduced by CUBD during the first, second and third twelve month periods, respectively, of the Company’s relationship with such customer and/or partner. In October 2012, the Company amended its agreement with CUBD. The amendment provided for the addition of three monthly payments of $5 beginning in October 2012 and ending in December 2012. The Company made such additional payments. The amendment also changed the above mentioned performance fee, so that it extends beyond the initially contemplated 36 month period. Jeffrey Holtmeier is the managing member of CUBD.

In September 2012 and November 2012, the Company paid to SG Phoenix LLC, $75 and $75, respectively, for administrative fees related to the Series D Convertible Preferred Stock financing rounds.

In September 2011, the Company borrowed an aggregate of $100 from Phoenix and an employee of the Company in the form of unsecured demand notes to each. These notes bore interest at the rate of 10% per annum.

In September 2011, the Company entered into the September 2011 Purchase Agreement with PBH.  Under the terms of the September 2011 Purchase Agreement, the Company issued the September 2011 Note to PBH.  The September 2011 Note bore interest at the rate of 10% per annum and had an initial maturity date of September 20, 2012.  The September 2011 Note was convertible at the option of PBH into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100.  In connection with the issuance of the September 2011 Note, the Company also issued to PBH a warrant to purchase 5,556 shares of the Company’s Common Stock at an exercise price of $0.0225 per share. The Company ascribed a value of $7 to the warrants, which was recorded as a discount to short-term debt in the balance sheet.

In December 2011, the Company entered into the December 2011 Purchase Agreement with the December 2011 Investors, including Philip Sassower. Under the terms of the December 2011 Purchase Agreement, the Company issued the December 2011 Notes to the December 2011 Investors.  The Notes bore interest at the rate of 10% per annum and had an initial maturity date of December 20, 2012.  The December 2011 Notes were also convertible at the option of the December 2011 Investors into securities sold in the Company’s next equity financing with gross proceeds to the Company in excess of $100.  In connection with the issuance of the December 2011 Notes, the Company also issued to the December 2011 Investors warrants to purchase an aggregate of 5,556 shares of the Company’s Common Stock at an exercise price of $0.0225 per share. The Company ascribed a value of $13 to the warrants, which was recorded as a discount to short-term debt in the balance sheet.

In September, 2012, pursuant to an agreement to amend and convert unsecured promissory notes, PBH and the December 2011 Investors agreed to extend the maturity dates of the September 2011 Note and the December 2011 Notes through December 31, 2012, and to convert such notes plus accrued interest into Series D-1 Preferred Stock. The conversion occurred at the Final Closing on November 15, 2012.

SG Phoenix LLC, a Phoenix affiliate, acted as administrative agent with respect to the aforementioned promissory and preferred stock offerings.  Philip Sassower and Andrea Goren are the co-managers of SG Phoenix LLC, and are also the Company’s Chief Executive Officer and Chief Financial Officer, respectively.  Mr. Sassower is Chairman of the Board of Directors, and Mr. Goren is also a member of the Company’s Board of Directors and the Company’s Corporate Secretary. The Company agreed to pay all legal fees and out-of-pocket expenses incurred by SG Phoenix LLC and its affiliates in connection with the aforementioned offerings. In addition and in connection to such offerings, SG Phoenix LLC was paid a cash administrative fee equal to $150 and issued three-year warrants to purchase 3,000,000 shares of the Common Stock at a $0.05 exercise price. A portion of the net proceeds from such offerings was used to repay approximately $350 in aggregate principal and accrued interest on outstanding demand notes, a part of which was owed to Phoenix and its affiliates.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company's officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities to file
 
 
27

 
 
certain reports with the Securities and Exchange Commission (the "SEC") regarding ownership of, and transactions in, the Company's securities. These officers, directors and stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that are filed with the SEC.  The following Section 16 filings were not timely filed for the year ended December 31, 2012: the Form 4 for Andrea Goren dated November 15, 2012, the Form 4 for Philip Sassower dated November 15, 2012, the Form 4 for Stan Gilbert dated November 15, 2012, and the Form 4 for Jeffrey Holtmeier dated November 15, 2012.
COMPANY CODE OF ETHICS
 
The Company has adopted a Code of Ethics (“Code”), which is applicable to all Company employees , including the principal executive officer, the principal financial officer and controller and principal accounting officer (“Senior Executive and Financial Officers”). The Code is available on the Company’s website, www.cic.com. The Company intends, when applicable, to post amendments to or waivers from the Code (to the extent applicable to its Senior Executive and Financial Officers) on its website and in any manner otherwise required by the applicable standards or best practices.
 
STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS
 
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement
 
To be considered for inclusion in the proxy statement relating to next year’s annual meeting, a stockholder proposal must be received at our principal executive offices no later than July 23, 2014, which is the 120th day preceding the anniversary of the date on which the Company mailed its proxy materials to stockholders for the 2013 Annual Meeting. Such proposals also will need to comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. Proposals should be addressed to the Secretary, Communication Intelligence Corporation, 275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065. If the date of the next annual meeting is changed by more than 30 days from the anniversary of this year’s annual meeting, then, to be considered for inclusion in the proxy statement relating to next year’s annual meeting, notice of a stockholder proposal will need to be received by the Company in a reasonable amount of time before the Company begins to print and send its proxy materials.
 
Other Stockholder Proposals
 
If a stockholder wishes to present a stockholder proposal at our next annual meeting that is not intended to be included in the proxy statement, the stockholder must provide the information required by our Bylaws and give timely notice to our corporate Secretary in accordance with our Bylaws, which, in general, require that the notice be received by the Secretary not later than 60 days nor more than 90 days prior to next year’s annual meeting. In the event, however, that notice of next year’s annual meeting is given by the Company less than 60 days prior to next year’s annual meeting, then notice must be received from the stockholder by the Secretary not later than the close of business on the 15th day following the date on which notice of next year’s annual meeting of the stockholders was mailed, which will be the date of next year’s proxy statement. Notices of intention to present proposals at the next annual meeting should be addressed to the Secretary, Communication Intelligence Corporation, 275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065.
 
Stockholder Director Nominations
 
Under our Bylaws, stockholders may also nominate an individual to serve on our Board of Directors. In order to nominate a person or persons for election to the Board of Directors at our next annual meeting, a stockholder must provide the information required by our Bylaws and give timely notice of their intention to do so to our corporate Secretary in accordance with our Bylaws, which, in general, require that the notice be received by the Secretary not more than 90 days nor less than 60 days prior to the anniversary of the date of the Company’s definitive proxy statement provided in connection with the Company’s annual meeting in the previous year. Notwithstanding the preceding sentence, in the event that no annual meeting was held in the previous year or the annual meeting is called for a date more than thirty (30) days before or after the anniversary date of the previous year’s annual meeting, notice by the stockholder must be received by the Secretary not later than the close of business on the later of (1) the ninetieth (90th) day prior to such annual meeting and (2) the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In the case of a special meeting of stockholders called for the purpose of electing directors, notice by the stockholder must be received by the Secretary not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made. The notice given by the stockholder must include (1) the name and address of the stockholder who intends to make the nomination, and the person or persons to be nominated; (2) a representation that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) a
 
 
28

 
 
description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination(s) are to be made by the stockholder; (4) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed with SEC pursuant to the proxy rules; and (5) the manually signed consent of each nominee to serve as a director of the Company if so elected. The presiding officer at the annual meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. A stockholder’s written notice of such stockholder’s intention to make such nomination or nominations at the next annual meeting should be addressed to the Secretary, Communication Intelligence Corporation, 275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065.

 
SOLICITATION OF PROXIES
 
The Company will bear the cost of the Annual Meeting and the solicitation of proxies related thereto, including the costs relating to printing and mailing the proxy materials. The Company has retained Broadridge Financial Solutions to assist the Company in the solicitation of proxies. The Company has agreed to pay Broadridge a fee of approximately $18,000 for its services. Directors, officers and employees of the Company may make additional solicitations in person or by telephone in respect to the Annual Meeting.
 
OTHER MATTERS
 
The Board of Directors knows of no other matter that may be presented for action at the Annual Meeting. However, if any other matter properly comes before the Annual Meeting, the persons named as proxies will vote in accordance with their judgment with respect to any such matter.
 
Stockholders are urged to complete, sign, date and return the enclosed proxy card promptly in the envelope provided, regardless of whether or not they expect to attend the Annual Meeting. The prompt return of such proxy card will assist the Company in preparing for the Annual Meeting. Your cooperation is greatly appreciated.
 
ADDITIONAL INFORMATION
 
A copy of the Company’s Annual Report to Stockholders for the fiscal year ended December 31, 2012 accompanies this Proxy Statement. The Company is required to file an Annual Report on Form 10-K for its fiscal year ended December 31, 2012 with the Securities and Exchange Commission (the “SEC”). The SEC maintains a web site, www.sec.gov that contains reports, Proxy Statements, and certain other information filed electronically by the Company with the SEC. Stockholders may obtain, free of charge, a copy of the Form 10-K by writing to Communication Intelligence Corporation, Attn: Corporate Secretary, 275 Shoreline Drive, Suite 500, Redwood Shores, CA 94065, or visiting the Company’s web site at www.cic.com.
 
INCORPORATION BY REFERENCE
 
The Company incorporates by reference the information provided under Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 7A (Quantitative and Qualitative Disclosures about Market Risk), and Item 8 (Consolidated Financial Statements) contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 accompanying this proxy statement.
 
 
BY ORDER OF THE BOARD OF DIRECTORS
   
   
   /s/ Philip S. Sassower
   
 
Philip S. Sassower
Chairman and Chief Executive Officer
 
 
 November 1, 2013
 
 
29

 
APPENDIX A
 
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
COMMUNICATION INTELLIGENCE CORPORATION
 
It is hereby certified that:
 
1.           The name of the corporation is Communication Intelligence Corporation (hereinafter called the “Corporation”).
 
2.           The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by striking paragraph (a) of Article Fourth thereof and by substituting in lieu of said paragraph the following new paragraph:
 
“FOURTH:                      The total number of shares which the Corporation shall have authority to issue is 1,540,000,000 of which 1,500,000,000 shares shall be Common Stock, par value $0.01 per share, and 40,000,000 shares shall be Preferred Stock, par value $0.01 per share, of which 2,000,000 shares are designated as Series A-1 Cumulative Convertible Preferred Stock, 14,000,000 shares are designated Series B Participating Convertible Preferred Stock, 9,000,000 shares are designated Series C Participating Convertible Preferred Stock, 6,000,000 shares are designated Series D-1 Convertible Preferred Stock, and 9,000,000 shares are designated Series D-2 Convertible Preferred Stock..”
 
The balance of Article Fourth shall remain unchanged.
 
3.           This Certificate of Amendment to the Corporation’s Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
 
4.           This Certificate of Amendment shall be effective as of the date of filing with the Secretary of State of the State of Delaware.
 
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by Craig Hutchison, its Vice President and Assistant Treasurer, as of ____________________,_______.
 

 
 
COMMUNICATION INTELLIGENCE
CORPORATION
 
 
 
 
By: Craig Hutchison
Title: Vice President and Assistant Treasurer
 
 
A-1
 
 
 
 

 
 
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
 
COMMUNICATION INTELLIGENCE CORPORATION
275 SHORELINE DRIVE 6TH FLOOR REDWOOD SHORES, CA 94065
   ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
 
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
 
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
 
 The Board of Directors recommends you vote
 FOR the Following: 
For
All
()
Withhold
All
()
For All
Except
()
 To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
  1. Election of Directors
     Nominees
     
 
 01 Andrea Goren  02 Stanley L. Gilbert  03 Philip Sassower  04 Jeffrey Holtmeier
05 David Welch
 
The Board of Directors recommends you vote FOR proposals 2, 3 and 4. 
 
2. To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Series D-1 Preferred Stock;
 
3.  To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Series D-2 Preferred Stock; and
 
4. To ratify the appointment of PMB Helin Donovan, LLP as the Company's independent auditors for the year ending December 31, 2013.
  
 For
 
()
 
()
 
()
 
 Against
 
()
 
()
 
()
 
 Abstain
 
()
 
()
 
()
 
NOTE: The undersigned hereby revokes any proxy heretofore given with respect to such shares and confirms all that said proxy, or any of them, or any substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Proxy Card, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, to the greatest extent permissible, this Proxy Card will be voted "FOR" (1) the election of all directors; (2) to consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Series D-1 Preferred Stock; (3) to consider and vote upon a proposal to amend our Certificate of Incorporation to increase the number of shares of authorized Series D-2 Preferred Stock; and (4) to ratify the appointment of PMB Helin Donovan, LLP as the Company's independent auditors for the year ending December 31, 2013.
 
Proposals 2 and 3 relate to the same proposed amendment of our Certificate of Incorporation. The failure of shareholders to approve both Proposal 2 and Proposal 3 will result in the amendment of our Certificate of Incorporation not being approved and no increase in the authorized shares of Series D-1 Preferred Stock or the authorized shares of Series D-2 Preferred Stock.
 
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
 
 
 
           
 
Signature [PLEASE SIGN WITHIN BOX] 
Date
   
Signature [Joint Owners]
Date
 
 
 

 
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice and Proxy Statement is/ are available at www.proxyvote.com .
PROXY
COMMUNICATION INTELLIGENCE CORPORATION 275 SHORELINE DRIVE, SUITE 1500
REDWOOD SHORES, CALIFORNIA 94065
 
 
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS ON NOVEMBER 20, 2013.
 
 
 
The undersigned does hereby appoint Andrea Goren and Craig Hutchison and each of them as agents and proxies of the undersigned, with full power of substitution, to represent and to  vote, as designated on the reverse side, all the shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D-1 Preferred Stock and Series D-2 Preferred Stock of Communication Intelligence Corporation (the "Company") held of record by the undersigned on September 23, 2013 (the "Record Date") in connection with the proposals presented at the Company's Annual Meeting of Stockholders to be held on November 20, 2013 at 1 p.m., local time, at the Company's headquarters, 275 Shoreline Drive, Suite 500, Redwood Shores, California 94065, or any adjournment or postponement thereof, all as more fully described in the attached Notice of Annual Meeting of Stockholders and Proxy Statementdated November 1, 2013, hereby revoking all proxies heretofore given with respect to such matters. The Board of Directors recommends a vote "FOR" each of the Proposals.
 
 
Important Notice Regarding the Internet Availability of Proxy Materials for the 2013 Annual Meeting to be Held on November 20, 2013. The proxy materials for the Communication Intelligence Corporation 2013 Annual Meeting of Stockholders are available at www.proxyvote.com. To view the proxy materials, please have your proxy card in hand when you access the
website and follow the instructions to access the proxy materials.
 
 
 
 
 
Continued and to be signed on reverse side