<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1999
REGISTRATION NO. 333-79509
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERACTIVE INTELLIGENCE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 7372 35-1933097
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
8909 PURDUE ROAD
SUITE 300
INDIANAPOLIS, INDIANA 46268
(317) 872-3000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
JOHN R. GIBBS
EXECUTIVE VICE PRESIDENT
8909 PURDUE ROAD
SUITE 300
INDIANAPOLIS, INDIANA 46268
(317) 872-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
JAMES A. ASCHLEMAN MICHAEL A. CAMPBELL
BAKER & DANIELS MAYER, BROWN & PLATT
SUITE 2700 190 SOUTH LASALLE STREET
300 NORTH MERIDIAN STREET CHICAGO, ILLINOIS 60603
INDIANAPOLIS, INDIANA 46204-1782 (312) 782-0600
(317) 237-0300
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as is practicable after the effective date of this registration
statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, $.01 par value................................................ $46,000,000 $12,788
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
(2) This amount has been previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 14, 1999
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
INTERACTIVE INTELLIGENCE, INC.
COMMON STOCK
--------------
This is Interactive Intelligence's initial public offering of common stock.
The underwriters will offer shares. This is a firm commitment
underwriting.
We expect the public offering price to be between $ and $ per share.
Currently, no public market exists for the shares. We have applied to have the
common stock approved for quotation on the Nasdaq National Market under the
symbol "ININ."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- -----
<S> <C> <C>
Public offering price........................................
Underwriting discount........................................
Proceeds, before expenses, to Interactive Intelligence.......
</TABLE>
The underwriters may also purchase up to an additional shares from us
and shares from one of our stockholders at the public offering price,
less the underwriting discount, within 30 days from the date of this prospectus
to cover over-allotments.
At our request, the underwriters have reserved up to 7% of the shares of our
common stock offered by this prospectus for sale, at the initial public offering
price, to some of our employees, executive officers, directors and resellers and
to some individuals designated by them. The number of shares of common stock for
sale to the general public in this offering will be reduced to the extent those
persons purchase the reserved shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
------------------
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
[FLAP 1]
[(INSIDE FRONT COVER)]
[GRAPHIC DEPICTION OF THE ENTERPRISE INTERACTION CENTER
AND ITS FUNCTIONS AND FEATURES]
ENTERPRISE INTERACTION CENTER (EIC) CAN BE USED TO AUTOMATE VIRTUALLY EVERY
ASPECT OF BUSINESS COMMUNICATIONS ON A WINDOWS NT SERVER.
<PAGE>
[FLAP 2]
[GRAPHIC DEPICTION OF THE EIC INTERACTION PROCESSOR, AND ITS
CONNECTIVITY TO TELEPHONE, E-MAIL, WEB BROWSER AND FAX]
EIC ALLOWS ORGANIZATIONS TO AUTOMATE THE PROCESSING OF NOT ONLY TELEPHONE
CALLS BUT FAXES, E-MAIL MESSAGES, AND WEB-BASED INTERACTIONS INCLUDING TEXT
CHATS, VOICE OVER IP CALLS, AND WEB CALL BACK REQUESTS.
<PAGE>
[FLAP 3]
ENTERPRISE
INTERACTION
CENTER-Registered Trademark-
[SCREEN CAPTURES OF INTERACTION CLIENT, INTERACTION
DESIGNER AND UNIVERSAL IN-BOX]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 3
Forward-Looking Statements................................................................................. 7
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Consolidated Financial Data....................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 32
Management................................................................................................. 47
Executive Compensation..................................................................................... 51
Certain Transactions....................................................................................... 58
Principal and Selling Stockholders......................................................................... 60
Description of Capital Stock............................................................................... 61
Shares Eligible for Future Sale............................................................................ 65
Underwriting............................................................................................... 67
Legal Matters.............................................................................................. 69
Experts.................................................................................................... 70
Additional Information..................................................................................... 70
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE
YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE
UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS. TO
UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE RISK FACTORS AND THE FINANCIAL STATEMENTS AND RELATED NOTES,
BEFORE YOU DECIDE WHETHER TO INVEST IN OUR COMMON STOCK.
OUR COMPANY
We are a leading developer of enterprise software that allows our customers
to automate virtually every aspect of their business communications. When
installed on a Windows NT-Registered Trademark- server, our flagship product,
Enterprise Interaction Center-Registered Trademark- or EIC, provides a single,
integrated solution capable of processing thousands of interactions per hour,
including telephone calls, e-mails, faxes, voice mail messages, Internet chat
sessions, Web callback requests and voice over Net calls. EIC is a unique
software solution that replaces a variety of traditional devices such as private
branch exchange devices or PBXs, interactive voice response systems or IVRs,
automatic call distributors or ACDs, voice mail systems, fax servers, call
recorders and computer telephony integration or CTI gateways. We began licensing
our products in 1997 and have grown our total revenues from $1.6 million in 1997
to $9.0 million in 1998.
OUR INDUSTRY
Due to a broad combination of factors, including deregulation, consolidation
and advances in technology, organizations are looking to communications
technology to increase efficiency and provide better service. We believe we are
well positioned to take advantage of the following major trends taking place
within many industries.
- GROWTH OF CALL CENTERS. To consolidate customer contact points and focus
on customer service, organizations are frequently implementing formal call
centers. We believe that the market for call center communications
products in 1998 represented approximately 55% of the estimated $10.0
billion computer telephony industry, and we expect this market to grow at
25% to 30% annually.
- INCREASING VARIETY AND COMPLEXITY OF BUSINESS COMMUNICATIONS. In addition
to more traditional communications media such as telephone, fax and voice
mail, the growth of the Internet has expanded the number and complexity of
business communications to include e-mail, Internet chat sessions, Web
callback requests and voice over Net calls. We believe that approximately
one-fifth of customer contact will shift from the phone to the Internet in
the next two years.
- INCREASING NEED TO INTEGRATE BUSINESS COMMUNICATIONS AND COMPUTER
SYSTEMS. Historically, telecommunications systems and information systems
have been separate and distinct. To more effectively and efficiently
interact, both internally and externally, enterprises need to seamlessly
access and utilize these two systems.
- ENTRANCE OF NEW SERVICE PROVIDERS. The Telecommunications Act of 1996
deregulated many aspects of the communications market and resulted in a
rapid increase in the number and types of organizations seeking to provide
communications and other services. These new service provider entrants
include local exchange carriers, cable companies, Internet service
providers and wireless companies.
We believe the traditional multi-device approach to communications by
organizations is inadequate to address the needs created by these trends. We
believe the shortcomings of this approach create a significant opportunity for a
single, all-in-one solution based on standard hardware and software technology
that enables organizations to efficiently and effectively interact with all of
their constituents.
3
<PAGE>
OUR SOLUTION
We believe that EIC provides our end-user customers with an all-in-one
communications solution that has the following advantages over the traditional
multi-device approach:
- BROADER RANGE OF FUNCTIONS. Unlike traditional systems that require
end-user customers to purchase separate products to attain broader
functionality, EIC is an all-in-one system that offers a broad suite of
communications features.
- REDUCED NEED TO INTEGRATE DISPARATE TECHNOLOGIES. EIC pre-assembles all
the necessary components into one software solution, allowing end-user
customers to concentrate their efforts on improving business operations.
- OPEN ARCHITECTURE AND BETTER COMPATIBILITY WITH LEADING TECHNOLOGIES. Our
products are built around industry standard hardware and software
components such as Intel microprocessors and the Microsoft Windows
NT-Registered Trademark- operating system.
- LOWER TOTAL COST OF OWNERSHIP. EIC's capabilities reside in a single
Windows NT-Registered Trademark- server, resulting in a lower total cost
of ownership due to the reduced time and expense typically required to
maintain a centralized software-based communications system.
- GREATER ABILITY TO CUSTOMIZE COMMUNICATIONS TO MEET SPECIFIC NEEDS. While
EIC can be deployed quickly with minimal configuration, organizations can
also customize many aspects of their communications processing using EIC's
graphical application generator.
OUR CUSTOMERS
We design our software to meet the needs of end-user customers in three
growing markets: call centers, enterprises and service providers. We license our
products to over 250 end-user customers, including Ameritech Corporation,
BuyItNow, Inc., Deutsche Telekom Berkom Gmbh, Seagate Technology, Inc. and
Toshiba America Consumer Products. We market our software products and services
through an extensive distribution network consisting of over 100 independent
resellers in North America, Europe and the Asia/Pacific region. Our resellers
range from relatively small, local organizations to large regional and national
firms, such as Bell South Communication Systems, Inc. and KPN Telecom B.V. We
also provide our end-user customers and resellers with technical support,
educational and professional services.
OUR GROWTH STRATEGY
Our primary business objective is to become the leading vendor of enterprise
software that allows call centers, enterprises and service providers to automate
virtually every aspect of their business communications. Our strategy for
achieving this objective incorporates the following key elements:
- CONTINUE TO EXPAND OUR LEADING TECHNOLOGY POSITION. We have significant
technical expertise in call center, communications and software
technologies. We intend to use our expertise to add new features to our
products, improve the ability of our current and future products to handle
the needs of larger organizations, and broaden the compatibility of our
products to work with other systems and applications used by our
customers.
- BROADEN OUR PRODUCT OFFERING. We plan to broaden our product offering with
additional products and features for our target markets.
- FURTHER EXPAND OUR GLOBAL DISTRIBUTION CHANNEL. We plan to further expand
our existing distribution channel, which currently consists of over 100
resellers in more than 20 countries.
- DEVELOP OUR STRATEGIC BUSINESS RELATIONSHIPS. We have strategic
relationships with leading technology companies, including Microsoft
Corporation, which recently recognized us as the
4
<PAGE>
ninth fastest growing independent software vendor using Microsoft
Windows-Registered Trademark-. In addition to our relationships with
technology companies, we intend to pursue strategic relationships with
network equipment vendors as well as developers of customer relationship
management software.
OUR ADDRESS
We are incorporated in Indiana, and our worldwide headquarters are located
at 8909 Purdue Road, Suite 300, Indianapolis, Indiana 46268. Our telephone
number is (317) 872-3000, and our Web site is www.inter-intelli.com. The
information on our Web site is not part of this prospectus.
THE OFFERING
Unless stated otherwise, all financial information and share and per share
data in this prospectus
- give effect to the -for- stock split that was effected on
, 1999;
- assume that the underwriters do not exercise their over-allotment option;
and
- do not include shares reserved for issuance under our stock option plans.
Our common stock outstanding after the offering includes shares issuable upon
the exercise of options outstanding under our stock option plans. As of June 30,
1999, there were 1,504,636 shares issuable upon the exercise of outstanding
options, of which 269,736 were exercisable, and 2,451,250 shares available for
future awards of options under these plans. See "Executive Compensation--Stock
Option Plans" and "Underwriting."
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock outstanding after the shares
offering...................................
Use of proceeds.............................. For general corporate purposes, including
working capital and potential acquisitions,
and for repayment of indebtedness and payment
of deferred compensation and other
non-interest bearing accounts payable to our
principal stockholder. See "Use of Proceeds."
Risk factors................................. See "Risk Factors" for a discussion of
factors you should carefully consider before
deciding whether to invest in shares of our
common stock.
Nasdaq National Market symbol................ ININ
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THE FOLLOWING TABLE SUMMARIZES THE FINANCIAL INFORMATION FOR INTERACTIVE
INTELLIGENCE. YOU SHOULD READ THIS INFORMATION WITH THE FINANCIAL STATEMENTS AND
NOTES TO THE FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." THE AS ADJUSTED CONSOLIDATED BALANCE SHEET DATA REFLECT APPLICATION
OF THE ESTIMATED NET PROCEEDS FROM THE SALE OF SHARES IN THIS OFFERING,
BASED ON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $ PER SHARE.
<TABLE>
<CAPTION>
SIX MONTHS
OCTOBER 1, 1994 YEAR ENDED DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ------------------------------------------ ----------------------
DECEMBER 31, 1994 1995 1996 1997 1998 1998 1999
------------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software...................... $ -- $ -- $ -- $ 1,265 $ 7,662 $ 2,980 $ 5,482
Services...................... -- -- -- 325 1,349 407 1,826
------ --------- --------- --------- --------- --------- -----------
Total revenues.................. -- -- -- 1,590 9,011 3,387 7,308
Costs and expenses:
Costs of software............. -- -- -- 38 59 24 60
Costs of services............. -- -- -- 1,258 3,381 1,387 2,360
Sales and marketing........... -- 19 157 2,519 6,623 2,715 4,553
Research and development...... 8 297 987 2,118 4,065 1,837 3,004
General and administrative.... -- 99 192 742 1,407 590 1,135
------ --------- --------- --------- --------- --------- -----------
Total costs and expenses........ 8 415 1,336 6,675 15,535 6,553 11,112
------ --------- --------- --------- --------- --------- -----------
Operating loss.................. (8) (415) (1,336) (5,085) (6,524) (3,166) (3,804)
Interest expense, net........... -- 1 43 361 868 428 398
------ --------- --------- --------- --------- --------- -----------
Loss before income taxes........ (8) (416) (1,379) (5,446) (7,392) (3,594) (4,202)
Income taxes.................... -- -- -- -- -- -- --
------ --------- --------- --------- --------- --------- -----------
Net loss........................ $ (8) $ (416) $ (1,379) $ (5,446) $ (7,392) $ (3,594) $ (4,202)
------ --------- --------- --------- --------- --------- -----------
------ --------- --------- --------- --------- --------- -----------
Basic and diluted net loss per
share......................... $ (0.01) $ (0.32) $ (0.49) $ (1.07) $ (1.26) $ (0.65) $ (0.59)
Shares used in per share
computation................... 1,000 1,310 2,811 5,095 5,877 5,492 7,133
<CAPTION>
AT JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................................... $ 87 $
Working capital (deficit)...................................................................... (3,167)
Total assets................................................................................... 7,798
Long-term debt................................................................................. 8,523
Total shareholders' equity (deficit)........................................................... (7,997)
</TABLE>
6
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our views
about future events and financial performance. Forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause our and our industry's actual results, levels of activity, performance,
achievements and prospects to be materially different from those expressed or
implied by those forward-looking statements. These risks, uncertainties,
assumptions and other factors include, among others, those identified under
"Risk Factors" and elsewhere in this prospectus. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur. In addition, actual results could differ materially
from those suggested by the forward-looking statements, and therefore you should
not place undue reliance on the forward-looking statements.
RISK FACTORS
INVESTING IN OUR COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY OWNERSHIP IN
INTERACTIVE INTELLIGENCE. AS AN INTERACTIVE INTELLIGENCE STOCKHOLDER, YOU MAY BE
SUBJECT TO RISKS INHERENT IN OUR BUSINESS. THE PERFORMANCE OF YOUR SHARES WILL
REFLECT THE PERFORMANCE OF OUR BUSINESS RELATED TO, AMONG OTHER THINGS, OUR
COMPETITION, GENERAL ECONOMIC AND MARKET CONDITIONS AND INDUSTRY CONDITIONS. THE
PRICE OF OUR COMMON STOCK MAY DECLINE AND THE VALUE OF YOUR INVESTMENT COULD
DECREASE. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN
SHARES OF OUR COMMON STOCK.
OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT AND, IN
ASSESSING OUR PROSPECTS, YOU SHOULD CONSIDER OUR EARLY STAGE OF DEVELOPMENT AND
PRESENCE IN A NEW AND RAPIDLY EVOLVING INDUSTRY
Our limited operating history makes it difficult to forecast our future
operating results. We commenced operations in October 1994, but did not begin
shipping our principal product, Enterprise Interaction Center or EIC, until
March 1997. Accordingly, you should assess our prospects in light of the risks
and difficulties frequently encountered by companies in the early stage of
development, particularly companies in new and rapidly evolving industries.
WE HAVE HISTORICALLY INCURRED LOSSES AND WE MAY NOT ACHIEVE PROFITABILITY
We have not operated profitably to date. We incurred net losses of $7.4
million in 1998 and $4.2 million for the six-month period ended June 30, 1999.
At June 30, 1999, we had accumulated losses since inception of $18.8 million. We
intend to continue to make significant investments in our research and
development, marketing, services and sales operations. We anticipate that these
expenses could significantly precede any revenues generated by the increased
spending. As a result, we are likely to continue to experience losses and
negative cash flow from operations in future quarters. If we do become
profitable, we may not sustain or increase our profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR QUARTERLY OPERATING RESULTS HAVE VARIED SIGNIFICANTLY AND, IF SEVERAL
FACTORS AFFECTING OUR BUSINESS CAUSE THEM TO CONTINUE TO DO SO, THE MARKET PRICE
OF OUR COMMON STOCK COULD BE AFFECTED
Our operating results have varied significantly from quarter to quarter and
may continue to do so in the future depending upon a number of factors affecting
us or our industry described below and elsewhere in this prospectus, including
many that are beyond our control. As a result, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful, and you
should not rely on them as an indication of our future performance. In addition,
our operating results in a future quarter or quarters may fall below
expectations of securities analysts or investors and, as a result, the price of
our common stock may fluctuate.
7
<PAGE>
Because we do not know when our potential end-user customers will place
orders and finalize contracts, we cannot accurately forecast our revenues and
operating results for future quarters. We generally recognize revenues from
orders during the quarter in which they are received. As a result, our quarterly
revenues and operating results depend primarily on the size, quantity and timing
of orders received for our products during each quarter. If a large number of
orders or several large orders do not occur or are deferred or delayed, our
revenues in a quarter could be substantially reduced. This risk is heightened by
the significant investment and executive level decision making typically
involved in our end-user customers' decisions to license our products. Since a
large portion of our operating expenses, including rent and salaries, is fixed
and difficult to reduce or modify, our business, financial condition or results
of operations could be materially adversely affected if revenues do not meet our
expectations.
Because of our early stage of development and limited number of products,
changes in pricing policies and the timing of the development, announcement and
sale of new or upgraded versions of our products are some of the additional
factors that could cause our revenues and operating results to vary
significantly from quarter to quarter. We intend to release EIC Version 1.3 in
July 1999, as described in "Business--Products."
WE HAVE A LENGTHY PRODUCT SALES CYCLE, WHICH HAS CONTRIBUTED, AND MAY CONTINUE
TO CONTRIBUTE, TO THE QUARTER-TO-QUARTER VARIABILITY OF OUR REVENUES AND
OPERATING RESULTS, WHICH COULD AFFECT THE MARKET PRICE OF OUR COMMON STOCK
We have generally experienced a lengthy product sales cycle, averaging
approximately six to nine months. The lengthy sales cycle is one of the factors
that has caused, and may in the future continue to cause, our software revenues
and operating results to vary significantly from quarter to quarter, which could
affect the market price of our common stock. It also makes it difficult for us
to forecast product license revenues. Because of the unique characteristics of
our products, our prospective end-user customers' decisions to license our
products often require significant investment and executive level decision
making. We believe that many companies currently are not aware of the benefits
of enterprise software of the type we license or of our products and
capabilities. For this reason, we must provide a significant level of education
to prospective end-user customers about the use and benefits of our products,
which can cause potential end-user customers to take many months to make these
decisions. As a result, sales cycles for end-user customer orders vary
substantially from customer to customer. Excessive delay in product sales could
materially adversely affect our business, financial condition or results of
operations.
The length of the sales cycle for end-user customer orders depends on a
number of other factors over which we have little or no control, including:
- an end-user customer's budgetary constraints;
- the timing of an end-user customer's budget cycles;
- concerns by end-user customers about the introduction of new products by
us or our competitors; and
- potential downturns in general economic conditions, including reductions
in demand for call center services.
To the extent that potential end-user customers divert resources and attention
to issues associated with the Year 2000 problem, our sales cycle could lengthen
further. See "--Year 2000 issues may adversely affect our business." In
addition, the sales cycle for our products in international markets has been,
and is expected to continue to be, longer than the sales cycle in the United
States. The average sales cycle for our products may lengthen as we expand
internationally.
8
<PAGE>
OUR INABILITY TO MANAGE SUCCESSFULLY OUR GROWTH OR OUR INCREASINGLY COMPLEX
THIRD PARTY RELATIONSHIPS COULD ADVERSELY AFFECT US
If we are not able to manage our growth successfully, we will not grow as
planned and our business could be adversely affected. We have grown revenues
from $1.6 million in 1997 to $9.0 million in 1998, and we intend to continue to
grow our business operations significantly in the future. Our existing
management, operational, financial and human resources and management
information systems and controls may be inadequate to support our future
operations. In addition, as the complexity of our product technology and our
reseller and other third-party relationships have increased, the management of
those relationships and the negotiation of contractual terms sufficient to
protect our rights and limit our potential liabilities has become more
complicated, and we expect this trend to continue in the future. As a result,
our inability to successfully manage these relationships or negotiate sufficient
contractual terms could have a material adverse effect on us.
WE FACE COMPETITIVE PRESSURES, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON US
The market for our software products is highly competitive and, because
there are relatively low barriers to entry in the software market, we expect
competition to increase significantly in the future. In addition, because our
industry is new and evolving and characterized by rapid technological change, it
is difficult for us to predict whether, when and by whom new competing
technologies or new competitors may be introduced into our markets. Currently,
our competition comes from several different market segments, including computer
telephony platform developers, computer telephony applications software
developers and telecommunications equipment vendors. We cannot assure you that
we will be able to compete effectively against current and future competitors.
In addition, increased competition or other competitive pressures may result in
price reductions, reduced margins or loss of market share, any of which could
have a material adverse effect on our business, financial condition or results
of operations. See "Business--Competition."
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing, customer
service and other resources, greater name recognition and a larger installed
base of customers than we do. As a result, these competitors may be able to
respond to new or emerging technologies and changes in customer requirements
faster and more effectively than we can, or to devote greater resources to the
development, promotion and sale of products than we can. Current and potential
competitors have established, and may in the future establish, cooperative
relationships among themselves or with third parties, including mergers or
acquisitions, to increase the ability of their products to address the needs of
our current or prospective end-user customers. If these competitors were to
acquire significant market share, it could have a material adverse effect on our
business, financial condition or results of operations.
WE MAY NOT BE ABLE TO GROW OUR BUSINESS AS PLANNED IF WE DO NOT MAINTAIN
SUCCESSFUL RELATIONSHIPS WITH OUR RESELLERS AND CONTINUE TO RECRUIT AND TRAIN
ADDITIONAL RESELLERS
Our ability to achieve revenue growth in the future will depend in part on
our success in maintaining successful relationships with our existing and future
resellers and in recruiting and training additional resellers. We rely primarily
on resellers to market and support our products. We are still developing and
refining our reseller distribution network and may be unable to attract
additional resellers with both voice and data expertise that will be able to
market our products effectively and that will be qualified to provide timely and
cost-effective customer support and service. We generally do not have long-term
or exclusive agreements with our resellers, and the loss of specific larger
resellers or a significant number of resellers could materially adversely affect
our business, financial condition or results of operations.
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OUR MARKETS ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE WHICH MAY CAUSE US
TO INCUR SIGNIFICANT DEVELOPMENT COSTS AND PREVENT US FROM ATTRACTING NEW
CUSTOMERS
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, uncertain product life
cycles and changing end-user customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards could
render existing products obsolete or unmarketable and cause us to incur
significant development costs.
A DECLINE IN MARKET ACCEPTANCE FOR MICROSOFT CORPORATION TECHNOLOGIES ON WHICH
OUR PRODUCTS RELY COULD HAVE A MATERIAL ADVERSE EFFECT ON US
EIC currently runs only on Microsoft Windows NT-Registered Trademark-
servers. In addition, our products use other Microsoft Corporation technologies,
including Microsoft Exchange Server-Registered Trademark- and Microsoft SQL
Server-Registered Trademark-. A decline in market acceptance for Microsoft
technologies or the increased acceptance of other server technologies could
cause us to incur significant development costs and could have a material
adverse effect on our ability to market our current products. Although we
believe that Microsoft technologies will continue to be widely used by
businesses, we cannot assure you that businesses will adopt these technologies
as anticipated or will not in the future migrate to other computing technologies
that we do not currently support. In addition, our products and technologies
must continue to be compatible with new developments in Microsoft technologies.
OUR FUTURE BUSINESS PROSPECTS DEPEND IN PART ON OUR ABILITY TO MAINTAIN AND
IMPROVE OUR CURRENT PRODUCTS AND DEVELOP NEW PRODUCTS
We believe that our future business prospects depend in large part on our
ability to maintain and improve our current products and to develop new products
on a timely basis. Our products will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of end-user customer
requirements. As a result of the complexities inherent in our products, major
new products and product enhancements require long development and testing
periods. We may not be successful in developing and marketing, on a timely and
cost effective basis, product enhancements or new products that respond to
technological change, evolving industry standards or end-user customer
requirements. We may also experience difficulties that could delay or prevent
the successful development, introduction or marketing of product enhancements,
and our new products and product enhancements may not achieve market acceptance.
Significant delays in the general availability of new releases of our products
or significant problems in the installation or implementation of new releases of
our products could have a material adverse effect on our business, financial
condition or results of operations. We intend to release EIC Version 1.3 in July
1999, as described in "Business--Products."
SLOWER THAN ANTICIPATED GROWTH IN DEMAND FOR ENTERPRISE SOFTWARE OF THE TYPE WE
LICENSE COULD MATERIALLY ADVERSELY AFFECT OUR GROWTH PROSPECTS
If the demand for enterprise software of the type we license does not
continue to grow as anticipated within each of our three targeted markets, our
ability to grow our business as planned could be materially adversely affected.
All of our revenues have been generated from licenses of our EIC software or
complementary products, and related support, educational and professional
services. We expect these products and services to account for the majority of
our revenues for the foreseeable future. Although we believe demand for the
functions performed by EIC is high, and growth in demand has accelerated in
recent years, particularly among call centers, the market for our products and
services is still emerging. Further, our growth plans require us to successfully
attract end-user customers in our two other target markets, enterprises and
service providers, which have been much slower to adopt software technologies
such as our EIC product.
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IF WE ARE UNABLE TO ADAPT OUR SOFTWARE IN A WAY THAT WILL PERMIT US TO SERVE
LARGE, SINGLE-SITE END-USER CUSTOMERS, THE MARKETABILITY OF EIC COULD BE
ADVERSELY AFFECTED
EIC currently serves small to medium sized call centers and enterprises with
approximately 25 to 300 users at a single location. As these organizations
expand to include multiple locations, EIC can be customized to increase the
number of telephone lines, extensions and users. However, EIC cannot currently
meet the communications needs of organizations with more than 200 users at a
single call center location or 300 users at a single enterprise location. We
will need to adapt our software to serve larger single-site organizations. We
may not be able to adapt our software in a timely or cost effective manner in a
way that will permit us to serve these customers. This inability could have a
material adverse effect on our business, financial condition or results of
operations.
DIALOGIC CORPORATION MAY BECOME UNWILLING OR UNABLE TO CONTINUE TO MANUFACTURE
AND SUPPLY US WITH VOICE PROCESSING BOARDS, REQUIRING US TO INTRODUCE A
SUBSTITUTE SUPPLIER WHICH COULD PROVE DIFFICULT OR COSTLY
Dialogic Corporation is currently our only supplier of the voice processing
boards that are necessary for the operation of EIC. If Dialogic Corporation
becomes unable or unwilling to continue to manufacture and supply these voice
processing boards in the volume, price and technical specifications we require,
then we would have to adapt our products to a substitute supplier. Introducing a
new supplier of voice processing boards could result in unforeseen additional
product development or customization costs and could also introduce hardware and
software operating or compatibility problems. These problems could affect
product shipments, be costly to correct or damage our reputation in the markets
in which we operate, and could have a material adverse affect on our business,
financial condition or results of operations.
In addition, Intel Corporation recently acquired Dialogic Corporation. While
Intel Corporation does not currently offer a product that competes with our EIC,
Intel Corporation could potentially develop a competitive or superior product or
attempt to affect our current relationship with Dialogic Corporation.
In addition, Dialogic Corporation's CT Media offers some of the
functionality that EIC provides and consequently could make it easier for
competitors or potential competitors to provide products competitive with ours.
If CT Media were to become an industry standard, our failure to adopt it could
disadvantage us in competitive situations. See "Certain
Transactions--Relationship with Dialogic."
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS ADEQUATELY, WHICH COULD
ALLOW THIRD PARTIES TO COPY OR OTHERWISE OBTAIN AND USE OUR TECHNOLOGY WITHOUT
AUTHORIZATION
We regard our software products as proprietary. In an effort to protect our
proprietary rights, we rely primarily on a combination of copyright, trademark
and trade secret laws, as well as licensing and other agreements with
consultants, suppliers, strategic partners, resellers and end-user customers,
and employee and third-party non-disclosure agreements. These laws and
agreements provide only limited protection of our proprietary rights. In
addition, we have not signed agreements containing these types of protective
provisions in every case, and the contractual provisions that are in place and
the protection they provide vary and may not provide us with adequate protection
in all circumstances. Although we have recently filed patent applications
directed to several inventions embodied in our software products, we currently
have no patents or registered copyrights. Because our means of protecting our
proprietary rights may not be adequate, it may be possible for a third party to
copy or otherwise obtain and use our technology without authorization. A third
party could also develop similar technology independently. In addition, the laws
of some countries in which we sell our products do not protect our software and
intellectual property rights to the same extent as the laws of the United
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States. Unauthorized copying, use or reverse engineering of our products could
materially adversely affect our business, results of operations or financial
condition.
We license technology that is embedded in our products from others. If one
or more of these licenses terminates or cannot be renewed on satisfactory terms,
we would have to modify the affected products to use alternative technology or
eliminate the affected product function, either of which could have a material
adverse effect on us.
INFRINGEMENT CLAIMS COULD ADVERSELY AFFECT US
A third party could claim that our technology infringes its proprietary
rights. As the number of software products in our target markets increases and
the functionality of these products overlap, we believe that software developers
may face infringement claims. For example, various patent rights have been
asserted against interfaces between PBX hardware and computer network systems.
Although we believe that our products do not infringe any of these patents
because, among other reasons, our products are designed to replace PBXs and not
to create such interfaces, if these patents were interpreted broadly, claims of
infringement of these patents could have a material adverse affect on us.
In June 1999, we received a letter from a large, well capitalized competitor
in the call center market claiming that our products utilize technologies
pioneered and patented by that competitor. Our patent counsel, Woodard, Emhardt,
Naughton, Moriarty & McNett, has reviewed all of the 15 patents listed in the
letter from the competitor. Based upon the advice of our patent counsel, we
believe that our products do not infringe any of the 15 patents listed. We
intend to discuss our conclusion with the competitor, but we cannot assure you
that it will concur in our conclusion or that this matter can be resolved
amicably, without infringement claims being made by the competitor or without a
material adverse effect on our business, financial condition or results of
operations.
Infringement claims, even if without merit, can be time consuming and
expensive to defend. A third party asserting infringement claims against us or
our customers with respect to our current or future products may require us to
enter into costly royalty arrangements or litigation. See "Business--
Intellectual Property and Other Proprietary Rights."
WE DEPEND ON KEY PERSONNEL AND WILL NEED TO RECRUIT ADDITIONAL SKILLED
PERSONNEL, FOR WHICH COMPETITION IS INTENSE, TO CONDUCT AND GROW OUR BUSINESS
EFFECTIVELY
Our success depends in large part on the continued service of our key
personnel, particularly Dr. Donald E. Brown, our co-founder, Chief Executive
Officer and principal stockholder, and Dr. Michael D. Gagle, our Chief
Scientist. The loss of the services of either of these individuals or any key
personnel could have a material adverse effect on our business, financial
condition or results of operations. We have a key man life insurance policy on
Dr. Brown in the amount of $3.0 million. Our future success also depends upon
our ability to attract, train, assimilate and retain additional qualified
personnel. Competition for persons with skills in the software industry is
intense, particularly for those with relevant technical experience. We cannot
assure you that we will be able to retain our key employees or that we can
attract, train, assimilate or retain other highly qualified personnel in the
future. See "Management" for a description of some of our key personnel.
WE MAY PURSUE ACQUISITIONS THAT BY THEIR NATURE PRESENT RISKS AND THAT MAY NOT
BE SUCCESSFUL
In the future we may pursue acquisitions to diversify our product offerings
and customer base or for other strategic purposes. We have no prior history of
making acquisitions and we cannot assure you that any future acquisitions will
be successful. The following are some of the risks associated with
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<PAGE>
acquisitions that could have a material adverse effect on our business,
financial condition or results of operations:
- We cannot ensure that any acquired businesses will achieve anticipated
revenues, earnings or cash flow.
- We may be unable to integrate acquired businesses successfully and realize
anticipated economic, operational and other benefits in a timely manner,
particularly if we acquire a business in a market in which we have limited
or no current expertise, or with a corporate culture different from our
own. If we are unable to integrate acquired businesses successfully, we
could incur substantial costs and delays or other operational, technical
or financial problems.
- Acquisitions could disrupt our ongoing business, distract management,
divert resources and make it difficult to maintain our current business
standards, controls and procedures.
- We may finance future acquisitions by issuing common stock for some or all
of the purchase price. This could dilute the ownership interests of our
stockholders. We may also incur additional debt or be required to
recognize amortization expense related to goodwill and other intangible
assets purchased in future acquisitions.
- We would be competing with other firms, many of which have greater
financial and other resources, to acquire attractive companies. We believe
this competition will increase, making it more difficult to acquire
suitable companies on acceptable terms.
OUR INTERNATIONAL OPERATIONS AND EXPANSION INVOLVE FINANCIAL AND OPERATIONAL
RISKS
The expansion of our international operations will require significant
management attention and financial resources to establish additional foreign
operations, hire additional personnel and recruit additional international
resellers. Non-North American revenues accounted for 17% of our total revenues
in 1997, 16% of our total revenues in 1998 and 20% of our total revenues in the
first half of 1999. To date, our products have been licensed outside North
America primarily in Western Europe, South Africa and Australia. We are
currently expanding our marketing efforts in Japan, Korea, China and Central and
South America. We intend to continue to expand our international operations and
enter additional international markets. Revenues from international expansion
may be inadequate to cover the expenses of international expansion. In addition
to the foreign currency risks described below, other risks inherent in our
international business activities, in the countries in which we have licensed
our products to date and in those countries in which we intend to expand,
generally could include the following:
- economic and political instability;
- unexpected changes in foreign regulatory requirements and laws;
- tariffs and other trade barriers;
- timing, cost and potential difficulty of adapting our software products to
the local language in those foreign countries that do not use the alphabet
that English uses, such as Japan, Korea and China;
- lack of acceptance of our products in foreign countries;
- longer sales cycles and accounts receivable payment cycles;
- potentially adverse tax consequences; and
- restrictions on the repatriation of funds.
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FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN LOSSES
Our international revenues are generally denominated in U.S. Dollars, but
our international expenses are generally denominated in local foreign
currencies. Although foreign currency translation gains and losses have been
immaterial to date, fluctuations in exchange rates between the U.S. Dollar and
other currencies could have a material adverse effect on our business, financial
condition or results of operations, and particularly on our operating margins.
To date, we have not sought to hedge the risks associated with fluctuations in
exchange rates, but we may undertake to do so in the future. Any hedging
techniques we implement in the future may not be successful. Exchange rate
fluctuations could also make our products more expensive than competitive
products not subject to these fluctuations, which could adversely affect our
revenues and profitability in international markets.
OUR PRODUCTS COULD HAVE DEFECTS FOR WHICH WE ARE POTENTIALLY LIABLE AND WHICH
COULD RESULT IN LOSS OF REVENUE, INCREASED COSTS OR LOSS OF OUR CREDIBILITY OR
DELAY IN ACCEPTANCE OF OUR PRODUCTS IN THE MARKET
Our products, including components supplied by others, may contain errors or
defects, especially when first introduced or when new versions are released.
Despite internal product testing, we have in the past discovered software errors
in some of our products after their introduction. Errors in new products or
releases could be found after commencement of commercial shipments, and this
could result in additional development costs, diversion of technical and other
resources from our other development efforts, or the loss of credibility with
current or future end-user customers. This could result in a loss of revenue or
delay in market acceptance of our products, which could have a material adverse
effect upon our business, financial condition or results of operations. We
intend to release EIC Version 1.3 in July 1999, as described in
"Business--Products."
Our license agreements with our end-user customers typically contain
provisions designed to limit our exposure to potential product liability and
some contract claims. However, not all of these agreements contain these types
of provisions and, where present, these provisions vary as to their terms and
may not be effective under the laws of some jurisdictions. A product liability,
warranty, or other claim brought against us could have a material adverse effect
on our business, financial condition or results of operations.
Because our solution consists of our software running on a Windows
NT-Registered Trademark- server and Dialogic Corporation voice processing
boards, it is inherently more prone to performance interruptions for our
end-user customers than traditional non-software based products. Performance
interruptions at our end-user customer sites, most of which currently do not
have back-up systems, could affect demand for our products or give rise to
claims against us.
YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR BUSINESS
In the course of our business, we test and evaluate our software products
for Year 2000 compliance. Based on this testing and evaluation, we believe that
the current versions of our products are capable of adequately distinguishing
21st century dates from 20th century dates. We have warranted that all of our
current products are Year 2000 compliant. If any of our end-user customers
experience Year 2000 problems as a result of their use of our products, those
end-user customers could assert claims against us for damages which, if
successful, could materially adversely affect our business, financial condition
or results of operations. In addition, many of our products have third-party
technologies embedded in them, and our products at times are integrated into
enterprise systems involving sophisticated hardware and complex software
products. We cannot adequately evaluate these technologies or products for Year
2000 compliance. Our two material suppliers have not warranted that their
products which could impact the performance of our products are Year 2000
compliant. Our most reasonably likely worst case scenario is that we could lose
current or potential customers, incur costs related to replacing third party
products or face claims under our warranties, or otherwise, based on
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Year 2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system, any of which could
have a material adverse effect on our business, financial condition or results
of operations. Since we are in the business of selling software, our risk of
facing claims relating to Year 2000 issues is greater than that of companies in
some other industries.
We are in the process of testing our internal management information and
other critical business systems to identify any Year 2000 problems. We have also
begun to contact key suppliers and intend to contact our key resellers about
their Year 2000 readiness. To date, we are not aware of any material suppliers
or resellers with Year 2000 issues that would materially affect us. However, we
cannot guarantee that the systems of other companies on which our operations
rely will be timely converted or that failure to timely convert would not have a
material adverse effect on us.
We believe that the purchasing patterns of end-user customers and potential
end-user customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance. These expenditures may reduce the funds available to
license software products such as those we offer. To the extent Year 2000 issues
significantly disrupt decisions to license our products or purchase our
services, our business, financial condition or results of operations could be
materially adversely affected.
For a more detailed description of our Year 2000 assessment, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO IMPLEMENT OUR GROWTH STRATEGY
Successful implementation of our growth strategy will likely require
continued access to capital. If we do not generate sufficient cash from
operations, our growth could be limited unless we are able to obtain capital
through additional debt or equity financings. We cannot assure you that debt or
equity financings will be available as required for acquisitions or other needs.
Even if financing is available, it may not be on terms that are favorable to us
or sufficient for our needs. If we are unable to obtain sufficient financing, we
may be unable to fully implement our growth strategy.
NO PRIOR PUBLIC MARKET HAS EXISTED FOR OUR SHARES AND AN ACTIVE TRADING MARKET
MAY NOT DEVELOP OR BE SUSTAINED
Before this offering, there has been no public market for our common stock.
We cannot assure you that an active trading market will develop or be sustained
after this offering. You may not be able to resell your shares at or above the
initial public offering price. The initial public offering price will be
determined through negotiations between the underwriters and us. See
"Underwriting."
OUR STOCK PRICE COULD BE HIGHLY VOLATILE
Our stock price could be highly volatile due to a number of factors,
including:
- actual or anticipated fluctuations in our operating results;
- announcements by us, our competitors or our end-user customers;
- changes in financial estimates of securities analysts or investors
regarding us, our industry, our competitors or our end-user customers;
- technological innovations by others;
- the operating and stock price performance of other comparable companies or
of our competitors or end-user customers; and
- general market or economic conditions.
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This risk may be heightened because our industry is new and evolving,
characterized by rapid technological change and susceptible to the introduction
of new competing technologies or competitors.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many technology companies. These price and volume fluctuations
often have been unrelated to the operating performance of the affected
companies. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. This type of litigation, regardless of the
outcome, could result in substantial costs and a diversion of management's
attention and resources, which could materially and adversely affect our
business, financial condition or results of operations.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF COMMON STOCK FOR SALE IN THE FUTURE COULD
ADVERSELY AFFECT OUR STOCK PRICE
The availability for future sale, or sales, of a substantial number of
shares of our common stock in the public market or otherwise following this
offering could adversely affect the market price for our common stock. See
"Shares Eligible for Future Sale" for information regarding the number of shares
of common stock eligible for public sale after this offering.
OUR EXECUTIVE OFFICERS AND DIRECTORS CONTROL US AND MAY MAKE DECISIONS THAT YOU
DO NOT CONSIDER TO BE IN YOUR BEST INTEREST
Immediately after this offering, our executive officers and directors will,
in the aggregate, hold approximately % of our outstanding common stock.
Accordingly, these stockholders will be able to control us through their ability
to determine the outcome of the election of our directors, amend our Restated
Articles of Incorporation and By-Laws and take other actions requiring the vote
or consent of stockholders, including mergers, going private transactions and
other extraordinary transactions, and the terms of any of these transactions.
The ownership position of these stockholders may have the effect of delaying,
deterring or preventing a change in control or a change in the composition of
our board of directors. See "Principal and Selling Stockholders" for information
concerning the beneficial ownership of our common stock.
ANTITAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND INDIANA LAW MAKE ANY
CHANGE IN CONTROL OF US MORE DIFFICULT, MAY DISCOURAGE BIDS AT A PREMIUM OVER
THE MARKET PRICE AND MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR STOCK
Our Restated Articles of Incorporation and By-Laws contain provisions that
may have the effect of delaying, deferring or preventing a change in control of
us, may discourage bids at a premium over the market price of our common stock
and may adversely affect the market price of our common stock, and the voting
and other rights of the holders of our common stock. These provisions include:
- the division of our board of directors into three classes serving
staggered three-year terms;
- removal of directors only for cause and only upon a 66 2/3% stockholder
vote;
- prohibiting stockholders from calling a special meeting of stockholders;
- the ability to issue additional shares of our common stock or preferred
stock without stockholder approval; and
- advance notice requirements for raising business or making nominations at
stockholders' meetings.
The Indiana corporation law contains business combination provisions that,
in general, prohibit for five years any business combination with a beneficial
owner of 10% or more of our common stock
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unless the holder's acquisition of the stock was approved in advance by our
board of directors. The Indiana corporation law also contains control share
acquisition provisions that limit the ability of certain stockholders to vote
their shares unless their control share acquisition was approved in advance. See
"Description of Capital Stock" for a description of these provisions.
WE MAY BE UNABLE TO MANAGE SIGNIFICANT UNALLOCATED NET PROCEEDS FROM THIS
OFFERING EFFECTIVELY WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK
We will have a significant amount of net proceeds from this offering that we
have not allocated to a specific use. The failure of management to apply these
proceeds effectively could materially and adversely affect our business,
financial condition or results of operations and, therefore, the market price of
our common stock. We will use a portion of the net proceeds of this offering to
repay all indebtedness, including accrued interest, owed to our principal
stockholder, and to pay deferred compensation and other non-interest bearing
accounts payable to him, which amounts totaled approximately $7.9 million as of
June 30, 1999. We have not designated any specific uses for the remaining net
proceeds of this offering. Therefore, we will have broad discretion in how we
use the net proceeds of this offering, which may include general corporate
purposes, such as working capital and potential acquisitions. See "Use of
Proceeds."
INVESTORS WILL INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION
The assumed initial public offering price is substantially higher than the
net tangible book value per share of the outstanding common stock immediately
after this offering, which was a deficit of $ per share as of June 30, 1999.
If you purchase our common stock in this offering, you will incur immediate and
substantial dilution in the net tangible book value per share of common stock
from the price you pay per share of common stock. We also have outstanding a
large number of stock options to purchase common stock with exercise prices
significantly below the assumed initial public offering price of the common
stock. To the extent these options are exercised, there will be further
dilution. We intend to continue to grant stock options to our employees as part
of our general compensation practices. See "Dilution."
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USE OF PROCEEDS
We expect to receive approximately $ million from the sale of the
shares of common stock offered by us at an assumed initial public offering
price of $ per share, after deducting the underwriting discounts of $
million and estimated expenses of $ to be paid by us. We expect to receive
an additional $ million of net proceeds if the underwriters exercise their
overallotment options in full. We will not receive any proceeds from the sale of
common stock by the selling stockholder.
We intend to use the net proceeds of this offering:
- for general corporate purposes, including working capital and potential
acquisitions:
- to repay indebtedness of approximately $7.3 million, including accrued
interest, that we owe to our principal stockholder, Dr. Donald E. Brown,
which was advanced for working capital purposes, has an interest rate of
10% and matures on December 31, 2001: and
- to pay approximately $0.6 million in deferred compensation to Dr. Brown
for services rendered as our Chief Executive Officer and other
non-interest bearing accounts payable to him. Dr. Brown elected to defer
his compensation and not seek reimbursment of these accounts payable to
conserve our cash position before this offering.
Pending these uses, we expect to invest the net proceeds from this offering in
short-term investment grade, interest-bearing securities. While we engage in
discussions relating to potential acquisitions from time to time, we have
entered into no agreements with respect to these transactions.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not anticipate
that we will pay any cash dividends on our common stock in the foreseeable
future and we plan to retain our earnings to finance operations and future
growth. The declaration and payment of dividends on our common stock will be at
the discretion of our board of directors and must comply with applicable law and
any restrictions in our credit facilities. Any decisions to pay dividends in the
future will depend on general business conditions, our financial condition and
other factors our board of directors may in the future consider to be relevant.
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CAPITALIZATION
The following table sets forth our actual capitalization as of June 30,
1999, and our capitalization as adjusted to reflect our receipt and application
of the estimated net proceeds, at an assumed initial public offering price of
$ per share, from the sale of the shares of common stock offered by us in
this prospectus. You should read this table with the financial statements and
the notes to the financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Accounts payable and deferred compensation--stockholder................................ $ 550 $ --
Notes payable and accrued interest--stockholder........................................ 7,346 --
Capital lease obligations.............................................................. 627 627
---------- -----------
8,523 627
Stockholders' deficit:
Preferred stock, without par value, 10,000,000 shares authorized, none outstanding,
actual and as adjusted............................................................... -- --
Common stock, $.01 par value; 100,000,000 shares authorized, 7,133,414 shares issued
and outstanding, actual; shares issued and outstanding, as adjusted.......... 107
Additional paid in capital............................................................. 10,739
Accumulated deficit.................................................................... (18,843)
---------- -----------
Total stockholders' equity (deficit)................................................. (7,997)
---------- -----------
Total capitalization............................................................... $ 526
---------- -----------
---------- -----------
</TABLE>
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DILUTION
As of June 30, 1999, our net tangible book value (deficit) was $(8.0)
million or $ per share of common stock. "Net tangible book value (deficit)"
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding. As of June 30, 1999, our net tangible book value (deficit), on a
pro forma basis as adjusted for the sale of the shares offered by us in this
offering at an assumed initial public offering price of $ per share and the
application of the estimated net proceeds from that sale of approximately $
million, would have been $ million, or approximately $ per share. This
represents an immediate increase of $ per share to existing stockholders and
an immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Net tangible book value (deficit) per share as of June 30,
1999........................................................... $
Increase per share attributable to new investors.................
-----------
Pro forma net tangible book value (deficit) per share after this
offering.........................................................
-----------
Dilution per share to new investors................................ $
-----------
-----------
</TABLE>
The following table summarizes as of June 30, 1999 the differences between
the total consideration paid and the average price per share paid by the
existing stockholders and the new investors with respect to the number of shares
of common stock purchased from us assuming an initial public offering price of
$ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 7,133,414 % $ 10,846,000 % $
New investors.......................... % %
Total................................ 100% 100%
</TABLE>
If the underwriters exercise their over-allotment options in full, the
resulting sale of shares by the selling stockholder in this offering would
reduce the number of shares held by existing stockholders to shares,
or approximately % of the total number of shares of common stock to be
outstanding after this offering, and would increase the number of shares held by
new investors to shares, or approximately % of the total number of
shares of common stock to be outstanding after this offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide selected consolidated financial data of
Interactive Intelligence. We prepared this information using our unaudited
consolidated financial statements for the period from October 1, 1994
(inception) through December 31, 1994 and the six-month periods ended June 30,
1998 and 1999 and from our audited consolidated financial statements for each of
the years in the four-year period ended December 31, 1998. You should read this
selected consolidated financial data together with our consolidated financial
statements and notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this prospectus. In our
opinion, our selected consolidated financial data for the period from October 1,
1994 (inception) through December 31, 1994 and the six-month periods ended June
30, 1998 and 1999 include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of that data. The selected
consolidated financial data do not necessarily indicate the results to be
expected in the future.
<TABLE>
<CAPTION>
SIX MONTHS
OCTOBER 1, 1994 YEAR ENDED DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO --------------------------------- ---------------------
DECEMBER 31, 1994 1995 1996 1997 1998 1998 1999
----------------- ------ ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software......................... $ -- $ -- $ -- $ 1,265 $ 7,662 $ 2,980 $ 5,482
Services......................... -- -- -- 325 1,349 407 1,826
------ ------ ------- ------- ------- ------- ------------
Total revenues..................... -- -- -- 1,590 9,011 3,387 7,308
Costs and expenses:
Costs of software................ -- -- -- 38 59 24 60
Costs of services................ -- -- -- 1,258 3,381 1,387 2,360
Sales and marketing.............. -- 19 157 2,519 6,623 2,715 4,553
Research and development......... 8 297 987 2,118 4,065 1,837 3,004
General and administrative....... -- 99 192 742 1,407 590 1,135
------ ------ ------- ------- ------- ------- ------------
Total costs and expenses........... 8 415 1,336 6,675 15,535 6,553 11,112
------ ------ ------- ------- ------- ------- ------------
Operating loss..................... (8) (415) (1,336) (5,085) (6,524) (3,166) (3,804)
Interest expense, net.............. -- 1 43 361 868 428 398
------ ------ ------- ------- ------- ------- ------------
Loss before income taxes........... (8) (416) (1,379) (5,446) (7,392) (3,594) (4,202)
Income taxes....................... -- -- -- -- -- -- --
------ ------ ------- ------- ------- ------- ------------
Net loss........................... $ (8) $ (416) $(1,379) $(5,446) $(7,392) $(3,594) $(4,202)
------ ------ ------- ------- ------- ------- ------------
------ ------ ------- ------- ------- ------- ------------
Basic and diluted net loss per
share............................ $(0.01) $(0.32) $ (0.49) $ (1.07) $ (1.26) $ (0.65) $ (0.59)
Shares used in per share
computation...................... 1,000 1,310 2,811 5,095 5,877 5,492 7,133
<CAPTION>
AT DECEMBER 31,
------------------------------------------ AT JUNE 30,
1994 1995 1996 1997 1998 1999
------ ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 11 $ 51 $ 23 $ 390 $ 2,021 $ 87
Working capital (deficit)........ (4) 26 (544) (1,575) 1,731 (3,167)
Total assets..................... 32 133 438 3,141 8,239 7,798
Long-term debt................... -- -- 593 5,872 9,490 8,523
Total shareholders' equity
(deficit)...................... 18 107 (803) (6,217) (5,154) (7,997)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section includes a number of forward-looking statements that reflect
our current views with respect to future events and financial performance. See
"Forward-Looking Statements."
OVERVIEW
We commenced operations in October 1994. Through the end of 1996, we focused
primarily on research and development activities. EIC was released in March
1997. In 1997 and 1998, we expanded our operations to capitalize on the
increased market demand for communications and interaction management software.
We decided, at the expense of profitability, to continue investing significantly
in research and development, and to accelerate our investments in marketing,
services and sales operations. We had no revenue in 1996, and our revenues
totaled $1.6 million in 1997 and $9.0 million in 1998. Since early 1997, we
have:
- hired more than 140 employees;
- established relationships with over 100 North American and international
resellers;
- located field sales personnel in 16 North American locations to support
and manage our reseller network and entered the European and Asia/Pacific
markets by locating personnel in France, the Netherlands, the United
Kingdom, Japan and Korea.
- released local language versions of EIC in French, German, Italian,
Japanese, Korean and Norwegian;
- released two upgrades to EIC, with another upgrade intended to be released
in July 1999;
- released an additional complementary software product, Interaction
Recorder; and
- developed and currently are testing two additional complementary software
products, Interaction Dialer and Interaction Director.
We believe our investments in research and development and in marketing,
services and sales operations will continue to be critical to our revenue
growth. However, these investments have also significantly increased our
operating expenses, contributing to the net and operating losses that we have
incurred in each fiscal quarter since our formation. We anticipate that our
operating expenses will increase substantially for the foreseeable future as we
continue to expand our research and development, marketing, services and sales
operations. Accordingly, we are likely to continue to experience losses and
negative cash flows from operations in future quarters. We cannot assure you
when or if we will achieve profitability or, if achieved, that we will be able
to sustain profitability. Our operating results have varied significantly from
quarter to quarter and may continue to do so in the future. As a result, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful, and you should not rely on them as an indication of our
future performance. See "Risk Factors."
SOURCES OF REVENUE AND REVENUE RECOGNITION POLICY
We generate a majority of our revenues from software license fees. Most of
our software license fees originate from the marketing efforts of our resellers,
who are authorized to place software orders with us on behalf of end-user
customers. We share end-user customer software license fees with these resellers
in varying percentages of our list price, according to the terms of their
reseller agreements. In addition to generating software license fees indirectly
through resellers, we also receive some software license fees from end-user
customers that we deal with directly.
22
<PAGE>
In accordance with AICPA Statement of Position (SOP) 97-2 as amended by SOP
98-4 and SOP 98-9, software license revenues can be recognized upon the shipment
of software if:
- persuasive evidence of an arrangement exists;
- sufficient vendor-specific objective evidence exists to support allocating
the total fee to all elements of the arrangement;
- the fee is fixed or determinable; and
- collection is probable.
As a result, we typically recognize software license fees only when a reseller
places a binding order for our software, which gives the reseller the right to
distribute our products to end-user customers.
We also generate revenues from services that we provide to our resellers and
end-user customers. Services revenues include product maintenance revenues,
which consist of technical support and product upgrades, educational services
and professional services. Our initial software license generally includes one
year of maintenance. Generally, to continue using our software after this
initial period, our end-user customers must purchase annual ongoing product
maintenance, which is priced at approximately 18% of the current list price of
the licensed product. We share maintenance revenues with those resellers who
provide first-level technical support according to the terms of their reseller
agreements. When these revenues are shared with resellers, we typically receive
between 50% and 70% of the amount charged to the end-user customer. We recognize
product maintenance revenues on a straight-line basis over the term of the
initial software license and each subsequent annual product maintenance
purchase. Revenues from educational services, which consist of training courses
for resellers and end-user customers, and professional services, which include
implementing and customizing our products for an end-user customer, are
typically recognized as the related services are performed.
In 1997, no end-user customer accounted for 10% or more of our revenues,
though one reseller accounted for 17% of our revenues. At December 31, 1997, six
resellers represented approximately 55% of our outstanding accounts receivable
balance. In 1998, no end-user customer or reseller accounted for 10% or more of
our revenues. At December 31, 1998, six resellers represented approximately 41%
of our outstanding accounts receivable balance. For the six months ended June
30, 1999, no end-user customer or reseller accounted for 10% or more of our
revenues. At June 30, 1999, six resellers represented approximately 36% of our
outstanding accounts receivable balance. See Note 7 of our notes to consolidated
financial statements.
23
<PAGE>
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our consolidated
financial information expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software......................................................... -- 80% 85% 88% 75%
Services......................................................... -- 20 15 12 25
--- --- --- --- ---
Total revenues..................................................... -- 100 100 100 100
Costs and expenses:
Costs of software................................................ -- 2 1 1 1
Costs of services................................................ -- 79 37 41 32
Sales and marketing.............................................. * 159 73 80 62
Research and development......................................... * 133 45 54 41
General and administrative....................................... * 47 16 17 16
--- --- --- --- ---
Total costs and expenses........................................... * 420 172 193 152
--- --- --- --- ---
Operating loss..................................................... * (320) (72) (93) (52)
Interest expense, net.............................................. * 23 10 13 5
--- --- --- --- ---
Loss before income taxes........................................... * (343) (82) (106) (57)
Income taxes....................................................... * -- -- -- --
--- --- --- --- ---
Net loss........................................................... * (343)% (82)% (106)% (57)%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
- ------------------------
* Not a meaningful number because no revenues were recognized in 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
Our total revenues increased 116% from $3.4 million for the six months ended
June 30, 1998 to $7.3 million for the six months ended June 30, 1999. Non-North
American revenues were $247,000 for the six months ended June 30, 1998 and $1.5
million for the six months ended June 30, 1999. The increase in total revenues
resulted primarily from significant increases in the number of software licenses
and, to a lesser extent, professional services and product maintenance revenues.
We anticipate that software revenues will continue to represent the majority of
our revenues for the foreseeable future.
SOFTWARE. Our software revenues increased 84% from $3.0 million for the six
months ended June 30, 1998 to $5.5 million for the six months ended June 30,
1999. This increase in software revenues resulted from a significantly higher
number of software licenses as a result of the continued market acceptance of
EIC, product enhancements and a broader geographic presence as a result of the
establishment of sales offices in Europe and the Asia/Pacific region. In
addition, the number of additional licenses to existing end-user customers has
also increased.
SERVICES. Services revenues increased from $407,000 for the six months
ended June 30, 1998 to $1.8 million for the six months ended June 30, 1999. This
increase in services revenues resulted primarily from an increase in product
maintenance revenues, which grew significantly due to our expanding installed
base of end-user customers. In addition, our recently established professional
services organization generated increased implementation and customization
revenues from services
24
<PAGE>
provided to our resellers and end-user customers. Also, demand for training from
both existing and new resellers and, to a lesser extent, end-user customers
translated into increasing education revenues.
COSTS AND EXPENSES
As a percentage of total revenues, our total costs and expenses decreased
from 193% for the six months ended June 30, 1998 to 152% for the six months
ended June 30, 1999. This decrease resulted primarily from revenues increasing
faster than expenses. Our total costs and expenses primarily reflect our
investments in research and development, marketing, sales and services efforts.
Our total costs and expenses increased from $6.6 million for the six months
ended June 30, 1998 to $11.1 million for the six months ended June 30, 1999. The
increase in total costs and expenses resulted from substantial investments in
these efforts.
COSTS OF SOFTWARE. Costs of software consist primarily of product royalties
paid to third-parties for the use of their technologies in our products. Costs
of software increased from $24,000 for the six months ended June 30, 1998 to
$60,000 for the six months ended June 30, 1999, representing 1% of software
revenues in both periods. The increase resulted primarily from an increase in
the number of end-user customers and related software licenses.
COSTS OF SERVICES. Costs of services consist primarily of compensation
expenses for technical support, education and professional services personnel
and other costs associated with supporting our resellers and end-user customers.
Costs of services increased from $1.4 million for the six months ended June 30,
1998 to $2.4 million for the six months ended June 30, 1999. This represents
341% of service revenues for the six months ended June 30, 1998 and 129% of
service revenues for the six months ended June 30, 1999. The increase in amount
was due to a concentrated effort to maximize both reseller effectiveness and
end-user customer satisfaction through the growth of our technical support,
education and professional services organizations.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
marketing expenses, including trade shows, public relations, telemarketing
campaigns and other promotional expenses, compensation expenses, including
commissions, and travel expenses. Sales and marketing expenses increased from
$2.7 million for the six months ended June 30, 1998 to $4.6 million for the six
months ended June 30, 1999. The increase in amount reflects the hiring of
additional North American, European and Asia-Pacific sales and marketing
personnel and expanded marketing activities.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation expenses for our developers and, to a lesser extent,
third-party efforts to adapt our products for specific countries. Research and
development expenses increased from $1.8 million for the six months ended June
30, 1998 to $3.0 million for the six months ended June 30, 1999. Currently, all
costs related to research and development of our products are charged to
research and development expense as incurred. The increase in research and
development expenses related primarily to the addition of software developers
required to enhance existing products and develop related products, and
third-party efforts to adapt our products for the Japanese and Korean markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation for our administrative, financial and information
technology personnel and a number of non-allocable costs, including bad debts
and professional service fees, such as legal and accounting fees. General and
administrative expenses increased from $590,000 for the six months ended June
30, 1998 to $1.1 million for the six months ended June 30, 1999. The increase
resulted primarily from the addition of personnel to support the growth of our
business and an increased amount of professional service fees.
25
<PAGE>
INTEREST EXPENSE, NET
Interest expense, net is generated primarily from debt owed to our principal
stockholder and, to a lesser extent, from various commercial lines of credit and
capital lease lines of credit. Interest expense, net was $428,000 for the six
months ended June 30, 1998 and $398,000 for the six months ended June 30, 1999.
The amount of interest expense decreased due to a lesser amount of debt
outstanding during 1999.
INCOME TAXES
For the six months ended June 30, 1998, we were an S-corporation. As an
S-corporation, any tax benefit flowed through to our stockholders. We were a
C-corporation during the six months ended June 30, 1999, but we did not
recognize a tax benefit during that period because of the uncertainty of
eventually realizing these benefits. See Note 9 of our notes to consolidated
financial statements.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Our total revenues increased from none in 1996 to $1.6 million in 1997 and
$9.0 million in 1998. Non-North American revenues were $292,000 in 1997 and $1.4
million in 1998. We do not believe that the percentage increases in revenues
achieved in prior periods should be anticipated in future periods. We anticipate
that software revenues will continue to represent a majority of our revenues for
the foreseeable future.
SOFTWARE. Our software revenues increased from none in 1996 to $1.3 million
in 1997 and $7.7 million in 1998. The increase in software revenues from 1996 to
1997 resulted primarily from the release of our first product, EIC, and our
initial North American sales efforts. The increase in software revenues from
1997 to 1998 resulted from a growing market acceptance of EIC, our growing sales
and marketing efforts and product-related functional and performance
enhancements.
SERVICES. Services revenues increased from none in 1996 to $300,000 in 1997
and $1.3 million in 1998. The increase in services revenues from 1996 to 1998
resulted primarily from the growth in maintenance revenues as our installed
customer base increased over the two-year period. In addition, we established
our educational services in 1997 and our professional services in 1998. The
establishment of these services has translated into an increasing amount of
revenues over the two-year period. We expect product maintenance revenues, which
account for a majority of our services revenues, to increase substantially for
the foreseeable future, primarily as a result of our growing installed customer
base. We also expect education and professional revenues to increase, primarily
as a result of increased reseller demand for technical and sales training and
the growth of our internal professional services group.
COSTS AND EXPENSES
As a percentage of total revenues, our costs and expenses decreased from
420% in 1997 to 172% in 1998. This decrease resulted primarily from revenues
increasing faster than expenses. Our total costs and expenses increased from
$1.3 million in 1996 to $6.7 million in 1997 and $15.5 million in 1998,
primarily reflecting substantial increases in investments in our research and
development, marketing, sales and services efforts over the two-year period.
These investments included headcount additions of 48 employees in 1997 and 60
employees in 1998.
COSTS OF SOFTWARE. Costs of software increased from none in 1996 to $38,000
in 1997 and $59,000 in 1998, representing 3% of software revenues in 1997 and 1%
of software revenues in 1998. The increases in amount from 1996 to 1998 resulted
primarily from our growing end-user customer base.
26
<PAGE>
We expect product royalties to grow as software revenues continue to increase
and we integrate additional third-party functions and features into our product
offerings.
COSTS OF SERVICES. Costs of services increased from none in 1996 to $1.3
million in 1997 and $3.4 million in 1998. The increases from 1996 to 1998
reflect the hiring of additional technical support, education and field services
personnel in excess of related revenues. We expect to make continued investments
in our service organizations to support our end-user customer base and
resellers. However, we expect that costs of services will increase at a slower
rate than services revenues.
SALES AND MARKETING. Sales and marketing increased from $157,000 in 1996 to
$2.5 million in 1997 and $6.6 million in 1998. The increases in sales and
marketing expenses from 1996 to 1998 resulted primarily from our initial and
ongoing investment in sales and marketing personnel. This investment included
the establishment of the initial North American field sales offices in 1997 and
European and Asian/Pacific region sales offices in 1998. In addition, we
increased our marketing activities, including tradeshows, public relations
activities and advertisements, over the two-year period. We currently plan to
continue investing significantly in sales and marketing efforts.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.0 million in 1996 to $2.1 million in 1997 and $4.1 million in 1998. The
increases in research and development expenses from 1996 to 1998 related
primarily to the increase in software developers and testing personnel to
develop and enhance EIC and related products. We believe that our significant
investment in research and development has been critical to our market
acceptance to date and will continue to be so in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $192,000 in 1996 to $742,000 in 1997 and $1.4 million in 1998. The
increases from 1996 to 1998 were primarily due to the addition of personnel
necessary to support our growing operations. We believe our general and
administrative expenses will continue to increase as we expand our
administrative infrastructure and incur expenses associated with becoming a
public company.
INTEREST EXPENSE, NET
Interest expense, net was $43,000 in 1996, $361,000 in 1997 and $868,000 in
1998. The increases from 1996 to 1998 resulted primarily from significant
increases in debt payable to our principal stockholder, various commercial lines
of credit and the interest portion of capital leases. See Notes 3 and 4 of our
notes to consolidated financial statements.
INCOME TAXES
We were an S-corporation until November 5, 1998. As an S-corporation, any
tax benefit flowed through to our stockholders. As a result, we did not realize
any tax benefit from our net losses through November 5, 1998. We were a
C-corporation for approximately two months in 1998, but we did not recognize a
tax benefit because of the uncertainty of eventually realizing these benefits.
See Note 9 of our notes to consolidated financial statements.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our consolidated
financial information for the last nine quarters expressed in dollars and as a
percentage of total revenues. We prepared this information using our unaudited
interim consolidated financial statements that, in our opinion, have been
prepared on a basis consistent with our annual consolidated financial
statements. We believe that these interim statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information when read in conjunction with our consolidated
financial statements and the notes to those financial statements. The operating
results for any quarter do not necessarily indicate the results to be expected
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Software............... $ 130 $ 246 $ 889 $ 1,163 $ 1,817 $ 2,203 $ 2,479 $ 2,372 $ 3,110
Services............... 43 132 150 151 256 437 505 647 1,179
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Total revenues........... 173 378 1,039 1,314 2,073 2,640 2,984 3,019 4,289
Costs and expenses:
Costs of software...... 4 7 27 8 16 17 18 24 36
Costs of services...... 297 364 446 648 739 937 1,057 1,068 1,292
Sales and marketing.... 492 667 943 1,192 1,523 1,782 2,126 2,091 2,462
Research and
development.......... 453 558 671 834 1,003 1,035 1,193 1,363 1,641
General and
administrative....... 143 224 277 296 294 364 453 507 628
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Total costs and
expenses................ 1,389 1,820 2,364 2,978 3,575 4,135 4,847 5,053 6,059
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Operating loss........... (1,216) (1,442) (1,325) (1,664) (1,502) (1,495) (1,863) (2,034) (1,770)
Interest expense, net.... 70 111 146 184 244 238 202 189 209
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Loss before income
taxes................... (1,286) (1,553) (1,471) (1,848) (1,746) (1,733) (2,065) (2,223) (1,979)
Income taxes............. -- -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Net loss................. $ (1,286) $ (1,553) $ (1,471) $(1,848) $ (1,746) $ (1,733) $ (2,065) $(2,223) $ (1,979)
-------- --------- -------- --------- -------- --------- -------- --------- ---------
-------- --------- -------- --------- -------- --------- -------- --------- ---------
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software............... 75% 65% 86% 89% 88% 83% 83% 79% 73%
Services............... 25 35 14 11 12 17 17 21 27
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Total revenues........... 100 100 100 100 100 100 100 100 100
Costs and expenses:
Costs of software...... 2 2 3 1 1 1 1 1 1
Costs of services...... 172 96 43 49 36 35 35 36 30
Sales and marketing.... 284 176 91 91 73 68 71 69 57
Research and
development.......... 262 148 65 63 48 39 40 45 38
General and
administrative....... 83 59 27 23 14 14 15 17 15
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Total costs and
expenses................ 803 481 229 227 172 157 162 168 141
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Operating loss........... (703) (381) (129) (127) (72) (57) (62) (68) (41)
Interest expense, net.... 40 29 14 14 12 9 7 6 5
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Loss before income
taxes................... (743) (410) (143) (141) (84) (66) (69) (74) (46)
Income taxes............. -- -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- --------- ---------
Net loss................. (743)% (410)% (143)% (141)% (84)% (66)% (69)% (74)% (46)%
-------- --------- -------- --------- -------- --------- -------- --------- ---------
-------- --------- -------- --------- -------- --------- -------- --------- ---------
</TABLE>
Quarterly software revenues have generally increased in each of the nine
quarters ended June 30, 1999, due primarily to the increased market acceptance
of EIC and the growth of our reseller network. Quarterly services revenues have
also generally increased in amount in each of these quarters, due primarily to
recognition of product maintenance revenues attributed to our growing end-user
customer base and professional service revenues from our resellers and end-user
customers.
28
<PAGE>
Total operating expenses increased in amount in each of these quarters.
Since inception, we have increased our spending in every functional area of the
organization. However, the percentage increases in spending for each quarter
have generally been less than the percentage increases in our revenues for the
corresponding quarter. We anticipate that our operating expenses will increase
substantially for the foreseeable future as we continue to expand our research
and development, marketing, sales and services efforts. We anticipate that these
expenses could significantly precede any revenues generated by the increased
spending. If we do not experience significantly increased revenues from these
efforts, our business, financial condition or results of operations could be
materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through equity
and debt infusions from our principal stockholder, Dr. Brown. We have also
entered into secured and unsecured commercial lines of credit guaranteed by Dr.
Brown, as well as equipment financing guaranteed by Dr. Brown. Through June 30,
1999, Dr. Brown's equity and debt investments totaled $12.2 million. In
addition, on November 5, 1998, Dialogic Investment Corporation made a $5.0
million equity investment by purchasing 400,000 shares of our common stock. As
of June 30, 1999, we had cash and cash equivalents of $87,000 and a working
capital deficit of $3.2 million.
Our operating activities resulted in net cash outflows of $1.2 million in
1996, $4.5 million in 1997, $7.1 million in 1998 and $1.7 million for the
six-month period ended June 30, 1999. The operating cash outflows for these
periods resulted from significant investments in research and development,
sales, marketing and services, which led to operating losses. Payments for
software licenses ordered by our resellers are generally due 30 to 60 days after
receipt of a binding order. Similarly, payments for software licensed directly
to end-user customers are generally due 30 to 60 days after receipt of a signed
contract.
To date, our investing activities have consisted primarily of capital
expenditures for property and equipment, including $1.7 million of capital
expenditures for the six-month period ended June 30, 1999. These capital
expenditures have consisted primarily of computer hardware and software for our
growing employee headcount, our research and development needs and equipment and
furniture related to the recent move to our current headquarters location. At
June 30, 1999, we did not have any material commitments for future capital
expenditures.
Financing activities have consisted primarily of the issuance of debt and
equity to Dr. Brown, the guaranteed borrowings under commercial lines of credit,
and the equity investment by Dialogic Investment Corporation. At June 30, 1999,
we had $1.1 million outstanding on our accounts receivable line of credit and
were in compliance with all related financial covenants and restrictions. We
currently anticipate that we will continue to experience significant growth in
our operating expenses for the foreseeable future as we expand our research and
development, marketing, sales and services operations.
In connection with this offering, we intend to replace our existing credit
facilities with a new $5.0 million unsecured line of credit from our primary
lender. We have received a commitment letter for this facility. The commitment
letter is subject to the completion of this offering, the negotiation and
execution of definitive documents and other customary conditions. We anticipate
that amounts borrowed under the new credit facility will bear interest at the
lender's prime rate. Dr. Brown will not be required to guarantee the new credit
facility. We anticipate that the new credit facility will contain covenants
that, among other things, will limit our ability to incur additional
indebtedness and pay dividends and will require us to maintain prescribed debt
to equity and fixed charge coverage ratios and minimum net worth levels.
Although we believe we will successfully meet the requirements to obtain this
credit facility, we cannot assure you that we will be able to do so.
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We believe that the net proceeds of this offering, together with existing
cash and cash equivalents and amounts available under the new credit facility,
will be sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months. After that time, we may require
additional funds to support our working capital requirements or for other
corporate purposes and may seek to raise additional funds through public or
private equity or debt financings or from other sources. We cannot assure you
that additional financing will be available at all or that, if available, will
be on terms favorable to us or that any additional financing will not dilute
your ownership interest in Interactive Intelligence. See "Risk Factors--We may
not be able to obtain adequate financing to implement our growth strategy."
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on or before
January 1, 2000, computer systems and software used by many companies and
organizations in a wide variety of industries will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Significant uncertainty exists in the software industry and other
industries concerning the scope and magnitude of problems associated with the
century change.
We have addressed or are addressing the Year 2000 issues in the following
principal areas:
- our software products, including third-party products we embed or license;
- internal technology systems, including non-information technology systems;
- key suppliers and resellers; and
- end-user customers.
We have not retained any independent parties to verify or validate our
evaluation of Year 2000 issues or any related cost estimates.
OUR SOFTWARE PRODUCTS
We have warranted that all of our current products are Year 2000 compliant.
We continuously test our newly developed software for Year 2000 compliance, and
as of this date, are not aware of any problems related to Year 2000 compliance
for software products we are currently distributing. However, our products are
sometimes integrated into enterprise systems involving sophisticated hardware
and complex software products developed by third parties. Further, we embed in
our products other parties' software products, including products from our two
material suppliers, Dialogic Corporation and Microsoft Corporation. Our two
material suppliers have not warranted that their products which could impact the
performance of our products are Year 2000 compliant. We cannot adequately
evaluate third-party products for Year 2000 compliance. Based on our assessments
to date, we believe that we will not experience any material disruption as a
result of any Year 2000 problems. However, if our products or the third-party
products we embed have Year 2000 problems, our most reasonably likely worst case
scenario is that we could lose current or potential customers, incur costs
related to replacing third party products, face claims based on Year 2000
problems under our warranties, or otherwise, based on Year 2000 problems in
other companies' products or issues arising from the integration of multiple
products within an overall system, any of which could have a material adverse
effect on our business, financial condition or results of operations. Since we
are in the business of selling software, our risk of facing claims relating to
Year 2000 issues is greater than that of companies in some other industries.
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INTERNAL MANAGEMENT AND INFORMATION SYSTEMS
We use a combination of our own software and other commercially available
software for our internal operations. At this time, we believe that there will
be no significant costs associated with the Year 2000 issue for internal
operations. We are not presently aware of any Year 2000 issues that have been
encountered by a third-party provider whose services are critical to us. We
intend to complete an evaluation of providers with respect to Year 2000
compliance by the end of September 1999. At the completion of the assessment we
will develop a contingency plan, if necessary, to address any Year 2000 issues.
We have also contacted the third parties who control our security systems,
electrical systems, heating and air conditioning systems, and other systems
related to the physical operation of our headquarters buildings that may contain
embedded technology, such as micro-controllers and microchip processors, to
assess whether any of these systems possess a Year 2000 problem that could
adversely affect our operations if a malfunction occurred. We have implemented
procedures to determine whether any of these systems that we acquire or utilize
in the future are also Year 2000 compliant.
KEY SUPPLIERS AND RESELLERS
We have begun to contact our key suppliers and intend to contact our key
resellers regarding Year 2000 issues. We are working to identify any key
suppliers and resellers that may have Year 2000 issues that could have an
adverse effect on our ability to deliver our products and services to customers.
We expect to complete this evaluation by the end of September 1999.
END-USER CUSTOMERS
We believe that the purchasing patterns of current and potential end-user
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for Year 2000
compliance. These expenditures may reduce the funds available to license
software products such as those we offer. To the extent Year 2000 issues
significantly disrupt decisions to license our products or purchase our
services, our business, financial condition or results of operations could be
materially adversely affected.
To date, we have not deferred any other information technology projects due
to our Year 2000 efforts and we have not incurred any material costs directly
associated with our Year 2000 compliance efforts. Our costs to date primarily
consist of compensation expense associated with our employees who have devoted
some of their time to our Year 2000 assessment and remediation efforts.
Currently, we do not expect the total cost of Year 2000 problems to be material
to our business, financial condition or results of operations. However, during
the months before the century change, we will continue to evaluate new versions
of our software products, new software and information systems provided to us by
third parties and any new infrastructure systems that we acquire to determine
whether they are Year 2000 compliant. Despite our current assessment, we may not
identify and correct all significant Year 2000 problems on a timely basis. Year
2000 compliance efforts may involve significant time and expense and
unremediated problems could materially adversely affect our business, financial
condition or results of operations. We currently have no contingency plans to
address the risks associated with unremediated Year 2000 problems. See "Risk
Factors--Year 2000 issues may adversely affect our business."
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BUSINESS
OVERVIEW
We are a leading developer of enterprise software that allows our customers
to automate virtually every aspect of their business communications. When
installed on a Windows NT-Registered Trademark- server, our flagship product,
Enterprise Interaction Center-Registered Trademark- or EIC, provides a single,
integrated solution capable of processing thousands of interactions per hour,
including telephone calls, e-mails, faxes, voice mail messages, Internet chat
sessions, Web callback requests and voice over Net calls. EIC is a unique
software solution that replaces a variety of traditional devices such as private
branch exchange devices or PBXs, interactive voice response systems or IVRs,
automatic call distributors or ACDs, voice mail systems, fax servers, call
recorders and computer telephony integration or CTI gateways. We began licensing
our products in 1997 and have grown our revenues from $1.6 million in 1997 to
$9.0 million in 1998.
We believe that EIC provides our end-user customers with an all-in-one
communications solution that has several advantages over the traditional
multi-device approach, including:
- broader range of functions;
- reduced need to integrate disparate technologies;
- open architecture and better compatibility with leading technologies;
- lower total cost of ownership; and
- greater ability to customize communications to meet specific needs.
We design our software to meet the needs of end-user customers in three
growing markets: call centers, enterprises and service providers. We license our
products to over 250 end-user customers, including Ameritech Corporation,
BuyItNow, Inc., Deutsche Telekom Berkom Gmbh, Seagate Technology, Inc. and
Toshiba America Consumer Products. We market our software products and services
through an extensive distribution network consisting of over 100 independent
value added resellers in North America, Europe and the Asia/Pacific region. Our
resellers range from relatively small, local organizations to large regional and
national firms, such as Bell South Communication Systems, Inc. and KPN Telecom
B.V. We also provide our end-user customers and resellers with a variety of
related services.
INDUSTRY OVERVIEW
Due to a broad combination of factors, including deregulation, consolidation
and advances in technology, many organizations are looking to communications
technology to increase efficiency and provide better service. As a result, the
communications industry is experiencing significant changes. We believe we are
well positioned to take advantage of the following major trends taking place
within many industries:
GROWTH OF CALL CENTERS
In an increasingly competitive environment, businesses are attempting to
differentiate themselves with their customer service and support. Examples of
these businesses include recently deregulated industries such as financial
services and utilities. To consolidate customer contact points and focus on
customer service, organizations are frequently implementing formal call centers.
Putting a call center into place has traditionally required organizations to
purchase several different communications devices, such as a private branch
exchange or PBX, an interactive voice response system or IVR, an automatic call
distributor or ACD, a predictive dialer and a call logger, and then spend time
and money attempting to integrate these disparate devices. We believe that the
market for call center
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communications products in 1998 represented approximately 55% of the estimated
$10.0 billion computer telephony industry, and we expect this market to grow at
25% to 30% annually.
INCREASING VARIETY AND COMPLEXITY OF BUSINESS COMMUNICATIONS
In addition to more traditional communications media such as telephone, fax
and voice mail, the growth of the Internet has expanded the number and
complexity of communications media to include e-mail, Internet chat sessions,
Web callback requests and voice over Net calls. We believe that approximately
one-fifth of customer contact will shift from the phone to the Internet in the
next two years. Additionally, most enterprises currently interact through these
media using separate devices, resulting in inefficient communication. These
circumstances are forcing organizations to re-evaluate their systems in order to
address the requirements of a more complex communications environment.
INCREASING NEED TO INTEGRATE BUSINESS COMMUNICATIONS AND COMPUTER SYSTEMS
Historically, telecommunications systems and information systems have been
separate and distinct. To more effectively and efficiently interact, both
internally and externally, we believe that enterprises need to seamlessly access
and utilize these two systems. Products, often referred to as middleware, have
been designed to integrate various types of telecommunications devices with
information technology. For example, an application called screen pop makes a
window pop up on an agent's monitor with information about a call at about the
same time that the agent's telephone or headset begins to ring. This allows the
agent to see all the information necessary to assist the customer. With
middleware, even simple applications, such as screen pop, are often difficult
and expensive to implement.
We believe that the traditional approach of using middleware software
products to integrate communications and information systems suffers from a
number of fundamental problems. Implementing this type of solution is both
expensive and time consuming, often requiring many months or even years to
implement, and the total cost of ownership over time is high due to the multiple
points of configuration, administration and maintenance. Modification and
management of a traditional integrated infrastructure are also difficult since
each device is configured independently by different vendors. For instance,
hiring a new agent may require configuring a new extension in the PBX, defining
a new mail box in the voice mail system and creating a new agent entry in the
ACD. This process is not only expensive and time consuming, but may also result
in information being lost or inconsistently entered into each device. We also
believe that this traditional multi-device approach will make it more difficult
for enterprises to interact over the Internet and will require additional
devices and more integration, further complicating the current situation.
We believe a new approach is required that does not attempt to resolve
differences among disparate devices, but rather provides a platform based on
standard hardware and software systems, a unified set of communications and
interaction services and seamless integration with information technology
components such as networks, servers, databases and desktop computers.
ENTRANCE OF NEW SERVICE PROVIDERS
For years, the regional Bell operating companies and other telephone
companies have provided voice mail, caller ID and other communications services
to consumers and small businesses. The Telecommunications Act of 1996
deregulated many aspects of the communications market and resulted in a rapid
increase in the number and types of organizations seeking to provide
communications services. These new service provider entrants include local
exchange carriers, cable companies, Internet service providers and wireless
companies.
Generally, these organizations provide some sort of communications
connection into homes and businesses that they charge for on a regular basis. As
the price for connectivity declines rapidly, we believe that these organizations
may want to differentiate their offerings based on the enhanced
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services they can provide. Examples of these services include unified messaging,
fax, interactive voice response, speech recognition, paging, conferencing, phone
numbers that follow the recipient of the call, and appointment scheduling. We
believe that the number of worldwide unified messaging mailboxes will grow from
an estimated 320,000 at the end of 1997 to more than 15.9 million by 2002. We
also expect service providers to implement Web-based services such as Web
callback, Internet chat sessions and voice over net.
Traditionally, providing a wide range of voice and data interaction services
required service providers to interface different proprietary systems and incur
significant integration fees. We believe this creates the need for a new
platform for service providers that is flexible enough to deliver a variety of
enhanced services under a common administration and design architecture, while
at the same time lowering both the cost of entry and ongoing operation.
In our opinion, the traditional multi-device approach to communications and
interaction by organizations is inadequate to address the needs created by these
trends. We believe that the shortcomings of this approach create a significant
opportunity for a single, all-in-one solution based on standard hardware and
software technology, such as a Windows NT-Registered Trademark- server, that
enables organizations to efficiently and effectively interact with all of their
constituents. We believe that we have developed such a solution.
INTERACTIVE INTELLIGENCE SOLUTION
The Interactive Intelligence solution for call centers, enterprises and
service providers is an open software platform that, when installed on a server
running Windows NT-Registered Trademark-, provides a comprehensive set of
communications and interaction management services and requires little or no
integration. Our flagship product, EIC, is capable of processing thousands of
interactions per hour, including telephone calls, e-mails, faxes, voice mail
messages, Internet chat sessions, Web call-back requests and voice over Net
calls.
We believe that the differentiating characteristics of the Interactive
Intelligence solution allow our end-user customers to more effectively
communicate and interact with their constituencies at a lower total cost of
ownership than through the use of traditional computer telephony integration
products. The strategic advantages of our single system approach are:
BROADER RANGE OF FUNCTIONS. Unlike traditional systems that require
end-user customers to purchase separate products to attain broader
functionality, EIC is an all-in-one system that offers a broad suite of
communications features, including telephony, inbound and outbound fax, e-mail
processing, automatic call distribution, interactive voice response,
conferencing, call recording, call monitoring and text chat processing. EIC also
includes facilities that allow supervisors to obtain numerous reports and to
view communications statistics in real time. We believe that, collectively,
these capabilities allow our customers to improve customer service and increase
internal efficiency.
REDUCED NEED TO INTEGRATE DISPARATE TECHNOLOGIES. Traditional
communications systems generally require significant integration efforts to get
their different components to work together effectively. This integration often
involves the purchase of expensive hardware, middleware and services. EIC pre-
assembles all of the necessary components into one software solution, allowing
end-user customers to concentrate their efforts on improving business
operations. Alternatively, EIC can be used to supplement the capabilities of a
PBX to provide Web-based interaction management, unified messaging, IVR or
departmental call center services.
OPEN ARCHITECTURE AND BETTER COMPATIBILITY WITH LEADING
TECHNOLOGIES. Traditional communications devices are based on proprietary,
closed architecture, which often limits the end-user customer's ability to
change or customize the products. Frequently, even simple changes such as adding
a new employee or changing an employee's location require intervention by the
vendor. Our products are built around
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industry standard hardware and software components such as Intel microprocessors
and the Microsoft Windows NT-Registered Trademark- operating system. Our open
architecture allows end-user customers to configure our system to meet their
customized communications needs and to make hardware or software modifications
as necessary. For example, if one of our end-user customers needs more space for
voice mail recordings, it can simply purchase a larger disk drive on the open
market. Our products also interoperate easily with popular information
technology products, including:
- e-mail servers, including Microsoft Exchange Server-Registered Trademark-
and, in our next version, Lotus Notes-Registered Trademark-;
- database systems, including those from Oracle Corp., Sybase, Inc.,
Microsoft Corporation and IBM Corporation;
- mainframe systems, including those that support 3270 and 5250 terminal
emulation;
- Web servers, including Microsoft IIS, Netscape and Apache;
- network management systems, including HP OpenView, IBM Tivoli and CA
Unicenter; and
- customer relationship management systems, including those from Vantive
Corporation, Clarify, Inc., Remedy Corp. and Onyx Software Corp.
LOWER TOTAL COST OF OWNERSHIP. We believe that our all-in-one solution
results in a lower total cost of ownership in comparison to traditional
communication systems with similar functionality, which typically consist of
multiple, disparate add-on components. For example, EIC's capabilities reside in
a single Windows NT-Registered Trademark- server with a software interface
designed for ease of use. As a result, all configuration and maintenance of our
products are confined to a single system. This results in a lower total cost of
ownership due to the reduced time and expense typically required to maintain a
centralized software-based communications system.
GREATER ABILITY TO CUSTOMIZE COMMUNICATIONS TO MEET SPECIFIC NEEDS. While
EIC can be deployed quickly with minimal configuration, organizations can also
customize many aspects of their communications processing using EIC's graphical
application generator. This means that EIC can serve as a platform upon which
organizations can build highly tailored communications processes for their
customers, employees or subscribers. It also means that end-user customers need
to learn only a single tool in order to customize their dial plans, call
distribution rules, interactive voice response menus, fax applications, Web
services, voice mail systems and other communications applications.
GROWTH STRATEGY
Our primary business objective is to become the leading vendor of enterprise
software that allows call centers, enterprises and service providers to automate
virtually every aspect of their business communications. Our strategy for
achieving this objective incorporates the following key elements:
CONTINUE TO EXPAND OUR LEADING TECHNOLOGY POSITION. We have significant
technical expertise in call center, communications and software technologies. We
intend to use our expertise to add new features to our products to increase
their marketability in our three target markets. We also intend to improve the
ability of our current and future products to handle the needs of larger
organizations. We are currently developing technology that would allow EIC to
work effectively with ATM switches from vendors such as Cisco Systems, Inc. and
Fore Systems, Inc. If we are successful, EIC will be able to meet the needs of
call centers with up to 500 agents per site, enterprises with up to 1,000
employees per site, and service providers with up to 100,000 subscribers. We
also plan to broaden the compatibility of our products to work with other
systems and applications used by our end-user customers. For example, we intend
to add support for the Novell e-mail and directory services products, such as
Groupwise and Novell Directory Services or NDS, to increase our addressable
market.
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BROADEN OUR PRODUCT OFFERING. We plan to broaden our product offering with
additional products and features for our target markets. For the call center
market, we have developed and are currently testing new products, including
Interaction Dialer, which automates outbound calls, and Interaction Director,
which efficiently distributes calls across multiple call centers. We also plan
to create new products and interfaces to third-party products to cover
additional areas such as agent performance evaluation and scheduling. For
enterprises, we plan to add new applications including a multimedia conference
bridge and a speech-enabled personal assistant. For service providers, we intend
to add support for large-scale, Unix-based messaging platforms that will allow
service providers to handle tens of thousands of subscribers for unified
messaging, phone numbers that follow the recipient of the call, and other
enhanced services.
FURTHER EXPAND OUR GLOBAL DISTRIBUTION CHANNEL. We plan to further expand
our existing distribution channel, which currently consists of over 100
resellers in more than 20 countries. Our expansion efforts include a significant
focus on broadening our distribution channel in North America and we also plan
to expand our distribution channel in Europe and the Asia/Pacific region.
Currently, we have over 75 resellers and a 24-person field sales force that
manages, supports and develops our distribution channel in North America and
approximately 25 resellers and a four-person field sales force in Europe and the
Asia/Pacific region. We have also signed a reseller in South Africa and have
begun to sign resellers in Central and South America. We intend to continue to
broaden our geographic and market presence through our reseller coverage to
enhance our market share position.
DEVELOP OUR STRATEGIC BUSINESS RELATIONSHIPS. We have strategic
relationships with leading technology companies, including Dialogic Corporation,
Microsoft Corporation and Nuance Communications. As evidence of our commitment
to growth, Microsoft Corporation recently recognized us as the ninth fastest
growing independent software vendor using Microsoft
Windows-Registered Trademark-. In addition to our relationships with technology
companies, we intend to pursue strategic relationships with network equipment
vendors as well as developers of customer relationship management software to
build upon our comprehensive, turnkey solution. EIC complements both types of
products by utilizing the voice delivery capabilities of network devices such as
routers and switches, while providing the call center front-end capabilities
used in conjunction with customer relationship management applications. We also
intend to evaluate strategic acquisitions or investment opportunities for
products and technologies that complement or extend our existing products, offer
access to additional distribution channels or increase our customer base.
PRODUCTS
We currently market and license our flagship product, Enterprise Interaction
Center-Registered Trademark- or EIC, as well as Interaction Recorder-TM-, a
complementary product that allows the user to easily log, record and retrieve
any call. We have also developed and are currently testing two new products,
Interaction Dialer-TM- and Interaction Director-TM-.
ENTERPRISE INTERACTION CENTER-REGISTERED TRADEMARK- (VERSION 1.2)
EIC turns a Windows NT-Registered Trademark- server containing the
appropriate voice processing boards into an all-in-one communications server.
Customers connect their telephone trunk lines, handsets and headsets to the EIC
server and gain an integrated communications system, capable of meeting an
organization's specific interaction processing requirements. We allow our
end-user customers to license all or some specific combinations of the features
of EIC.
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EIC provides organizations with a broad array of communications and
interaction processing capabilities, including:
- Telephone system--allows end-users to place and receive telephone calls
just like a private branch exchange or PBX. Analog trunks and digital
trunks, such as T1/E1, ISDN and PRI, from the telephone company can be
connected to an EIC server as well as the twisted pair connections to
desktop phones. In addition to basic hold and transfer operations, EIC
provides text-to-speech, speech recognition and support for conference
calls with up to 32 participants.
- Auto attendant--allows callers to locate specific individuals and
departments and direct their own calls without involving receptionists.
- IVR or interactive voice response--allows organizations to create
self-service applications that their customers can access from their
touch-tone phones. These applications can read and update information
stored in databases and mainframe systems to perform account lookups and
other operations.
- ACD or automatic call distributor--organizes incoming calls into queues
and distributes them to agents as they become available. Calls can be
distributed on a first-come, first-served basis or make use of more
complex methods such as skills-based routing. For example, some
organizations may wish to service calls from important customers before
servicing other calls.
- Call recording--allows end-users to record their own calls and supervisors
to record agent calls. EIC can also automatically record specified calls
according to pre-defined rules--for example, every third call coming into
a particular toll-free number or every call from a customer with a
past-due balance.
- Unified messaging--stores voice mail messages and faxes in Microsoft
Exchange-Registered Trademark- mailboxes, from which end-users can
retrieve them by phone, desktop computer or remotely over the Internet.
This unified messaging capability is popular among our enterprise and
service provider customers.
- Web services--allows organizations to queue and distribute incoming
Internet text chats as they do with telephone calls. For example, while
browsing a company's Web site, a potential customer can click a button and
use text chat to pose a question to a call center agent. EIC also includes
tools that allow organizations to process incoming e-mail messages, Web
callback requests and voice over Net calls.
- Fax server--provides inbound and outbound fax services for the entire
organization. Automatically detects incoming fax calls and includes
support for fax broadcast, fax on demand, optical character recognition
and other fax applications.
- Graphical application generator--allows organizations to tailor EIC's call
and interaction management functions to meet their specific needs and to
integrate EIC into their information systems. EIC includes a graphical
application generator called Interaction Designer-TM- that can be used to
customize dial plans, call distribution rules, IVR scripts, fax services,
Web interactions and other functions.
EIC also includes software that runs on desktop computers and provides
individuals with the following capabilities:
- A software phone that allows individuals to visually manage calls from
their desktop computer, including dialing, transferring, conferencing and
recording. EIC includes both Win32 and Java versions to support a wide
range of desktop operating systems.
- On-screen company and department directories that allow individuals to
quickly locate addresses, phone numbers and other employee information.
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- Real-time in-out boards that display the status, such as on the phone, at
lunch or in a meeting, of other employees.
- Management windows that allow supervisors to record and monitor calls as
well as view real-time information for every queue, line, user, workgroup
and station.
- Desktop fax support that allows individuals to send and receive faxes from
their desktop computers.
- Screen pops that allow EIC to activate a particular application, such as a
customer relationship management program, whenever an incoming call
arrives. The activated application can display all the call information
collected by EIC and provide call handling options including hold,
transfer and conference.
ENTERPRISE INTERACTION CENTER (VERSION 1.3)
We intend to release EIC Version 1.3 in July 1999. This enhanced version of
EIC has all of the capabilities of Version 1.2, and also provides approximately
50 new features and functions, including:
- complete remote agent support that allows remote employees to handle
calls, receive screen pops, send faxes, access phone directories, and
otherwise communicate just as if they were in the office;
- speech recognition capabilities;
- support for Lotus Notes-Registered Trademark- for voice mail and unified
messaging;
- clustering of multiple servers for automatic recovery from failures;
- optical character recognition to automatically convert faxes into
documents; and
- branch office connection that allows branch office employees to be a part
of the headquarters telecommunication systems.
EIC Version 1.3 will be available to our end-user customers that are currently
licensing EIC and using Version 1.2, as a product upgrade included in the
ongoing maintenance provided as a term of their license. After the release of
EIC Version 1.3, our sales and marketing efforts, and those of our resellers,
will focus primarily on the licensing of Version 1.3.
INTERACTION RECORDER-TM- (VERSION 1.2)
Interaction Recorder is a complementary product that enhances EIC's basic
call recording capabilities by providing recording management for organizations,
such as call centers and banks, that generate large numbers of recordings.
First, Interaction Recorder logs complete information about every recording,
such as customer name, account number and transactions selected, to a database.
Next, it compresses recordings by 87.5% to reduce storage requirements.
Interaction Recorder allows organizations to periodically archive groups of
recordings onto compact discs or other media and provides a user interface from
which supervisors and other employees can later search for particular recordings
and access them at any time.
INTERACTION DIALER-TM- (IN TESTING)
We are currently testing Interaction Dialer, a predictive dialing product
that is complementary to EIC. Predictive dialing is the process of automatically
making outbound calls to a list of phone numbers and quickly connecting to call
center agents any calls answered by a person. We are developing Interaction
Dialer to provide call list management and answering machine detection. We have
created a sophisticated predictive algorithm that decides exactly how many calls
to place and when
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to make them in order to maximize the probability that an agent will be
available when a person answers a call.
Interaction Dialer builds entirely upon EIC's facilities for automatic call
distribution, reporting and supervision, giving it blended capabilities for call
centers wishing to use agents for both inbound and outbound call processing. A
client-side component will allow end-user customers to create visual call flow
scripts using any Web page editor. When an outbound call connects to an agent,
Interaction Dialer automatically pops a script that can display customer
information and lead the agent through the current call.
INTERACTION DIRECTOR-TM- (IN TESTING)
We are currently testing Interaction Director, a pre-call routing product
designed to efficiently distribute incoming calls across sites for multi-site
call centers. Given a data connection to the EIC server at each call center,
Interaction Director builds an in-memory database of near real-time information,
including current expected hold times at each site, queue lengths, number of
agents available and specific skills available. It then distributes incoming
calls based on this information and customized routing rules.
Pre-call routing is the process of looking at a call while it is still in
the public switched telephone network and deciding to which location it should
be sent. Interaction Director currently supports the signaling system 7 or SS7
protocol and can thus be notified about new calls before they leave the
telephone network. Interaction Director can examine specific information about a
call and then use the up-to-date information in the in-memory database to decide
to which site to route the call. Once it has chosen a destination site,
Interaction Director signals its choice back to the telephone network. Pre-call
routing allows calls to be distributed efficiently across a collection of sites
and helps make effective use of agent resources. It also allows multi-site
organizations to provide superior customer service by minimizing wait times and
making sure that calls are routed to the sites best able to handle them. As an
example, Interaction Director could route calls from Spanish speaking customers
to a site with Spanish speaking agents. The end-user customer can create the
logic that determines where a given call is routed by using Interaction
Designer. AT&T Corporation has tested Interaction Director and determined that
it is interoperable with AT&T's Intelligent Call Processing Service, which
utilizes SS7. We are currently working to add support for MCI WorldCom Inc. and
other carriers.
In addition to pre-call routing, Interaction Director will also support
post-call routing, which routes a call to another location after it has already
been delivered to a particular call center. For example, after a caller has been
on hold for more than a specified period of time, the end-user customer could
configure its EIC system to ask Interaction Director if another site would be
able to handle the call sooner. If so, the EIC system could then transfer the
call to that other location.
TECHNOLOGY
We have developed a number of innovative technologies that underlie our
family of products, including:
UNIVERSAL INTERACTION ENGINE. At the core of EIC is an event-processing
engine that determines how different types of communications events are handled.
This engine makes use of the Java virtual machine to dispatch events, such as
incoming telephone calls, to software objects that process them. This approach
allows us to maximize our use of a widely used, multi-threaded interpreter to
handle large numbers of communications events under Windows
NT-Registered Trademark-. It also provides an architectural control point around
which we can create new services.
NOTIFIER MESSAGING COMPONENT. We have invented a sophisticated,
publish-subscribe messaging component called Notifier which allows all the
different portions of our products to communicate with
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each other using the TCP/IP protocol. Different subsystems and applications
register with Notifier for events in which they are interested. As events flow
through Notifier, it forwards them on to the interested parties. This approach
is more efficient than simpler schemes which broadcast all events to all
components. Our Notifier architecture works especially well in wide area
networks where efficient use of bandwidth is critical. Notifier also allows
components to be widely distributed and to run over any TCP/IP connection,
including the Internet. As a result, our software phone and end-user fax tools
can be installed on a work-at-home agent's home computer and used over an
Internet connection.
GRAPHICAL APPLICATION GENERATOR. Underlying our entire suite of products is
a single graphical application generator called Interaction Designer. This
development tool allows users to visually lay out logic that determines how
different types of events are to be processed. Interaction Designer includes a
tool palette of over one hundred objects that can be dragged into a workspace
and linked together. Once the handler for a particular event is complete,
Interaction Designer generates a Java class file, compiles it and executes it in
the universal interaction engine. This means that organizations can change the
ways in which different interactions are processed without restarting devices.
GRAPHICAL ADMINISTRATIVE CONSOLE. A single graphical application called
Interaction Administrator can be used to configure many different aspects of our
products. Supervisors can configure analog or digital telephone trunks, change
user profiles, define queues, add skills and perform many other common
administrative tasks from simple dialog boxes. Interaction Administrator
automatically sends out change notifications that are propagated via Notifier to
the various components that comprise our products. Thus, when a new employee is
added, his or her name automatically appears on agent and supervisor screens.
DATABASE AND MAINFRAME CONNECTIVITY. We have written software components
that provide access to information stored in most common relational database
systems, including those from Oracle Corp., Sybase Inc., Informix Corporation,
Microsoft Corporation and IBM Corporation, and mainframe systems supporting 3270
and 5250 emulation. These software components use advanced techniques like
connection caching to handle large numbers of transactions.
PROGRAMMING INTERFACES. We have created interfaces that allow customers to
integrate other software applications with EIC. On the server side, we have DLL
and TCP/IP socket-level interfaces that allow customers to add new functionality
to EIC and to communicate with applications running on other systems. On the
client side, we have both DDE and COM interfaces that make it possible to embed
EIC's capabilities into desktop applications.
MULTI-SITE CALL ROUTING AND SS7 SUPPORT. We are currently testing software
that allows us to communicate directly with public switched telephone networks
using the SS7 protocol. This allows us to receive advance notification from the
phone company of incoming calls and to tell the phone company where each call
should be sent in a multi-site environment. This is especially important for
call centers with multiple sites. If each site is running our EIC product and is
connected to a wide area network, we can collect near real-time information,
including number of calls in queue and number of agents available, and decide
which site is best able to handle new incoming calls.
RESEARCH AND DEVELOPMENT
We believe that strong product development capabilities are essential to our
strategy of building on our position as a technological leader in our industry,
maintaining the competitiveness of our current products and adding new features,
functions and products. Our product development team consists of professionals
with expertise in software, telecommunications and computer hardware, many of
whom have years of experience at industry leading companies in these segments,
such as Microsoft Corporation, Lucent Technologies, Inc. and Nortel Networks
Corporation, formerly known as Northern Telecom Limited. We believe that this
combination of diverse technical and communications expertise
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contributes to the highly integrated functionality of our software products and
provides us with a significant competitive advantage.
Currently, we are both a Microsoft Certified Developer as well as a
Microsoft Certified Solutions Provider. These designations give us early access
to Microsoft technology, allowing us to develop products more quickly and make
them interoperate more effectively with Microsoft products.
Research and development expenses for the last three fiscal years were
approximately $1.0 million in 1996, $2.1 million in 1997, and $4.1 million in
1998. Our research and development staff has grown from 15 employees as of
December 31, 1996 to 27 employees as of December 31, 1997, 49 employees as of
December 31, 1998 and 60 employees as of June 30, 1999. We believe that
investment in research and development is important for us to maintain our
position in the industry and, therefore, intend to increase our spending for
research and development in the future.
CUSTOMER SERVICES AND SUPPORT
We recognize the importance of offering quality service and support to our
resellers and end-user customers. Therefore, we provide a wide range of services
and support to both of these groups, including technical support for our
products, educational services, and professional services for implementing and
customizing our products. These services include the following:
TECHNICAL SUPPORT SERVICES. Our support services staff provides technical
support for both our resellers and end-user customers 24 hours a day, seven days
a week via phone, fax, e-mail and our Web site. We have support personnel in
Indianapolis and France, and also plan to open a support center in the
Asia/Pacific region. We utilize EIC, integrated with customer relationship
management software, to maximize the effectiveness of our support services.
Customer support services, along with product upgrades, are included in initial
and ongoing maintenance. Initial software license fees generally include one
year of maintenance. Generally, to continue using our software after this
initial period, our end-user customers must purchase annual ongoing product
maintenance.
EDUCATIONAL SERVICES. We place primary emphasis on providing a
comprehensive technical and sales education program to our resellers. We have
formal certification programs covering pre- and post-sales engineering,
installation and trouble shooting, implementation and project management, system
administration and application development. Several credits for our
supplementary or advanced educational offerings are included in our annual
reseller agreement and each subsequent annual renewal. For resellers and
end-user customers who would like additional supplementary or advanced training,
we offer classes that we bill on a per class basis.
PROFESSIONAL SERVICES. Our professional services staff supplements the
implementation and customization personnel of our resellers. We offer a wide
range of professional services for our end-user customers, including project
management, data systems integration and host connectivity. To further expedite
their implementation projects, end-user customers and resellers can select from
several pre-packaged fixed fee offerings. If desired, we also provide our
professional services on a time and materials basis.
SALES AND MARKETING
We distribute our software products primarily through our network of
resellers. We also maintain a field sales force to support our resellers, as
well as engage in limited direct sales efforts. In addition, we engage in a
number of marketing activities to support our sales efforts. As of June 30,
1999, we employed 44 people in sales and marketing.
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RESELLERS
We have a network of over 100 resellers that distribute our software
products in North America, Europe and the Asia/Pacific region. Our resellers
have a presence in more than 20 countries and 30 states. We have signed a
reseller in South Africa and have begun to sign resellers in Central and South
America. We intend to continue to broaden our geographic and market presence
through our reseller coverage in order to enhance our market share position.
We believe that the use of a diversified network of resellers offers the
following advantages:
- LARGER MARKET PRESENCE. The use of resellers allows us to have a broad
market presence, by leveraging our resellers' existing sales
infrastructure and other resources, without having to create these
resources.
- ACCELERATED MARKET PENETRATION. Our reseller network has allowed us to
have significant market penetration faster than would have been possible
with an in-house only sales staff.
- INDUSTRY EXPERIENCE/TECHNICAL EDUCATION. Our goal is to recruit resellers
that are highly trained, experienced and knowledgeable with respect to our
specific markets, as well as business communications technologies. To
qualify to be a reseller, an organization must have relevant telephony or
data experience. We provide comprehensive technical and sales education
with respect to our products to our resellers.
- PRODUCT COMPARISON. When a reseller offers its customers a wide range of
communications system options, including our products as well as other
vendors' products, we believe the customer will be able to appreciate the
advantages of our communications and interaction management software
relative to traditional multi-device approaches. As a result, customers
that are initially looking only to upgrade their existing systems may
instead replace their entire system with EIC.
FIELD SALES FORCE
To help our resellers be as productive as possible, we have developed a
field sales force that manages, supports and assists in the development of our
resellers and reseller network. In North America, our field sales force is
located in California, Colorado, Florida, Georgia, Indiana, Minnesota, Missouri,
New Hampshire, New Jersey, New York, Ohio, Texas, Virginia and Wisconsin.
Internationally, our field sales force is located in France, Japan, the
Netherlands and the United Kingdom. Occasionally, our field sales force makes
direct sales to end-user customers.
MARKETING
Our marketing programs are designed to:
- build market awareness of our communications and interaction management
software;
- generate qualified end-user customer leads; and
- establish end-user customer preference for our products.
To accomplish these goals, we engage in a variety of marketing activities,
including seminars, tradeshows, direct mailings, public relations activities,
advertisements and Web site marketing.
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CUSTOMERS
We license our products to more than 250 end-user customers in North
America, Europe and the Asia/Pacific region, including:
<TABLE>
<S> <C>
Ameritech Corporation E.I. du Pont de Nemours and Company
BMW Financial Services Italia (Italy) Exit Marketing AB (Sweden)
Bob Barker Company, Inc. Fiserv, Inc.
Boxlight Corporation Los Alamos National Laboratory
BuyItNow, Inc. NTS Marketing, Inc.
Caere Corporation Postel Australia (Australia)
Ceridian Corporation Seagate Technology, Inc.
Deutsche Telekom Berkom Gmbh (Germany) Techmar Communications, Inc.
Direct Focus, Inc. Toshiba America Consumer Products
Dongbu Fire & Marine Insurance (Korea)
</TABLE>
No end-user customer or reseller accounted for 10% or more of our revenues in
1998 or for the six months ended June 30, 1999.
The following are examples of call center and enterprise end-user customers
that use our communications and interaction management software:
BUYITNOW, INC. is a Web-based retailer of many consumer-oriented products,
including home electronics, appliances, home decor items and toys. According to
BuyItNow, it prides itself on superior customer service driving strong customer
satisfaction. BuyItNow, with design and implementation assistance from one of
our resellers, built an integrated phone- and Web-based call center platform.
For phone-based customers, EIC is the PBX, IVR, ACD and fax server that connects
potential and existing customers with BuyItNow sales and service agents. For
customers who prefer Web-based interactions, BuyItNow has implemented EIC's chat
management capabilities to allow customers to chat with a BuyItNow Web-based
agent. The agent can respond efficiently to an inquiry by typing a short
message, selecting a standard reply, or directing the customer's Web-browser to
a specific BuyItNow Web page. Using EIC, BuyItNow directs both phone calls and
chat requests to agents using skills-based routing rules. According to BuyItNow,
it selected EIC over products from Lucent Technologies, Inc., Aspect and WebLine
because EIC met the call center's telephony needs and also provided the
Internet-based interaction capabilities necessary to attract and retain
Web-based customers.
NTS MARKETING, INC. provides outsourced teleservices and fulfillment
services for organizations that do not have the internal infrastructure to
embark on significant marketing campaigns, such as mass advertising, or handle
the volume of inquiries that these campaigns often generate. For these
customers, NTS currently processes a volume of 15,000 to 20,000 calls per day.
According to NTS, after a thorough review of its business objectives, it
selected EIC as its technology centerpiece, because EIC provided a more flexible
communications system than its existing PBX and ACD devices could provide. With
EIC, NTS has gained, and currently uses, the functionality of multiple
telecommunications devices, including PBX, IVR, ACD, fax services, reporting
tools, unified messaging, call filtering/ blocking and recording capabilities.
NTS has also used EIC to create several custom call processing applications,
such as skills-based routing and HotEmails, which immediately send information
back to callers via e-mail while they are still on the phone. According to NTS,
these applications have reduced costs, improved productivity and enhanced
customer service. NTS believes that it would have been expensive and complex to
implement many of the time and money saving enhancements with traditional
telecommunications devices. According to NTS, EIC's open architecture allowed it
to proactively address many challenging and labor-intensive processes that were
having negative financial and competitive effects on its business.
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BOXLIGHT CORPORATION is a leading provider of liquid crystal display or LCD
projection products, digital input devices and presentation peripherals,
including slide creation, posters, powerpoint presentations, training and
creative services. Two years ago, Boxlight established a number of customer and
employee related communications objectives that, according to Boxlight, were not
possible to accomplish with its existing communications devices. As a result,
Boxlight implemented EIC in its Washington corporate offices as a complete
campus-wide solution and connected a satellite office in Tennessee to this EIC
system. With EIC, Boxlight has created a variety of enterprise applications. For
example, a remote employee can call an 800 number, enter an access code which is
validated against an authorization database and then place outgoing calls using
Boxlight's phone lines. Also, Boxlight has established a local/remote paging
system. From any phone at either Boxlight location, an employee can dial 01 and
speak a message, which is played over an internal intercom system at the
Washington corporate campus. Alternatively, an employee can dial 02 to speak
over the intercom system at the office in Tennessee. Boxlight has implemented
the chat feature of EIC on its newly designed Web site. This allows its Internet
customers real time access to sales and customer service representatives. EIC's
open architecture allows Boxlight to use its own resources to create these
enterprise communications solutions.
COMPETITION
The market for our software products is highly competitive and, because
there are relatively low barriers to entry in the software market, we expect
competition to increase significantly in the future. We cannot assure you that
we will be able to compete effectively against current and future competitors.
Our competition currently comes from several different market segments,
including computer telephony platform developers, computer telephony
applications software developers and telecommunications equipment vendors. These
competitors include Apropos Technology, Aspect Telecommunications Corporation,
CELLIT, Inc., Cisco Systems, Inc., Davox Corporation, Genesys Telecommunication
Laboratories, Inc., Lucent Technologies, Inc., Quintus Corporation, Nortel
Networks Corporation, Rockwell Electronic Commerce and Siemens Nixdorf
Information Systems AG/FI. We also compete to a lesser extent with new or recent
entrants to the marketplace. Our competitors vary in size and in the scope and
breadth of the products and services offered. See "Risk Factors--We face
competitive pressures, which may have a material adverse effect on us."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
To protect our proprietary rights, we rely primarily on a combination of:
- copyright, trade secret and trademark laws;
- confidentiality agreements with employees and third parties; and
- protective contractual provisions such as those contained in license and
other agreements with consultants, suppliers, strategic partners,
resellers and end-user customers.
We have not signed agreements containing protective contractual provisions
in every case and the contractual provisions that are in place and the
protection they provide vary and may not provide us with adequate protection in
all circumstances. Despite our efforts to protect our proprietary rights,
unauthorized parties may copy aspects of our products and obtain and use
information that we regard as proprietary. Other parties may breach
confidentiality agreements and other protective contracts we have entered into,
and we may not become aware of these breaches or have adequate remedies for
them.
We generally require our employees to enter into confidentiality agreements
containing non-disclosure, non-competition and non-solicitation provisions. When
they begin employment, our
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employees also generally sign offer letters specifying the basic terms and
conditions of their employment.
We currently do not hold any patents. However, we have filed patent
applications directed to several inventions embodied in our software products.
We hold the registered trademarks for Interactive
Intelligence-Registered Trademark- and Enterprise Interaction
Center-Registered Trademark- in the U.S. and have trademark applications pending
in the U.S. for the following marks: Interaction Client, Interaction Designer,
Interaction Administrator, Interaction Recorder, Interaction Dialer, Interaction
Director, Interaction Web, Interaction Mail, Multimedia Queuing and our logo
design mark. In addition, we have trademark applications pending in several
foreign countries for the marks Interactive Intelligence and Enterprise
Interaction Center. All other trademarks and trade names referred to in this
prospectus are the property of their owners.
We license some components of our products from third parties. If we were to
lose those licenses, we believe that we could obtain licenses from other sources
for similar components. However, if one or more of these licenses terminates or
cannot be renewed on satisfactory terms, we would have to modify the affected
products to use alternative components or technology or eliminate the affected
product function, either of which could have a material adverse effect on us.
See "Risk Factors--Infringement claims could adversely affect us" for a
description of correspondence recently received by us from a large, well
capitalized competitor claiming that our products utilize technologies pioneered
and patented by it.
EMPLOYEES
As of June 30, 1999, we had 167 employees worldwide, including 60 in
research and development, 43 in client services, 44 in sales and marketing and
20 in administration. Our future performance depends in significant part upon
the continued service of our key sales and marketing, technical and senior
management personnel and our continuing ability to attract and retain highly
qualified personnel. Competition for these personnel is intense and we cannot
assure you that we will be successful in attracting or retaining these personnel
in the future.
We believe that we have a unique corporate culture that attracts highly
qualified and motivated employees. We emphasize teamwork, flexible work
arrangements, local decision making and open communications. Every employee has
been granted stock options. None of our employees is represented by a labor
union and, except for nine employees working in France who are required by
French law to be subject to a collective bargaining agreement, none of our
employees is subject to a collective bargaining agreement. We have not
experienced any work stoppages and we consider our relations with our employees
to be excellent.
FACILITIES
We lease approximately 37,000 square feet of office space in our
headquarters building in Indianapolis, Indiana. As of June 30, 1999, the lease
required payments of approximately $3.4 million over the remaining term of the
lease, which expires on February 28, 2004. Before April 30, 1999, when we moved
into our current headquarters space, our headquarters were located in other
office buildings in Indianapolis, Indiana. We are continuing to lease some of
that space, which consists of two separate office suites totaling approximately
10,000 square feet, for use as training facilities. The leases under which we
lease both of these office spaces expire on March 1, 2004.
We lease space for our research and development facility in Deerfield Beach,
Florida, which consists of approximately 5,700 square feet. The lease for that
facility ends on April 30, 2003. We also lease space for our various sales,
services and development offices located in Carlsbad, California; Los Angeles,
California; San Francisco, California; Denver, Colorado; Milford, Connecticut;
Atlanta,
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Georgia; Norcross, Georgia; Stevensville, Maryland; St. Louis, Missouri;
Minneapolis, Minnesota; Marshalls Creek, Pennsylvania; Rockhill, South Carolina;
Reston, Virginia; France; Japan; and Korea. The majority of these leases are
short-term leases.
We believe that our existing facilities are adequate for our current needs
and that additional space will be available as needed.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not engaged in any legal
proceeding that we expect to have a material adverse effect on our business,
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The following table sets forth information about our executive officers,
directors and significant employees as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Donald E. Brown, M.D................... 43 Chairman of the Board, President and Chief Executive Officer
John R. Gibbs.......................... 48 Executive Vice President of Administration and Corporate
Development, Treasurer and Director
Michael J. Tavlin...................... 52 Chief Financial Officer
Jeremiah J. Fleming.................... 41 Vice President of Sales, The Americas
Michael E. Ford........................ 47 Vice President of Operations, Europe, Africa and Middle East
Douglas T. Shinsato.................... 49 Vice President of Operations, Asia/Pacific
Keith A. Midkiff....................... 37 Vice President of Finance and Controller
Joseph M. Adams (1).................... 44 Vice President of Market Communications
Michael D. Gagle, Ph.D. (1)............ 48 Chief Scientist
Robert A. Greising (2)................. 46 Secretary
Robert A. Compton...................... 43 Director
Jon Anton, D.Sc........................ 59 Director
Michael P. Cullinane................... 49 Director
</TABLE>
- ------------------------
(1) Significant employees, but not executive officers.
(2) Not an employee or executive officer.
DONALD E. BROWN, M.D. co-founded his third software company, Interactive
Intelligence, in October 1994 and has served as Chief Executive Officer since
April 1995 and President since inception. Dr. Brown also serves as Chairman of
the Board, a position he has held since July 1998. Dr. Brown has been a director
since inception. In March 1988, Dr. Brown co-founded Software Artistry, Inc., a
developer of customer support software that became a public company in March
1995 and was subsequently acquired by IBM Corporation in January 1998. At
Software Artistry, Dr. Brown served as Chief Executive Officer and director from
inception through September 1994. Dr. Brown's first software company was
acquired by Electronic Data Systems, Inc. in September 1987. Dr. Brown graduated
from the Indiana University School of Medicine in 1985. He also holds two
additional degrees from Indiana University, a M.S. in computer science and a
B.S. in physics.
JOHN R. GIBBS co-founded Interactive Intelligence in October 1994 and has
served as Executive Vice President of Administration and Corporate Development
since January 1995 and Treasurer since April 1995. Mr. Gibbs also served as
Secretary from April 1995 to January 1997. Mr. Gibbs has been a director since
April 1995. From March 1992 until October 1994, Mr. Gibbs was an independent
management consultant, serving mostly entrepreneurial and emerging growth
companies. He also has prior experience as an executive for high technology
companies. While a consultant, Mr. Gibbs served as the first Executive Director
of the Indiana Software Association. Mr. Gibbs holds a B.S. degree in business
economics and public policy from Indiana University. He also attended M.B.A.
school at Indiana University.
MICHAEL J. TAVLIN has served as Chief Financial Officer since joining
Interactive Intelligence in June 1999. From June 1986 to June 1999, Mr. Tavlin
served as Vice President-Treasurer and Secretary of Aliant Communications Inc.,
a telecommunications company, which was recently acquired by ALLTEL Corporation.
From January 1979 until June 1986, Mr. Tavlin served as a Senior Tax Manager
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with Coopers & Lybrand, which is now known as PricewaterhouseCoopers, and Touche
Ross & Co., which is now known as Deloitte & Touche. Prior to that time, Mr.
Tavlin was engaged in the practice of law. Mr. Tavlin holds a B.A. degree in
education from Oklahoma City University, a J.D. degree from the University of
Nebraska College of Law, and a LL.M. in Taxation degree from Washington
University in St. Louis.
JEREMIAH J. FLEMING has served as Vice President of Sales, The Americas,
since joining Interactive Intelligence in March 1997. From January 1995 to
February 1997, Mr. Fleming served as Vice President, Domestic Sales of Software
Artistry. From 1992 to December 1994, he held sales positions of increasing
responsibility at Software Artistry, including Manager, Central Region Sales
from January 1993 to December 1994. He performed various sales capacities at
Pansophic Systems, Inc., a developer of business software, from 1989 to 1991,
concluding as the Midwest Regional Manager. Mr. Fleming holds both a M.B.A.
degree and a B.A. degree in political science and philosophy from the University
of Missouri.
MICHAEL E. FORD has served as Vice President of Operations, Europe, Africa
and Middle East, since September 1998. Mr. Ford also served as Director of
Sales, Europe, Africa and Middle East from the time he joined Interactive
Intelligence in July 1997 until September 1998. From March 1994 to April 1997,
he served as Vice President of Sales of Enhanced Systems, Inc., a developer of
voice processing software. From March 1993 to March 1994, Mr. Ford served as
Vice President of Sales for Futurus Corporation, a developer of unified
messaging software. Mr. Ford's previous experience also includes establishing
and managing subsidiaries in Europe and Asia for Computer Corporation of America
and serving as Director of International Business for Hayes MicroComputer
Corporation. Mr. Ford holds a Masters in international business degree from the
University of South Carolina and a B.S. in business administration and economics
from the University of Pittsburgh in Kansas.
DOUGLAS T. SHINSATO has served as Vice President of Operations,
Asia/Pacific, since joining Interactive Intelligence in May 1998. From April
1997 until April 1998, Mr. Shinsato served as Vice President of Asia Pacific of
Genesys Telecommunications Laboratories, a developer of computer telephony
integration software. From December 1995 to April 1997, he served as Executive
Vice President-Japan for AT Kearney, a subsidiary of Electronic Data Systems,
Inc., an information technology services and systems integrator. From December
1988 until December 1995, Mr. Shinsato was a senior partner in Deloitte Touche,
Tohmatsu's management consulting operations in Japan. Mr. Shinsato holds a
M.B.A. degree from the University of Southern California and a J.D. degree from
the Stanford Law School.
KEITH A. MIDKIFF has served as Vice President of Finance since March 1999
and as Controller since joining Interactive Intelligence in February 1997. Mr.
Midkiff was Vice President of Finance and Chief Financial Officer of Alta
Analytics, Inc., a developer of data analysis software, from December 1996 to
February 1997. From June 1993 to December 1996, he served as Controller of
Software Artistry, which became a public company in March 1995. Mr. Midkiff
holds a M.B.A. degree from Indiana University and a dual B.S. degree in
accounting and finance from Ohio State University.
JOSEPH M. ADAMS has served as Vice President of Market Communications since
joining Interactive Intelligence in December 1996. In 1988, Mr. Adams co-founded
Software Artistry with Dr. Brown. From 1988 to November 1995, Mr. Adams served
in a number of senior roles at Software Artistry, including Vice President of
Market Communications. From November 1995 to December 1996, Mr. Adams was
retired. He also previously served as a director at Software Artistry and three
separate Indianapolis based charities. Mr. Adams holds a B.S. degree in business
economics from Indiana University.
MICHAEL D. GAGLE, PH.D. has served as Chief Scientist since March 1998. From
the time Dr. Gagle joined Interactive Intelligence in March 1995 until March
1998, he served as our Principal Software Engineer and Project Leader. Before
joining Interactive Intelligence, Dr. Gagle spent five years
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working on a variety of applied projects at AT&T Bell Labs. Dr. Gagle's previous
experience also includes co-founding and serving as Vice President for Research
and Development for Micro Data Base Systems, Inc., a developer of PC database
systems, working on the technical staff of Microsoft Corporation and serving
from January 1994 to September 1994 as a senior developer with the Regenstrief
Institute for Health Care Research. Dr. Gagle holds a Ph.D. in management
information systems and a B.S. in industrial management from Purdue University.
ROBERT A. GREISING has served as Secretary of Interactive Intelligence since
January 1997. He also served as a director from January 1997 to May 1999. Mr.
Greising is a partner in Krieg DeVault Alexander & Capehart, LLP, a law firm
located in Indianapolis, Indiana. He practices in the general corporate,
corporate finance and technology areas and chairs the Technology and Electronic
Commerce Practice Group of the firm. Mr. Greising also has experience with the
purchase and sale of software companies and the licensing of software. Mr.
Greising received his B.A. degree from DePauw University and his J.D. and M.B.A.
degrees from Washington University in St. Louis.
ROBERT A. COMPTON has served as a director of Interactive Intelligence since
April 1995. He also served as Chairman of the Board from August 1995 to July
1998. Mr. Compton is currently President, Neurological Technologies Division of
Medtronic, Inc., a manufacturer of image guided surgery systems and medical
devices. From May 1997 until its acquisition, Mr. Compton was President and
Chief Operating Officer of Sofamor Danek Group, Inc., a publicly held medical
device manufacturer acquired by Medtronic, Inc. in January 1999. From 1988 until
May 1997, he served as general partner of CID Equity Partners, an
Indianapolis-based venture capital firm. From 1985 to 1988, Mr. Compton served
as Investment Manager with First Chicago Venture Capital. Mr. Compton has also
served as director for three publicly held companies, including Software
Artistry and Sofamor Danek Group, Inc., and over twelve privately held
companies. Mr. Compton holds a M.B.A. degree from Harvard University, and
received his undergraduate degree from Principia College.
JON ANTON, D.SC. has served as a director of Interactive Intelligence since
May 1999. Dr. Anton is a researcher in the Purdue Call Center for
Customer-Driven Quality in the Department of Consumer Sciences at Purdue
University, a position he has held since 1993. He specializes in enhancing
customer service strategy through inbound call centers and teleweb centers using
telecommunications and computer technology, as well as the Internet. Dr. Anton
has assisted over 400 companies in the design and implementation of inbound and
outbound call centers. Dr. Anton holds Doctorate of Science and M.S. degrees in
technology from Harvard University, a M.S. degree from the University of
Connecticut and a B.S. degree from the University of Notre Dame. He also
completed the Executive Education program at the Graduate School of Business of
Stanford University.
MICHAEL P. CULLINANE has served as a director of Interactive Intelligence
since May 1999. Mr. Cullinane is Executive Vice President and Chief Financial
Officer of PLATINUM TECHNOLOGY, INC., a publicly-held software company. He
joined PLATINUM in 1988 as its Chief Financial Officer. PLATINUM was recently
acquired by Computer Associates International. Mr. Cullinane is also a director
of Platinum Entertainment, Inc., a recorded music producer and licensing
company, Vasco Data Security, Inc., a security hardware and software company,
and Made2Manage Systems, Inc., an enterprise software company. Mr. Cullinane
holds a Bachelor's degree in business administration from the University of
Notre Dame.
Executive officers of Interactive Intelligence serve at the discretion of
our board of directors. There is no family relationship between any of our
directors or executive officers.
BOARD OF DIRECTORS
Our board of directors is divided into three classes that serve staggered
three-year terms. The term of the first class will expire at the annual meeting
of stockholders in 2000, the term of the second class
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will expire at the annual meeting of stockholders in 2001, and the term of the
third class will expire at the annual meeting of stockholders in 2002. The terms
of our current directors will expire as follows:
- 2000--Dr. Anton;
- 2001--Mr. Cullinane and Mr. Gibbs; and
- 2002--Dr. Brown and Mr. Compton
COMMITTEES OF THE BOARD OF DIRECTORS
We have an Audit Committee and a Compensation and Stock Option Committee.
The Audit Committee consists of Dr. Anton and Mr. Cullinane. The Compensation
and Stock Option Committee consists of Mr. Compton, Dr. Anton and Mr. Cullinane.
The responsibilities of the Audit Committee are to recommend the appointment of
independent auditors, review with the independent auditors the scope and results
of the audit engagement, establish and monitor our financial policies and
control procedures, review and monitor the provisions of non-audit services by
our auditors and review all potential conflict of interest situations. See
"Certain Transactions." The responsibilities of the Compensation and Stock
Option Committee are to review, determine and establish the salaries, bonuses
and other compensation of our executive officers and to administer our stock
option plans.
COMPENSATION OF DIRECTORS
No compensation was paid during 1998 to any of our directors for services as
a director. We will reimburse all directors for reasonable out-of-pocket
expenses incurred in connection with attending meetings of our board, including
committee meetings, but do not intend to pay them any cash stipends.
Non-employee directors will participate in our Outside Directors Stock Option
Plan. In connection with the election of Dr. Anton and Mr. Cullinane as
directors, we granted each of them an option to purchase 10,000 shares of our
common stock at an exercise price equal to the deemed fair market value of our
common stock on the date of the grant, based upon a determination by our board
of directors. See "Executive Compensation--Stock Option Plans--Outside Directors
Stock Option Plan" and "--Other Option Plans."
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes compensation paid by us for services rendered
in all capacities to us during 1998 to our Chief Executive Officer and to each
of our four other most highly compensated executive officers, based on salary
and bonus earned during 1998 (the "Named Executive Officers"). The amounts shown
as bonus were earned during 1998, but paid in the following year. The amounts
shown as long term compensation consist solely of options to acquire shares of
common stock. We have never granted stock appreciation rights or restricted
stock.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS
- --------------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Donald E. Brown, M.D.
Chairman, President and Chief Executive
Officer................................................ $ 100,000(1) $ -- $ -- 45,000
John R. Gibbs
Executive Vice President of Administration and
Corporate Development and Treasurer.................... $ 80,000 $ -- $ 5,535(2) --
Jeremiah J. Fleming
Vice President of Sales, The Americas.................. $ 154,808 $ 106,327 $ -- 7,500
Michael E. Ford
Vice President of Operations, Europe, Africa, Middle
East................................................... $ 91,032 $ 57,026 $ 73,359(3) 20,000
Douglas T. Shinsato
Vice President of Operations, Asia/Pacific............. $ 100,000 $ 66,666 $ 55,077(4) 50,000
</TABLE>
- ------------------------
(1) Reflects salary earned during 1998, but deferred, without interest, at the
election of Dr. Brown through July 1, 1999. This amount will be paid out of
the net proceeds of this offering.
(2) Reflects medical premiums paid by us while we were an S-corporation, which
are considered taxable income, and related tax gross-up payments.
(3) Reflects relocation expenses.
(4) Reflects housing allowance.
OPTION GRANTS DURING 1998
The following table sets forth information with respect to options granted
under our stock option plans to the Named Executive Officers during 1998. The
dollar amounts under the potential realizable value columns are the result of
calculations that increase, at the 5% and 10% rates set by the Securities and
Exchange Commission, the assumed initial public offering price of $ per
share and, therefore, are not intended to forecast possible future appreciation,
if any, of the price of our common stock. We
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did not use an alternative formula for a grant date valuation, as we are not
aware of any formula which will determine with reasonable accuracy a present
value based on future unknown or volatile factors.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
- --------------------------------- ----------- --------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Brown, M.D............. 45,000(1) 9.2% $ 4.50 09/22/08 $ $
John R. Gibbs.................... -- -- -- -- -- --
Jeremiah J. Fleming.............. 7,500(2) 1.5% 4.50 08/31/08
Michael E. Ford.................. 20,000(2) 4.1% 4.50 08/31/08
Douglas T. Shinsato.............. 50,000(2) 10.3% 4.00 05/29/08
</TABLE>
- ------------------------
(1) Non-qualified stock options to purchase our common stock, granted at 100% of
the deemed fair market value of the common stock on the date of grant, based
upon a determination by our board of directors. The options were immediately
exercisable as of the date of grant.
(2) Incentive stock options to purchase our common stock, granted at 100% of the
deemed fair market value of the common stock on the date of grant, based
upon a determination by our board of directors. The options are exercisable
at the rate of 20% per year, beginning on the first anniversary of the date
of grant.
OPTION EXERCISES DURING 1998 AND YEAR-END OPTION VALUES
The following table sets forth information about the exercise of options to
acquire our common stock by the Named Executive Officers during 1998, and
year-end option amounts and values. The value realized upon the exercise of
options is calculated based on the difference between the assumed initial public
offering price of $ per share and the option exercise price, multiplied by
the number of shares to which the exercise relates. The value of unexercised
in-the-money options at fiscal year-end is calculated based on the difference
between the assumed initial public offering price of $ per share and the
option exercise price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Brown, M.D......... -- $ -- 45,000 -- $ $ --
John R. Gibbs................ 266,500 139,055 -- --
Jeremiah J. Fleming.......... 15,000 1,500 73,500
Michael E. Ford.............. -- -- 4,000 36,000
Douglas T. Shinsato.......... -- -- -- 50,000 --
</TABLE>
STOCK OPTION PLANS
1995 INCENTIVE STOCK OPTION PLAN
On August 14, 1995, the board of directors and the then sole stockholder
adopted, and on November 11, 1997, the board of directors amended, the 1995
Incentive Stock Option Plan. Under the 1995 Incentive Stock Option Plan, we had
authority to award incentive stock options for up to 2,500,000 shares of our
common stock to our employees, including officers.
The 1995 Incentive Stock Option Plan was administered by the board of
directors until November 1997, when it began to be administered by an
administrative committee of the board.
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Subject to the terms of the 1995 Incentive Stock Option Plan, the board of
directors or the administrative committee had the sole discretion and authority
to select those officers and employees to whom awards were made, to designate
the number of shares to be covered by each award, to establish vesting
schedules, to specify all other terms of the awards, subject to specified
restrictions, and to interpret the 1995 Incentive Stock Option Plan.
Options granted under the 1995 Incentive Stock Option Plan generally become
vested 20% per year beginning on the first anniversary of the date of grant or
initial hire. Unvested options expire on the date the grantee's employment
terminates. Generally if the employment of a grantee of stock options under the
1995 Incentive Stock Option Plan terminates for any reason other than death or
disability, that grantee's vested options expire 30 days after the date of
termination. If the termination is on account of death or disability, the vested
options generally expire six months after termination. The 1995 Incentive Stock
Option Plan also provides that the board of directors can accelerate the vesting
of outstanding awards in the event of specified changes in control of our
company.
Upon stockholder approval of the new 1999 Stock Option and Incentive Plan on
April 16, 1999, the board of directors determined that no new options will be
granted under the 1995 Incentive Stock Option Plan. Through April 16, 1999,
options for an aggregate of 1,344,490 shares of common stock were outstanding
under the 1995 Incentive Stock Option Plan.
1995 NONSTATUTORY STOCK OPTION INCENTIVE PLAN
On August 14, 1995, the board of directors and the then sole stockholder
adopted the 1995 Nonstatutory Stock Option Incentive Plan. Under the 1995
Nonstatutory Plan, we had authority to award stock options for up to 250,000
shares of our common stock to our employees, directors and consultants.
The 1995 Nonstatutory Plan was administered by the board of directors.
Subject to the terms of the 1995 Nonstatutory Plan, the board of directors had
the sole discretion and authority to select those individuals to whom awards
were made, to designate the number of shares to be covered by each award, to
establish vesting schedules, to specify all other terms of the awards, subject
to specified restrictions, and to interpret the 1995 Nonstatutory Plan.
Subject to the discretion of the board of directors, generally if the
service of a grantee of stock options terminates for any reason other than death
or disability, that grantee's options expire at the date of termination, other
than options held by a non-employee director. If the termination is on account
of death, the vested options generally expire 12 months after death. If the
termination is on account of disability, the vested options generally expire six
months after termination. The 1995 Nonstatutory Plan also provides that the
board of directors can accelerate the vesting of outstanding awards in the event
of specified changes in control of our company.
Upon stockholder approval of the new 1999 Stock Option and Incentive Plan
and the new Outside Directors Stock Option Plan on April 16, 1999, the board of
directors determined not to issue any further options under the 1995
Nonstatutory Plan. Through that date, options for an aggregate of 9,500 shares
of common stock were outstanding under the 1995 Nonstatutory Plan.
1999 STOCK OPTION AND INCENTIVE PLAN
On April 14, 1999, the board of directors adopted, and on April 16, 1999,
the stockholders approved, the 1999 Stock Option and Incentive Plan (the "1999
Stock Option Plan"). Under the 1999 Stock Option Plan, we may award stock
options and shares of restricted stock to our officers, key employees,
consultants and other individuals as may be determined by the Compensation and
Stock Option Committee. The aggregate number of shares of common stock that may
be awarded under the
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1999 Stock Option Plan is 2,500,000, subject to adjustment in specified events.
No individual participant may receive awards for more than 250,000 shares in any
calendar year.
The 1999 Stock Option Plan is administered by the Compensation and Stock
Option Committee (the "Committee"). Subject to the terms of the 1999 Stock
Option Plan, the Committee has the sole discretion and authority to select those
officers, key employees and consultants to whom awards will be made, to
designate the number of shares to be covered by each award, to establish vesting
schedules, to specify all other terms of the awards, subject to specified
restrictions, and to interpret the 1999 Stock Option Plan.
With respect to stock options under the 1999 Stock Option Plan that are
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code, the option price must be at least 100% of the fair market value of
a share of common stock on the date of the grant of the stock option. For a
holder of more than 10% of the common stock, the option price must be at least
110% of the fair market value on the date of the grant of the stock option.
Incentive stock options may only be granted to employees. The Committee will
establish, at the time the options are granted, the exercise price of options
that do not qualify as incentive stock options ("non-qualified stock options").
An option granted under the 1999 Stock Option Plan may not be exercised more
than ten years from the date of grant, unless the Committee prescribes a shorter
period or unless some types of employment terminations require a shorter period.
An incentive stock option granted to a holder of more than 10% of the common
stock may not be exercised more than five years from the date of grant, unless
the Committee prescribes a shorter period or unless some types of employment
terminations require a shorter period. Under the 1999 Stock Option Plan, the
Committee may grant awards of restricted shares, in which case the grantee would
be granted shares of common stock, subject to such forfeiture provisions and
transfer restrictions as the Committee determines. Awards of options and shares
of restricted stock as to which restrictions have not lapsed are not
transferable other than under the laws of descent and distribution.
Subject to the discretion of the Committee, generally if the employment of a
grantee of stock options is terminated for cause, or the employment of a grantee
of restricted shares is terminated for any reason other than death, disability
or retirement, that grantee's options expire and any restricted shares are
forfeited at the date of termination. A portion of a grantee's restricted shares
automatically become vested upon termination by reason of death or disability.
The board of directors may terminate or amend the 1999 Stock Option Plan at any
time; however, subject to certain exceptions, a grantee's consent must be
obtained if the change would impair the rights of that grantee and stockholder
approval must be obtained if required by applicable law or if the change
involves some types of increases in the number of shares subject to the 1999
Stock Option Plan. The 1999 Stock Option Plan also provides for accelerated
vesting of outstanding awards in the event of a change in control of our
company. As of June 30, 1999, options for an aggregate of 148,750 shares of
common stock were outstanding under the 1999 Stock Option Plan. Under the 1999
Stock Option Plan, we may make loans to grantees with respect to the income
taxes payable on restricted stock and the option price and income taxes payable
on the exercise of options.
OUTSIDE DIRECTORS STOCK OPTION PLAN
On April 14, 1999, the board of directors adopted, and on April 16, 1999,
the stockholders approved, an Outside Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan was amended and restated by the board of
directors and the stockholders in July 1999. The Directors Plan reserves for
issuance 100,000 shares of our common stock, subject to adjustment in certain
events. Pursuant to the Directors Plan, each non-employee director will be
automatically granted an option to purchase 5,000 shares of common stock on June
1 of each year beginning June 1, 2000. The option exercise price per share will
be the fair market value of one share of our common stock on the date of grant.
Each option becomes exercisable six months following the date of grant and
expires ten years
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following the date of grant. Subject to some exceptions, options may be
exercised by the holder only if he has been in continuous service on the board
of directors at all times since the grant of the option.
OTHER OPTION PLANS
On September 22, 1998, the board of directors granted an option to purchase
45,000 shares of our common stock to Dr. Brown. The board of directors granted
this option in consideration for guarantees by Dr. Brown of some of our
commercial lines of credit and equipment leases. The exercise price for this
option is $4.50, the deemed fair market value of our common stock on the date of
grant, based upon a determination by our board of directors. The option was
immediately exercisable in full as of the date of grant and can be exercised any
time within 10 years from the date of grant.
On May 26, 1999, the board of directors granted an option to purchase 10,000
shares of our common stock to each of Dr. Anton and Mr. Cullinane in
consideration of their agreeing to become directors. The exercise price for
these options is $14.00, the deemed fair market value of our common stock on the
date of grant, based upon a determination by our board of directors. Options for
5,000 of the shares become exercisable one year after the date of grant and the
balance becomes exercisable two years after the date of grant. The options
expire ten years after the date of grant.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
On January 2, 1995, we entered into a Consulting and Employment Agreement
with John R. Gibbs, which was amended on May 14, 1999. Under the agreement, Mr.
Gibbs serves as Executive Vice President of Administration and Corporate
Development. The term of Mr. Gibbs' employment was initially for 18 months
beginning July 1, 1995; however, the agreement provides that the term
automatically renews for successive one-year terms unless either we or Mr. Gibbs
gives notice. The agreement provides that Mr. Gibbs will receive an annual
salary of $60,000, which we may increase at our discretion, and a one-time grant
of incentive stock options to purchase up to 555,555 shares of our common stock.
We have since increased Mr. Gibbs' annual salary. See "--Summary Compensation
Table." Mr. Gibbs is also eligible to participate in employee benefit plans
generally available to our employees. The agreement also contains
non-competition, non-solicitation and non-disclosure provisions, which are in
effect during the term of the agreement. The non-disclosure provisions in Mr.
Gibbs' agreement continue indefinitely after his termination of employment. The
non-compete provisions continue for a period of 12 months after his termination
of employment for any reason, as do the non-solicitation provisions unless he is
terminated by us without cause. If his employment is terminated by us without
cause, or in specified circumstances following a change of control, Mr. Gibbs
will receive severance pay equal to 12 months' salary. Under the agreement, Mr.
Gibbs also served as a consultant to the Company from January 2, 1995 until June
30, 1995.
On June 30, 1997, we entered into an Employment Agreement with Michael E.
Ford. The agreement provides that Mr. Ford will serve as Director of Sales in
Europe, Africa and Middle East. The term of Mr. Ford's employment agreement is
two years; however, the agreement provides that the term automatically renews
for successive one-year terms unless either we or Mr. Ford gives notice. The
agreement provides that Mr. Ford will receive an annual salary of $85,000, which
we may increase or decrease at our discretion with notice, and a one-time grant
of incentive stock options to purchase up to 20,000 shares of our common stock
under our 1995 Incentive Stock Option Plan. We have since increased Mr. Ford's
annual salary. See "--Summary Compensation Table." Mr. Ford also participates in
the bonus compensation program applicable to our sales employees and other
employee benefit plans generally available to our employees. The agreement also
contains non-competition and non-solicitation provisions, which are in effect
during the term of the agreement and for a period of 18 months following his
termination for any reason, and non-disclosure provisions. If his employment is
terminated by us for any reason other than for cause, Mr. Ford will receive
severance pay equal to one month's salary.
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On May 1, 1998, we entered into an Employment Agreement with Douglas T.
Shinsato. The agreement provides that Mr. Shinsato will serve as Vice
President-Asia Pacific. The term of Mr. Shinsato's employment agreement is two
years; however, the agreement provides that the term automatically renews for
successive one-year terms unless either we or Mr. Shinsato gives notice. The
agreement provides that Mr. Shinsato will receive an annual salary of $150,000,
which we may increase or decrease at our discretion with notice, and a one-time
grant of incentive stock options to purchase up to 50,000 shares of our common
stock under our 1995 Incentive Stock Option Plan. We have since increased Mr.
Shinsato's annual salary. See "--Summary Compensation Table." Mr. Shinsato also
participates in the bonus compensation program applicable to our sales employees
and other employee benefit plans generally available to our employees. The
agreement also contains non-competition and non-solicitation provisions, which
are in effect during the term of the agreement and for a period of 18 months
following his termination for any reason, and non-disclosure provisions. If his
employment is terminated by us for any reason other than for cause, Mr. Shinsato
will receive severance pay equal to one month's salary.
On March 1, 1997, we entered into an Employment Agreement with Jeremiah J.
Fleming, which was amended on May 14, 1999. The agreement provides that Mr.
Fleming will serve as Vice President of Sales, The Americas. The term of Mr.
Fleming's employment agreement is two years; however, the agreement provides
that the term automatically renews for successive one-year terms unless either
we or Mr. Fleming gives notice. The agreement provides that Mr. Fleming will
receive an annual salary of $125,000, which we may increase or decrease at our
discretion with notice, and a one-time grant of incentive stock options to
purchase up to 75,000 shares of our common stock under our 1995 Incentive Stock
Option Plan. We have since increased Mr. Fleming's annual salary. See "--Summary
Compensation Table." Mr. Fleming also participates in the bonus compensation
program applicable to our sales employees and other employee benefit plans
generally available to our employees. The agreement also contains
non-competition, non-solicitation and non-disclosure provisions, which are in
effect during the term of the agreement. The non-disclosure provisions in Mr.
Fleming's agreement continue indefinitely after termination of his employment.
The non-compete provisions continue for a period of 12 months after termination,
as do the non-solicitation provisions unless he is terminated by us without
cause. If his employment is terminated by us without cause, or in specified
circumstances following a change of control, Mr. Fleming will receive severance
pay equal to one year's total compensation.
On June 1, 1999, we entered into an Employment Agreement with Michael J.
Tavlin, which was amended on that same date. The agreement provides that Mr.
Tavlin will serve as Chief Financial Officer. The term of Mr. Tavlin's
employment agreement is two years; however, the agreement provides that the term
automatically renews for successive one-year terms unless either we or Mr.
Tavlin gives notice. The agreement provides that Mr. Tavlin will receive an
annual salary of $140,000, which we may increase or decrease at our discretion
with notice, and a one-time grant of stock options to purchase up to 55,000
shares of our common stock under our 1999 Stock Option and Incentive Plan. Mr.
Tavlin is also eligible for an annual bonus of up to $40,000 per year. The
agreement also contains non-competition, non-solicitation and non-disclosure
provisions, which are in effect during the term of the agreement. The
non-disclosure provisions in Mr. Tavlin's agreement continue indefinitely after
termination of his employment. The non-compete and non-solicitation provisions
continue for a period of 18 months after termination. If his employment is
terminated by us without cause, Mr. Tavlin will receive severance pay equal to
one month's salary. If Mr. Tavlin is terminated without cause after a change in
control, his salary and medical benefits will continue for one year after
termination.
We do not have employment or non-competition agreements with any other Named
Executive Officers.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Donald E. Brown, M.D. and John R. Gibbs served as the only
members of the Administrative Committee, which administered our stock option
plans during 1998. The board of directors had all other responsibilities to
review, determine and establish the salaries, bonuses and other compensation of
our executive officers during 1998. Our board of directors during 1998 consisted
of Messrs. Brown, Compton, Gibbs and Greising. Messrs. Brown and Gibbs continue
to serve as officers and employees of Interactive Intelligence. Mr. Greising is
not an employee, but has been our Secretary since January 1997. Except for Dr.
Brown, none of the members of the Administrative Committee or our board of
directors during 1998 were involved in a relationship requiring disclosure as an
interlocking executive officer or director or under Item 404 of Regulation S-K.
Dr. Brown is a director and 25% stockholder of Intelligent Response, Inc., a
company that provides us with telemarketing and fulfillment services. Dr. Brown
has also loaned funds to us from time to time prior to this offering, has
elected to defer the payment of his salary, and has advanced other non-interest
bearing accounts payable to us. In addition, he has guaranteed our commercial
lines of credit, our equipment leases and two of our office leases. See "Certain
Transactions." Effective April 14, 1999, we no longer have an Administrative
Committee, and the Compensation and Stock Option Committee administers our stock
option plans. See "Management--Committees of the Board of Directors.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH DIALOGIC
Dialogic Investment Corporation owned 5.6% of the shares of our common stock
as of June 30, 1999. We have entered into agreements with Dialogic Corporation,
which is the parent of Dialogic Investment Corporation. Dialogic Corporation was
recently acquired by Intel Corporation. Under a Strategic Relationship Agreement
between us and Dialogic Corporation, which commenced on March 1, 1999, Dialogic
Corporation has agreed to provide us with voice processing boards for our use
related to EIC. Dialogic Corporation has also agreed to provide us with rebate
incentives and marketing, sales and technical support. This agreement is
non-exclusive, and Dialogic Corporation is free to market any of the voice
processing boards to other customers, including companies that may compete with
us. In addition, while we have agreed to provide Dialogic Corporation notice and
a reasonable opportunity to meet our current and future product needs, we are
also free to purchase competitive products if required for our business
purposes.
The Strategic Relationship Agreement also provides that, at no cost to us,
Dialogic Corporation will provide us with an inventory of voice processing
boards valued in an amount up to $100,000, to be used exclusively for our
internal developmental and testing purposes. We may not resell this inventory
without written permission from Dialogic Corporation until after the end of the
three-year term of this arrangement. Dialogic Corporation's inventory
obligations under the Strategic Relationship Agreement terminate if we begin to
purchase a substantial portion of competitive products from other vendors. We
have already received all of the voice processing boards that Dialogic
Corporation is obligated to deliver. We believe that the Strategic Relationship
Agreement is on terms at least as favorable as we could obtain from an unrelated
third party.
We are also a party to a Support Services Agreement with Dialogic
Corporation relating to technical and professional support services to be
provided by Dialogic Corporation to us arising from the installation,
configuration, programming and maintenance of specified Dialogic Corporation
products. The annual fee is $50,000, which was waived for one year beginning
March 1, 1999, plus reasonable travel and out-of-pocket expenses. We also incur
additional per hour fees for specified services such as standby coverage,
service calls within the standby period, on-site technical support and
consulting services. The Support Services Agreement also provides that we will
not solicit for employment any Dialogic Corporation personnel performing
services under the agreement. We believe that the Support Services Agreement is
on terms at least as favorable as we could obtain from an unrelated third party.
We paid Dialogic Corporation $2,000 in 1996, $905,000 in 1997 and $871,000
in 1998 for voice processing boards and related technology and services. We
believe that these amounts were no greater than amounts which we would have paid
to unrelated third parties for similar products and services.
TELEMARKETING SERVICES
Dr. Brown is a director and 25% stockholder of Intelligent Response, Inc., a
telemarketing company, and Dr. Brown's brother is the president of that company.
In 1998, Intelligent Response began providing us with telemarketing and
fulfillment services in support of our marketing efforts. We paid Intelligent
Response $111,000 in 1998 for these services. We believe that the amounts paid
to Intelligent Response were no greater than amounts that we would have paid to
unrelated third parties for similar services. We intend to continue to use
Intelligent Response to provide telemarketing and fulfillment services.
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INSIDER ADVANCES
From time to time before this offering, Dr. Brown loaned funds to us. These
loans have an interest rate of 10% and are due on December 31, 2001. All amounts
outstanding under these loans will be repaid with a portion of the net proceeds
from this offering. As of June 30, 1999, the aggregate amount outstanding under
these loans was $7.3 million, including accrued interest. We incurred no
interest expense on these loans in 1996, $228,000 in interest expense in 1997
and $686,000 in interest expense in 1998. In addition to these loans, Dr. Brown
has also elected to defer, without interest, the payment of all of his salary
from July 1, 1996 through June 30, 1999. As of June 30, 1999, we owed Dr. Brown
$214,000 in deferred compensation and $335,000 in other non-interest bearing
accounts payable. All of Dr. Brown's deferred compensation and these other
non-interest bearing accounts payable will be paid with a portion of the net
proceeds from this offering.
GUARANTEES OF OUR OBLIGATIONS
From time to time before this offering, Dr. Brown has guaranteed our
commercial lines of credit and our equipment leases. In consideration for a
portion of these guarantees, we granted an option to purchase 45,000 shares of
our common stock to Dr. Brown on September 22, 1998. The stock option has an
exercise price of $4.50 per share, which was the deemed fair market value of our
common stock on the date of grant, based upon a determination by our board of
directors, and the option was immediately exercisable in full as of the date of
grant. In connection with this offering, we intend to replace our existing
credit facilities with a new unsecured line of credit from our primary lender,
which Dr. Brown will not be required to guarantee. In addition, Dr. Brown has
personally guaranteed two of our office leases. These guarantees and the
guarantee of our equipment leases will continue after this offering.
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PRINCIPAL AND SELLING STOCKHOLDERS
John R. Gibbs, the co-founder of Interactive Intelligence and a Named
Executive Officer, has granted the underwriters an option to purchase up to
shares of our common stock to cover over-allotments.
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 1999 by Mr. Gibbs and by the
following individuals or groups:
- each person, or group of affiliated persons, who is known by us to
beneficially own more than 5% of the outstanding shares of our common
stock;
- each director;
- each Named Executive Officer; and
- all directors and executive officers as a group.
Unless otherwise noted, we believe that all persons named in the table have sole
voting and investment power with respect to all shares beneficially owned by
them. Percentage ownership in the following table is based on 7,133,414 shares
of our common stock outstanding as of June 30, 1999 and shares of our
common stock outstanding after this offering, assuming that the underwriters do
not exercise their over-allotment options.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES --------------------------
BENEFICIALLY BEFORE THIS AFTER THIS
NAME OWNED OFFERING OFFERING
- ----------------------------------------------------------------------- ----------------- ------------- -----------
<S> <C> <C> <C>
Donald E. Brown, M.D.(1)............................................... 5,783,386(2) 80.6%
John R. Gibbs(1)....................................................... 639,264 9.0%
Jeremiah J. Fleming.................................................... 31,500(3) *
Michael E. Ford........................................................ 8,000(4) *
Douglas T. Shinsato.................................................... 10,000(5) *
Jon Anton, D.Sc........................................................ -- --
Robert A. Compton...................................................... 15,000 *
Michael P. Cullinane................................................... -- --
Dialogic Investment Corporation(6)..................................... 400,000 5.6%
All directors and executive officers as a group (10 persons)........... 6,497,150(7) 90.3%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for these stockholders is 8909 Purdue Road, Suite 300,
Indianapolis, IN 46268.
(2) Includes 45,000 shares subject to stock options exercisable within 60 days
after June 30, 1999.
(3) Includes 1,500 shares subject to stock options exercisable within 60 days
after June 30, 1999.
(4) Represents 8,000 shares subject to stock options exercisable within 60 days
after June 30, 1999.
(5) Represents 10,000 shares subject to stock options exercisable within 60 days
after June 30, 1999.
(6) The address for this stockholder is 1515 Route Ten, Parsippany, NJ 07054.
(7) Includes 64,500 shares subject to stock options exercisable within 60 days
after June 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock does not purport to be
complete and is subject in all respects to applicable Indiana law and to the
provisions of our Restated Articles of Incorporation and By-Laws, copies of
which have been filed as exhibits to the Registration Statement of which this
prospectus is a part.
Our authorized capital stock consists of 100,000,000 shares of common stock,
$.01 par value per share, and 10,000,000 shares of preferred stock, without par
value. On June 30, 1999, after giving effect to this offering, and assuming that
the underwriters do not exercise their over-allotment options, there would have
been shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding. An additional 1,504,636 shares of common
stock were issuable upon exercise of outstanding options granted as of June 30,
1999 under our stock option plans. See "Executive Compensation--Stock Option
Plans."
COMMON STOCK
Each holder of common stock is entitled to one vote per share of record on
all matters to be voted upon by the stockholders. Holders do not have cumulative
voting rights in the election of directors or any other matter. Subject to the
preferential rights of the holders of any preferred stock that may at the time
be outstanding, each share of common stock will entitle the holder of that share
to an equal and ratable right to receive dividends when, if and as declared from
time to time by the board of directors out of legally available funds. We do not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
In the event of our liquidation, dissolution or winding up, the holders of
common stock will be entitled to share ratably in all assets remaining after
payments to creditors and after satisfaction of the liquidation preference, if
any, of the holders of any preferred stock that may at the time be outstanding.
Holders of common stock have no preemptive or redemption rights and will not be
subject to further calls or assessments by us. All of the shares of common stock
to be issued and sold in this offering will be, immediately upon consummation of
this offering, validly issued, fully paid and non-assessable.
PREFERRED STOCK
The authorized preferred stock is available for issuance from time to time
at the discretion of the board of directors without stockholder approval. The
board of directors has the authority to prescribe for each series of preferred
stock it establishes the number of shares in that series, the number of votes,
if any, to which the shares in that series are entitled, the consideration for
the shares in that series, and the designations, powers, preferences and other
rights, qualifications, limitations or restrictions of the shares in that
series. Depending upon the rights prescribed for a series of preferred stock,
the issuance of preferred stock could have an adverse effect on the voting power
of the holders of common stock and could adversely affect holders of common
stock by delaying or preventing a change in control of us, making removal of our
present management more difficult or imposing restrictions upon the payment of
dividends and other distributions to the holders of common stock.
AUTHORIZED BUT UNISSUED SHARES
Indiana law does not require stockholder approval for any issuance of
authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued shares may be to enable the board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or
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<PAGE>
otherwise, and thereby protect the continuity of current management and possibly
deprive the stockholders of opportunities to sell their shares of common stock
at prices higher than prevailing market prices.
CERTAIN PROVISIONS OF RESTATED ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of our Restated Articles of Incorporation and By-Laws may
delay or make more difficult unsolicited acquisitions or changes of control of
us. These provisions could have the effect of discouraging third parties from
making proposals involving an unsolicited acquisition or change in control of
us, although these proposals, if made, might be considered desirable by a
majority of our stockholders. These provisions may also have the effect of
making it more difficult for third parties to cause the replacement of the
current management without the concurrence of the board of directors. These
provisions include:
- the division of the board of directors into three classes serving
staggered terms of office of three years (see "Management--Executive
Officers, Directors and Significant Employees");
- the availability of authorized but unissued shares of stock for issuance
from time to time at the discretion of the board of directors (see
"--Authorized But Unissued Shares");
- provisions allowing the removal of directors only for cause and only upon
a 66 2/3% stockholder vote taken at a meeting called for that purpose;
- permitting only the board of directors, the Chairman, the Chief Executive
Officer or the President to call a special meeting of stockholders; and
- requirements for advance notice for raising business or making nominations
at stockholders' meetings.
Our By-Laws establish an advance notice procedure with regard to business to
be brought before an annual or special meeting of stockholders and with regard
to the nomination of candidates for election as directors, other than by or at
the direction of the board of directors. Although our By-Laws do not give the
board of directors any power to approve or disapprove stockholder nominations
for the election of directors or proposals for action, they may have the effect
of precluding a contest for the election of directors or the consideration of
stockholder proposals if the established procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its proposal without
regard to whether consideration of those nominees or proposals might be harmful
or beneficial to us and our stockholders.
CERTAIN PROVISIONS OF INDIANA LAW
The Indiana Business Corporation Law (the "IBCL") applies to us as an
Indiana corporation. Under specified circumstances, the following provisions of
the IBCL may delay, prevent or make more difficult unsolicited acquisition or
changes of control of us. These provisions also may have the effect of
preventing changes in our management. It is possible that these provisions could
make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
CONTROL SHARE ACQUISITIONS. Under Sections 23-1-42-1 to 23-1-42-11 of the
IBCL, an "acquiring person" who makes a "control share acquisition" in an
"issuing public corporation" may not exercise voting rights on any "control
shares" unless these voting rights are conferred by a majority vote of the
disinterested stockholders of the issuing corporation at a special meeting of
those stockholders held upon the request and at the expense of the acquiring
person. If control shares acquired in a control share acquisition are accorded
full voting rights and the acquiring person acquires control shares with a
majority or more of all voting power, all stockholders of the issuing
corporation have dissenters' rights to receive the fair value of their shares.
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<PAGE>
Under the IBCL, "control shares" means shares acquired by a person that,
when added to all other shares of the issuing public corporation owned by that
person or in respect to which that person may exercise or direct the exercise of
voting power, would otherwise entitle that person to exercise voting power of
the issuing public corporation in the election of directors within any of the
following ranges:
- one-fifth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more.
"Control share acquisition" means, subject to specified exceptions, the
acquisition, directly or indirectly, by any person of ownership of, or the power
to direct the exercise of voting power with respect to, issued and outstanding
control shares. Shares acquired within 90 days or under a plan to make a control
share acquisition are considered to have been acquired in the same acquisition.
"Issuing public corporation" means a corporation which is organized in Indiana,
has 100 or more stockholders, its principal place of business, its principal
office or substantial assets within Indiana and either:
- more than 10% of its stockholders resident in Indiana;
- more than 10% of its shares owned by Indiana residents; or
- 10,000 stockholders resident in Indiana.
The above provisions do not apply if, before a control share acquisition is
made, the corporation's articles of incorporation or by-laws, including a board
adopted by-law, provide that they do not apply. Our Restated Articles of
Incorporation and By-Laws do not exclude us from the restrictions imposed by the
above provisions.
CERTAIN BUSINESS COMBINATIONS. Sections 23-1-43-1 to 23-1-43-23 of the IBCL
restrict the ability of a "resident domestic corporation" to engage in any
combinations with an "interested stockholder" for five years after the
interested stockholder's date of acquiring shares unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring shares is approved by the board of directors of the resident
domestic corporation before that date. If the combination was not previously
approved, the interested stockholder may effect a combination after the
five-year period only if that stockholder receives approval from a majority of
the disinterested shares or the offer meets specified fair price criteria. For
purposes of the above provisions, "resident domestic corporation" means an
Indiana corporation that has 100 or more stockholders. "Interested stockholder"
means any person, other than the resident domestic corporation or its
subsidiaries, who is (1) the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the outstanding voting shares of the resident
domestic corporation or (2) an affiliate or associate of the resident domestic
corporation and at any time within the five-year period immediately before the
date in question was the beneficial owner of 10% or more of the voting power of
the then outstanding shares of the resident domestic corporation. The above
provisions do not apply to corporations that so elect in an amendment to their
articles of incorporation approved by a majority of the disinterested shares.
That amendment, however, would not become effective until 18 months after its
passage and would apply only to stock acquisitions occurring after its effective
date. Our Restated Articles of Incorporation do not exclude us from the
restrictions imposed by the above provisions.
DIRECTORS' DUTIES AND LIABILITY. Under Section 23-1-35-1 of the IBCL,
directors are required to discharge their duties:
- in good faith;
- with the care an ordinarily prudent person in a like position would
exercise under similar circumstances; and
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<PAGE>
- in a manner the directors reasonably believe to be in the best interests
of the corporation.
However, the IBCL also provides that a director is not liable for any action
taken as a director, or any failure to act, unless the director has breached or
failed to perform the duties of the director's office and the action or failure
to act constitutes willful misconduct or recklessness. The exoneration from
liability under the IBCL does not affect the liability of directors for
violations of the federal securities laws.
Section 23-1-35-1 of the IBCL also provides that a board of directors, in
discharging its duties, may consider, in its discretion, both the long-term and
short-term best interests of the corporation, taking into account, and weighing
as the directors deem appropriate, the effects of an action on the corporation's
stockholders, employees, suppliers and customers and the communities in which
offices or other facilities of the corporation are located and any other factors
the directors consider pertinent. If a determination is made with the approval
of a majority of the disinterested directors of the board, that determination is
conclusively presumed to be valid unless it can be demonstrated that the
determination was not made in good faith after reasonable investigation. Once
the board has determined that the proposed action is not in the best interests
of the corporation, it has no duty to remove any barriers to the success of the
action, including a rights plan. Section 23-1-35-1 specifically provides that
specified judicial decisions in Delaware and other jurisdictions, which might be
looked upon for guidance in interpreting Indiana law, including decisions that
propose a higher or different degree of scrutiny in response to a proposed
acquisition of the corporation, are inconsistent with the proper application of
that section.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank, Chicago, Illinois.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock and we
cannot make any predictions as to the effect, if any, that market sales of
shares or the availability of shares of our common stock for future sale will
have on the market price of the common stock from time to time. Sales of
substantial amounts of our common stock in the public market following this
offering could adversely affect the market price of our common stock and our
ability to raise additional capital.
Giving effect to completion of this offering, as of June 30, 1999, we would
have had shares of common stock outstanding assuming that the
underwriters do not exercise their over-allotment options and that no
participants exercise their outstanding options under our stock option plans.
The shares of our common stock sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act except for
any of those shares that are beneficially owned at any time by our affiliates,
as defined in Rule 144 under the Securities Act, which sales will be subject to
the timing, volume and manner of sale limitations of Rule 144. The remaining
shares of our common stock outstanding after this offering held by those
who were stockholders prior to this offering will be restricted securities, as
defined in Rule 144. These restricted securities may be sold in the public
market if they are registered under the Securities Act or they are exempted by
an exemption from registration, such as the exemptions provided by Rule 144. As
a result of contractual restrictions, the 180-day lock-up described below and
the provisions of Rule 144, additional shares will be available for sale in the
public market as follows:
- restricted securities will be eligible for sale 90 days after the
date of this prospectus;
- restricted securities will be eligible for sale upon the
expiration of the lock-up agreements described below 180 days after the
date of this prospectus; and
- the remainder of the restricted securities will be eligible for sale from
time to time upon expiration of the one-year holding periods applicable to
those shares.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year will be entitled to sell, within any three-month period, a number
of shares that does not exceed the greater of 1% of the then outstanding shares
of our common stock, or the average weekly trading volume of our common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about us. If two
years have elapsed since the date of acquisition of restricted shares of our
common stock from us or any of our affiliates and the holder is not deemed to
have been an affiliate of ours for at least three months prior to a proposed
transaction, such person would be entitled to sell such shares under Rule 144
without regard to the limitations described above.
Through June 30, 1999, we have granted options to purchase 1,504,636 shares
of common stock to specified persons pursuant to our stock option plans, and an
additional 2,451,250 shares of common stock are available for grant of future
options thereunder. See "Executive Compensation--Stock Option Plans." We intend
to file a registration statement on Form S-8 as soon as practicable after the
date of this prospectus to register the shares of common stock that are issuable
upon the exercise of stock options either outstanding or available for grant
pursuant to our stock option plans. Following effectiveness, shares covered by
the registration statement on Form S-8 will be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to affiliates as well as to
the limitations on sale and vesting described above.
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<PAGE>
We, our directors and executive officers, one other significant employee and
Dialogic Investment Corporation have agreed for a period of 180 days after the
date of this prospectus not to:
- directly or indirectly offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise dispose of or
transfer any shares of our common stock or any securities convertible into
or exchangeable or exercisable for our common stock or file any
registration statement under the Securities Act with respect to any of the
foregoing; or
- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our common stock,
whether any such swap or transaction described in the first or second bullet
point above is to be settled by delivery of common stock or other securities, in
cash or otherwise, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated on behalf of the underwriters. However, these
restrictions will not apply to:
- this offering;
- the issuance by us of any shares of our common stock upon the exercise of
an outstanding option or the conversion of an outstanding security; or
- the issuance by us of any shares of our common stock or the grant by us of
options to purchase our common stock pursuant to our existing stock option
plans.
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<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Hambrecht & Quist LLC
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions set forth in the
Underwriting Agreement among us, our principal stockholder, the selling
stockholder and the underwriters, we have agreed to sell to the underwriters,
and each of the underwriters severally has agreed to purchase from us, the
number of shares of our common stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
-----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................................
Hambrecht & Quist LLC..........................................................................
U.S. Bancorp Piper Jaffray Inc.................................................................
-----------------
Total................................................................................
-----------------
-----------------
</TABLE>
In the Underwriting Agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
our common stock being sold pursuant to the Underwriting Agreement if any shares
of our common stock are purchased. Under certain circumstances, under the terms
of the Underwriting Agreement, the commitments of the non-defaulting
underwriters may be increased or the Underwriting Agreement may be terminated.
The representatives have advised us that they propose initially to offer the
shares of our common stock to the public at the initial public offering price
set forth on the cover page of this prospectus, and to certain dealers at such
price less a concession not in excess of $ per share of common stock. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of common stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
We have granted the underwriters a 30-day option to purchase up to an
aggregate of additional shares of our common stock, and Mr. Gibbs, the
selling stockholder, has granted to the underwriters a 30-day option to purchase
up to an aggregate of shares of our common stock owned by him, at the
initial public offering price set forth on the cover of this prospectus, less
the underwriting discount. The underwriters may exercise these options to cover
over-allotments, if any, made on the sale of our common stock offered by this
prospectus. The underwriters must first exercise the option to purchase the
shares offered by the selling stockholder before they can exercise the option to
purchase our shares. To the extent that the underwriters exercise either of
these options, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of our common stock
proportionate to that underwriter's initial amount reflected in the table above.
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The following table shows the per share and total underwriting discounts to
be paid by us and the selling stockholder to the underwriters. This information
is presented assuming either no exercise or full exercise by the underwriters of
their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTIONS OPTIONS
----------- --------- ---------
<S> <C> <C> <C>
Public Offering Price.............................................................
Underwriting Discount.............................................................
Proceeds, before expenses, to us..................................................
Proceeds to the selling stockholder...............................................
</TABLE>
We will not receive any of the proceeds from the sale of any shares sold by
the selling stockholder. The expenses of this offering are estimated at $
and are all payable by us.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
At our request, the underwriters have reserved up to 7% of the shares of our
common stock offered by this prospectus for sale, at the initial public offering
price, to some of our employees, executive officers, directors and resellers and
to some individuals designated by them. The number of shares of our common stock
available for sale to the general public in this offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered by this prospectus.
We, our directors and executive officers, one other significant employee and
Dialogic Investment Corporation have agreed for a period of 180 days after the
date of this prospectus not to:
- directly or indirectly offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise dispose of or
transfer any shares of our common stock or any securities convertible into
or exchangeable or exercisable for our common stock or file any
registration statement under the Securities Act with respect to any of the
foregoing; or
- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of our common stock,
whether any such swap or transaction described in the first or second bullet
point above is to be settled by delivery of common stock or other securities, in
cash or otherwise, without the prior written consent of Merrill Lynch on behalf
of the underwriters. However, these restrictions will not apply to:
- this offering;
- the issuance by us of any shares of our common stock upon the exercise of
an outstanding option or the conversion of an outstanding security; or
- the issuance by us of any shares of our common stock or the grant by us of
options to purchase our common stock pursuant to our existing stock option
plans. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no market for our common stock. The
initial public offering price will be determined through negotiations among us
and the representatives. Among the factors considered in determining the initial
public offering price, in addition to prevailing market conditions, will be the
trading multiples of publicly traded companies that the representatives believe
to be comparable to us, certain of our financial information, the history of,
and the prospects for, us and the
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industry in which we compete, an assessment of our management, our past and
present operations, the prospects for, and timing of, our future revenues, the
present state of our development, the percentage interest of our company being
sold as compared to the valuation for the entire company and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to ours. We cannot assure you that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "ININ."
The underwriters do not intend to confirm sales of our common stock to any
accounts over which they exercise discretionary authority.
We, our principal stockholder and the selling stockholder have agreed to
indemnify the underwriters against certain liabilities, including certain
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
Until the distribution of our common stock is completed, SEC rules may limit
the ability of the underwriters and certain selling group members to bid for and
purchase our common stock. As an exception to these rules, the representatives
are permitted to engage in certain transactions that stabilize the price of our
common stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing, or maintaining the price of our common stock. If commenced,
such transactions may be discontinued at any time without notice.
If the underwriters create a short position in our common stock in
connection with this offering, that is, if they sell more shares of common stock
than are set forth on the cover pages of this prospectus, the representatives
may reduce that short position by purchasing common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon by Baker & Daniels, Indianapolis, Indiana. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Mayer,
Brown & Platt, Chicago, Illinois.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, as set forth in their
reports. We have included our financial statements and schedule in this
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the
Securities Act with respect to our common stock offered hereby. This prospectus
is a part of that Registration Statement, but it does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedule to the Registration Statement. Certain parts of the Registration
Statement are omitted as allowed by the rules and regulations of the SEC. We
refer to the Registration Statement and to the exhibits and schedule to the
Registration Statement for further information with respect to us and our common
stock being offered hereby.
Copies of the Registration Statement and the exhibits and schedule to the
Registration Statement are on file at the offices of the SEC and copies may be
obtained upon payment of the prescribed fee or may be examined without charge at
the public reference facilities maintained by the SEC at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC
also maintains a World Wide Web site on the Internet at http://www.sec.gov which
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC. Upon approval of the
common stock for quotation on the Nasdaq National Market, those reports, proxy
and information statements and other information also can be inspected at
Nasdaq's office at 1735 K Street, N.W., Washington, D.C. 20006.
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INTERACTIVE INTELLIGENCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Shareholders' Deficit........................................................... F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Interactive Intelligence, Inc.
We have audited the accompanying consolidated balance sheets of Interactive
Intelligence, Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, shareholders' deficit and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interactive Intelligence,
Inc. at December 31, 1998 and 1997 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Indianapolis, IN
February 3, 1999, except as to the first paragraph of Note 5,
as to which the date is April 16, 1999
F-2
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 390 $ 2,021 $ 87
Accounts receivable, net of allowance for doubtful accounts of $148 in 1997,
$272 in 1998, and $345 in 1999............................................ 1,353 3,269 3,592
Prepaid expenses............................................................ 148 269 322
Other current assets........................................................ 20 75 104
--------- ---------- -----------
Total current assets.......................................................... 1,911 5,634 4,105
Property and equipment, net................................................... 1,197 2,440 3,509
Other assets, net............................................................. 33 165 184
--------- ---------- -----------
Total assets.................................................................. $ 3,141 $ 8,239 $ 7,798
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................................... $ 785 $ 1,597 $ 1,819
Accrued compensation and related expenses................................... 157 265 736
Lines of credit............................................................. 1,500 -- 1,055
Deferred revenue............................................................ 903 1,500 3,076
Current portion of capital lease obligations................................ 141 541 586
--------- ---------- -----------
Total current liabilities..................................................... 3,486 3,903 7,272
Accounts payable and deferred compensation - shareholder...................... 487 584 550
Notes payable and accrued interest - shareholder.............................. 5,084 7,969 7,346
Capital lease obligations, net of current portion............................. 301 937 627
Shareholders' deficit:
Preferred stock, no par value; 10,000,000 authorized; no shares issued and
outstanding................................................................. -- -- --
Common stock, $0.01 par value; 100,000,000 authorized; 5,161,000 issued and
outstanding at December 31, 1997, 6,717,261 issued and outstanding at
December 31, 1998, 7,133,414 issued and outstanding at June 30, 1999........ 77 101 107
Additional paid-in-capital.................................................... 955 9,386 10,739
Accumulated deficit........................................................... (7,249) (14,641) (18,843)
--------- ---------- -----------
Total shareholders' deficit................................................... (6,217) (5,154) (7,997)
--------- ---------- -----------
Total liabilities and shareholders' deficit................................... $ 3,141 $ 8,239 $ 7,798
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- --------- SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software............................................ $ -- $ 1,265 $ 7,662 $ 2,980 $ 5,482
Services............................................ -- 325 1,349 407 1,826
--------- --------- --------- ----------- -----------
Total revenues........................................ -- 1,590 9,011 3,387 7,308
--------- --------- --------- ----------- -----------
Costs and expenses:
Costs of software................................... -- 38 59 24 60
Costs of services................................... -- 1,258 3,381 1,387 2,360
Sales and marketing................................. 157 2,519 6,623 2,715 4,553
Research and development............................ 987 2,118 4,065 1,837 3,004
General and administrative.......................... 192 742 1,407 590 1,135
--------- --------- --------- ----------- -----------
Total costs and expenses.............................. 1,336 6,675 15,535 6,553 11,112
--------- --------- --------- ----------- -----------
Operating loss........................................ (1,336) (5,085) (6,524) (3,166) (3,804)
Interest expense, net................................. 43 361 868 428 398
--------- --------- --------- ----------- -----------
Loss before income taxes.............................. (1,379) (5,446) (7,392) (3,594) (4,202)
Income taxes.......................................... -- -- -- -- --
--------- --------- --------- ----------- -----------
Net loss.............................................. $ (1,379) $ (5,446) $ (7,392) $ (3,594) $ (4,202)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net loss per share:
Basic and diluted..................................... $ (0.49) $ (1.07) $ (1.26) $ (0.65) $ (0.59)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Shares used to compute net loss per share:
Basic and diluted..................................... 2,811 5,095 5,877 5,492 7,133
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996.................................. 2,655 $ 40 $ 491 $ (424) $ 107
Issuances of common stock................................ 2,345 35 434 -- 469
Net loss................................................. -- -- -- (1,379) (1,379)
----- ----- ----------- ------------ ---------
Balances, December 31, 1996................................ 5,000 75 925 (1,803) (803)
Exercise of stock options................................ 161 2 30 -- 32
Net loss................................................. -- -- -- (5,446) (5,446)
----- ----- ----------- ------------ ---------
Balances, December 31, 1997................................ 5,161 77 955 (7,249) (6,217)
Conversion of shareholder debt to equity................. 667 10 2,990 -- 3,000
Issuances of common stock................................ 474 7 5,326 -- 5,333
Repurchases of common stock.............................. (2) -- (12) -- (12)
Exercise of stock options................................ 417 7 127 -- 134
Net loss................................................. -- -- -- (7,392) (7,392)
----- ----- ----------- ------------ ---------
Balances, December 31, 1998................................ 6,717 101 9,386 (14,641) (5,154)
Conversion of shareholder obligations to equity.......... 87 1 1,083 -- 1,084
Issuances of common stock................................ 10 -- 120 -- 120
Repurchases of common stock.............................. (1) -- (10) -- (10)
Exercise of stock options................................ 320 5 141 -- 146
Amortization of deferred stock based compensation........ -- -- 19 -- 19
Net loss................................................. -- -- -- (4,202) (4,202)
----- ----- ----------- ------------ ---------
Balances, June 30, 1999 (unaudited)........................ 7,133 $ 107 $ 10,739 $ (18,843) $ (7,997)
----- ----- ----------- ------------ ---------
----- ----- ----------- ------------ ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------- JUNE 30,
1996 1997 1998 ------------------------
--------- --------- --------- 1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $ (1,379) $ (5,446) $ (7,392) $ (3,594) $ (4,202)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation......................................... 84 273 774 328 661
Amortization of deferred stock based compensation.... -- -- -- -- 19
Changes in operating assets and liabilities:
Accounts receivable................................ (37) (1,316) (1,916) (1,639) (323)
Prepaid expenses................................... (42) (106) (121) (1) (53)
Other current assets............................... -- (18) (55) (31) (29)
Accounts payable and accrued liabilities........... 59 674 812 318 222
Accrued compensation and related expenses.......... 75 120 108 201 471
Deferred revenue................................... -- 903 597 338 1,576
Accounts payable and deferred compensation -
shareholder...................................... 50 425 97 50 (34)
--------- --------- --------- ----------- -----------
Net cash used by operating activities.................. (1,190) (4,491) (7,096) (4,030) (1,692)
INVESTING ACTIVITIES
Purchases of property and equipment, net............... (330) (657) (697) (91) (1,730)
Change in other assets................................. (8) (23) (132) (24) (19)
--------- --------- --------- ----------- -----------
Net cash used by investing activities.................. (338) (680) (829) (115) (1,749)
FINANCING ACTIVITIES
Borrowings under lines of credit....................... 500 1,000 -- 51 1,055
Repayments of lines of credit.......................... -- -- (1,500) (51) --
Principal payments on capital lease obligations........ -- (47) (284) (104) (265)
Borrowings under notes payable and accrued interest -
shareholder.......................................... 531 4,553 5,885 3,877 461
Proceeds from issuances of common stock................ 469 -- 5,333 -- 120
Repurchases of common stock............................ -- -- (12) -- (10)
Proceeds from stock options exercised.................. -- 32 134 66 146
--------- --------- --------- ----------- -----------
Net cash provided by financing activities.............. 1,500 5,538 9,556 3,839 1,507
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... (28) 367 1,631 (306) (1,934)
Cash and cash equivalents, beginning of period......... 51 23 390 390 2,021
--------- --------- --------- ----------- -----------
Cash and cash equivalents, end of period............... $ 23 $ 390 $ 2,021 $ 84 $ 87
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplemental disclosure of non-cash investing and
financing activities:
Acquisition of property and equipment with capital
lease.............................................. $ -- $ 488 $ 1,320 $ 822 $ --
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Interactive Intelligence, Inc. ("I3" or "the Company") develops, markets,
and supports enterprise software that allows its customers to automate virtually
every aspect of their business communications. The Company's flagship product,
Enterprise Interaction Center (EIC), is a complete communications solution
providing PBX (private branch exchange), ACD (automated call distributor), IVR
(interactive voice response), unified messaging, and Internet functionality on a
single Windows NT Server. The Company currently derives substantially all of its
revenues from licenses of the Enterprise Interaction Center product and related
services.
Principal operations of the Company commenced during 1997. In 1998, the
Company established a wholly-owned subsidiary in France and a branch office in
Japan. The Company's products are marketed primarily in North America, Western
Europe, South Africa and the Asia/Pacific region.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary after elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Company generates software revenues from licensing the rights to use its
software products and also generates service revenues primarily from ongoing
maintenance (post-contract technical support and product upgrades), educational
services, and professional services performed for resellers and end-user
customers.
Revenue from software license agreements is recognized upon shipment of the
software if:
- persuasive evidence of an arrangement exists;
- sufficient vendor-specific objective evidence exists to support allocating
the total fee to all elements of the arrangement;
- the fee is fixed or determinable; and
- collection is probable.
Shipment is further defined in certain contracts as delivery of the product
master or first copy for non-cancelable product licensing arrangements under
which the reseller has certain software distribution rights. For licensing
arrangements placed through a reseller, software revenues are generally
recognized upon placement of a reseller's binding order, as delivery has
occurred through the reseller's possession of a product master and there are no
further delivery obligations on behalf of the Company.
Revenue from ongoing end-user customer maintenance is recognized ratably
over the post-contract support term, which is typically twelve months. Revenue
from educational services and professional services is recognized when the
services are performed.
F-7
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Despite management's best effort to establish good faith
estimates and assumptions, actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks and high quality
money market instruments.
FINANCIAL INSTRUMENTS
The fair value of financial instruments, including cash and cash
equivalents, accounts receivable, and debt approximate the carrying values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Leasehold improvements are
amortized using the straight-line method over the lesser of the term of the
related lease or the estimated useful life. Depreciation, which includes
amortization on capital leases, is calculated using the straight-line method
over the estimated useful lives of the assets.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. Through June 30, 1999, all research and development costs have
been expensed.
STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123), the Company uses the
intrinsic value method to account for stock options, consistent with the
existing rules established by Accounting Principles Board No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES.
F-8
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
Basic loss per share is calculated based on the weighted-average number of
outstanding common shares in accordance with Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE. Diluted loss per share is calculated based
on the weighted-average number of outstanding common shares plus the effect of
dilutive potential common shares. The Company's calculation of diluted net loss
per share excludes potential common shares as the effect would be antidilutive.
Potential common shares are composed of shares of common stock issuable upon the
exercise of stock options.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of June 30, 1999, and for
the six months ended June 30, 1998 and 1999, have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Article 10 of Regulation S-X of the Securities
Exchange Act of 1934. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company, all adjustments considered necessary to
present fairly the consolidated financial position as of June 30, 1999 and the
consolidated statements of operations, shareholders' deficit and cash flows for
the six month periods ended June 30, 1998 and 1999 have been included.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS 130). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Comprehensive income is the same as net income as there are
no applicable adjustments reported in shareholders' deficit. Accordingly, the
adoption of this statement had no impact on the Company's net income or
shareholders' deficit.
Effective January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION (SFAS 131). SFAS 131 requires public business enterprises to
report information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports. The adoption of SFAS 131 did not have a
significant effect on the disclosure of segment information as the Company
continues to consider its business activities as a single segment.
F-9
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment, including capital leases, are summarized as follows
at December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment......................................................... $ 1,123 $ 2,550
Furniture & fixtures....................................................... 149 284
Office equipment........................................................... 43 58
Leasehold improvements..................................................... 14 98
Software................................................................... 155 416
Trade show equipment....................................................... 92 187
--------- ---------
1,576 3,593
Less accumulated depreciation.............................................. 379 1,153
--------- ---------
$ 1,197 $ 2,440
--------- ---------
--------- ---------
</TABLE>
3. BANK LINES OF CREDIT
The Company has a line of credit with a bank in the amount of $1,000,000
which bears interest at the bank's prime rate (7.75% at December 31, 1998). As
of December 31, 1998 the Company had no outstanding balance under the line of
credit. The line of credit is guaranteed by the Company's primary shareholder
and expires August 31, 1999.
The Company has a line of credit with a bank in the amount of $4,000,000
which is limited to 80% of the eligible accounts receivable and bears interest
at the bank's prime rate (7.75% at December 31, 1998). As of December 31, 1998,
the Company had no outstanding balance under the line of credit. The line of
credit is secured by certain accounts receivable and is guaranteed by the
Company's primary shareholder. As of December 31, 1998, the Company has
availability of approximately $2,700,000 under this line of credit. This line of
credit expires September 30, 1999.
The Company had a line of credit with a bank in the amount of $500,000 which
bore interest at the bank's prime rate (7.75% at December 31, 1998). As of
December 31, 1998 the Company had no outstanding balance under the line of
credit. The line of credit was guaranteed by the Company's primary shareholder
and expired April 30, 1999.
In June, 1999 the Company obtained a commitment from the Company's primary
lender to extend the Company a $5,000,000 unsecured line of credit contingent
upon the Company successfully completing its initial public offering, the
negotiation and execution of definitive documents and other customary
conditions. When obtained, the line of credit will most likely be subject to
certain restrictive covenants that, among other things, will limit the Company's
ability to incur additional indebtedness or pay dividends and will require the
Company to maintain prescribed debt to equity and fixed charge coverage ratios
and minimum net worth levels.
The Company paid $43,232, $132,704, and $199,433 of interest in 1996, 1997,
and 1998, respectively.
F-10
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
4. RELATED PARTY TRANSACTIONS
At December 31, 1998 the Company had notes payable of $7,056,000 with its
primary shareholder. The notes payable and related interest, accruing at a rate
of 10% per annum ($227,862 and $913,367 at December 31, 1997, and 1998,
respectively), are due December 31, 2001. There was no interest expense on the
notes payable in 1996. Interest expense on the notes payable was $227,862, and
$685,505 in 1997 and 1998, respectively. The notes payable are subordinated to
the outstanding lines of credit.
On December 2, 1996 and December 10, 1996, the Company issued 1,250,000 and
1,095,000 shares of Common Stock to its primary shareholder for consideration
totaling $469,000. On July 31, 1998, the Company converted $3,000,000 of debt
owed to its primary shareholder into 666,667 shares of Common Stock. On February
12, 1999, the Company converted $1,100,000 of amounts owed to its primary
shareholder into 86,719 shares of Common Stock.
The Company paid to a minority shareholder $2,000 in 1996, $905,000 in 1997
and $871,000 in 1998 for voice processing boards and related technology and
services.
The Company's primary shareholder is a director and 25% shareholder in a
telemarketing company that provides both telemarketing and fulfillment services
to the Company. In 1998, the Company paid approximately $110,000 for these
services to the telemarketing company.
5. SHAREHOLDERS' EQUITY
On April 16, 1999, the Company authorized an increase in the authorized
common stock to 100,000,000 and established a par value of $.01 on the common
stock. At the same time, the Company authorized 10,000,000 shares of no par
value preferred stock. In addition, on April 16, 1999, the Company adopted the
1999 Stock Option Plan and the Directors' Stock Option Plan. In conjunction with
the adoption of these 1999 Stock Option Plans the Company will no longer issue
stock options under the 1995 Stock Option Plans.
COMMON STOCK OPTIONS The Company's Stock Option Plans, adopted in 1995 and
1999, authorize the granting of incentive and nonqualified stock options. The
Board of Directors has approved up to an aggregate of 2,600,000 shares for
issuance under the 1999 Stock Option Plans. The exercise price of the options
must not be less than the fair market value of the common stock at the date of
grant for incentive options. Options granted under the 1995 and 1999 Stock
Option Plans generally vest over five and four years, respectively. Options
generally become exercisable in equal annual installments on the anniversaries
of the date of grant. The term of each option is ten years from the date of
grant. However, in the case of an option granted to an employee who, at the time
the option is granted, owns stock representing more than ten percent of the
voting power of all classes of stock of the Company, the term of the option
shall be five years from the date of grant. The plans may be terminated by the
Board of Directors at anytime. Through June 30, 1999, the Board of Directors had
also issued 65,000 nonqualified stock options outside of the 1995 and 1999 Stock
Option Plans.
No compensation expense was recognized in 1996, 1997 or 1998. The Company
recognized compensation expense of approximately $19,000 in 1999.
F-11
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
---------------------- ----------------------- ------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- ---------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of period................... 728,055 $ 0.20 1,151,755 $ 0.20 1,554,455 $ 0.58 1,565,935 $1.88
Options granted............... 423,700 0.20 574,700 1.26 487,000 4.70 279,000 13.68
Options exercised............. -- -- (161,000) 0.20 (417,520) 0.31 (320,494) 0.45
Options canceled.............. -- -- (11,000) 1.30 (58,000) 2.06 (19,800) 3.76
--------- ---------- ----------- ---------
Options outstanding, end of
period...................... 1,151,755 $ 0.20 1,554,455 $ 0.58 1,565,935 $ 1.88 1,504,636 $4.36
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Option price range at end of
period...................... $ 0.20 $0.20-$1.30 $0.20-$12.50 $0.20-$15.78
Options available for grant at
period end.................. 1,598,245 1,034,545 605,545 2,451,250
Weighted average fair value of
options granted during the
period...................... $ 0.05 $ 0.43 $ 1.74 $4.28
</TABLE>
The following table summarizes information about the options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AT JUNE 30, CONTRACTUAL EXERCISE AT JUNE 30, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
- --------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.20 359,136 6.8 years $ 0.20 110,416 $ 0.20
$1.30 415,300 8.1 years $ 1.30 80,180 $ 1.30
$4.00-$4.50 426,700 9.1 years $ 4.25 79,140 $ 4.50
$12.50 114,250 9.5 years $ 12.50 -- --
$14.00-$15.78 189,250 9.9 years $ 14.25 -- --
</TABLE>
Pro forma information regarding net income is required by SFAS 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method of that Statement. The fair value of these options was
estimated at the date of grant using the minimum value pricing model with the
following weighted-average assumptions for 1996, 1997, and 1998 respectively:
risk-free interest rates of 5.5%, 5.5%, and 5.0%; a dividend yield of 0%; and a
weighted-average expected life of the option of 7.5 years. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
F-12
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (IN THOUSANDS):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss............................................ $ (1,388) $ (5,485) $ (7,730)
Pro forma loss per share...................................... $ (0.49) $ (1.08) $ (1.32)
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, and because the Company's options generally vest over a
4-year to 5-year period, the pro forma effect of SFAS 123 will not be fully
reflected until future years.
6. LEASE AGREEMENTS
The Company leases its headquarters facilities under non-cancelable
operating lease agreements which expire on various dates through April of 2003.
In September 1998, the Company entered into a five year lease agreement
commencing in March 1999 for 36,797 square feet of office space for its
corporate headquarters in Indianapolis, Indiana.
The Company had $488,297 and $1,809,104 of primarily computer equipment at
December 31, 1997 and 1998, respectively, under a lease line. The lease expires
in December 2000, is secured by the purchased assets and is also guaranteed by
the Company's primary shareholder.
Minimum future lease payments under non-cancelable capital and operating
leases as of December 31, 1998 are summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1999..................................................................... $ 656 $ 818
2000..................................................................... 624 977
2001..................................................................... 394 930
2002..................................................................... -- 942
2003..................................................................... -- 891
Thereafter............................................................... -- 297
--------- -----------
Total minimum lease payments............................................. 1,674 $ 4,855
-----------
-----------
Less: amount representing interest....................................... (196)
---------
Present value of lease payments.......................................... 1,478
Less: current portion.................................................... (541)
---------
Long-term portion........................................................ $ 937
---------
---------
</TABLE>
The Company also rents office space for sales offices under month-to-month
leases and leases with terms generally less than one year. Rent expense was
$88,055, $198,303, and $441,030 for 1996, 1997, and 1998, respectively.
F-13
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. CONCENTRATIONS OF RISK
Six resellers represented approximately 55% and 41% of the accounts
receivable balance at December 31, 1997 and 1998, respectively. At March 31,
1999 seven resellers represented approximately 42% of our outstanding accounts
receivable balance (unaudited). One international reseller accounted for
approximately 17% of revenues in 1997 and no reseller accounted for 10% or more
of revenues in 1998. The Company evaluates the credit worthiness of its
customers on a periodic basis. The Company generally does not require
collateral.
The Company has one supplier of voice processing boards that are necessary
for the operation of the Company's software product. If the supplier becomes
unable or unwilling to continue to manufacture and supply these voice processing
boards in the volume, price and technical specifications the Company requires,
then the Company would have to adapt its products to a substitute supplier.
8. 401(K) RETIREMENT SAVINGS PLAN
The Company maintains a 401(k) retirement savings plan to provide retirement
benefits for substantially all of its employees. Participants in the plan may
elect to contribute up to 20% of their annual compensation to the plan, limited
to the maximum amount allowed by the Internal Revenue Code. The Company, at its
discretion, may make annual contributions to the plan. The Company has made no
contributions to the plan through December 31, 1998.
9. INCOME TAXES
Effective November 5, 1998, the Company terminated its S-corporation status
for income tax purposes. From that date forward, the taxable income or loss from
operations is includable in the federal and state income tax returns of the
Company.
FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities. The Company has a net operating loss carryforward of approximately
$1 million at December 31, 1998 available to offset future taxable income for
federal income tax purposes. The carryforward will expire in 2018. Due to the
uncertainty of the realization of the benefits of its favorable tax attributes
in the future, the Company has established a valuation allowance against its
deferred tax assets as of the S-corporation
F-14
<PAGE>
INTERACTIVE INTELLIGENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
termination date and December 31, 1998. Significant components of the Company's
net deferred taxes at December 31 are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Deferred tax assets:
Accrued shareholder interest payable...................................... $ 356
Net operating loss........................................................ 258
Other..................................................................... 198
---------
Total deferred tax assets................................................... 812
Valuation allowance....................................................... (812)
---------
Net deferred taxes.......................................................... $ --
---------
---------
</TABLE>
The Company did not record any current or deferred federal, state or foreign
income tax provision or benefit for any of the periods presented due to
experiencing operating losses since inception.
10. SEGMENT DISCLOSURES
Revenues derived from non-North American customers accounted for
approximately 17% and 16% of the Company's total revenues in 1997 and 1998,
respectively and 20% in the first six months of 1999. Non-North American
revenues were predominantly derived from:
- Ireland (100%) in 1997;
- Sweden (25%), South Africa (18%), Germany (14%), the United Kingdom (7%)
and the Philippines (6%) in 1998; and
- Scotland (23%), The Netherlands (17%), the United Kingdom (16%), Italy
(10%), South Africa (9%), New Zealand (8%), Germany (7%) and Norway (6%)
in the first six months of 1999.
The Company attributes its revenues to countries based on the country in
which the end-user customer is located. Substantially all of the Company's
long-lived assets are in the United States.
11. CONTINGENCIES
In June 1999, the Company received a letter from a competitor in the call
center market claiming that the Company's products utilize technologies
pioneered and patented by that competitor. The Company's patent counsel has
reviewed all of the patents listed in the letter from the competitor. Based upon
the advice of the Company's patent counsel, the Company believes that its
products do not infringe any of the patents listed. The Company intends to
discuss its conclusion with the competitor, but cannot assure you that the
competitor will concur with the Company's conclusion or that this matter can be
resolved amicably, without infringement claims being made by the competitor or
without a material adverse effect on the Company's business, financial condition
or results of operations.
F-15
<PAGE>
[INSIDE BACK COVER]
THE ENTERPRISE INTERACTION CENTER IS AVAILABLE IN SEVERAL DIFFERENT LANGUAGE
VERSIONS.
[SCREEN CAPTURES OF JAPANESE LANGUAGE VERSION
AND GERMAN LANGUAGE VERSION]
[PHOTOGRAPHS OF AWARDS, INCLUDING CALL CENTER SOLUTIONS
PRODUCT OF THE YEAR - 1998, COMPUTER TELEPHONY 1998 PRODUCT
OF THE YEAR, CALLCENTER 1998 PRODUCT OF THE YEAR, CTI PRODUCT
OF THE YEAR-1998, AND WINDOWS NT MAGAZINE '99 INNOVATIONS
[LOGO]
INTERACTIVE INTELLIGENCE-Registered Trademark-
<TABLE>
<S> <C> <C>
WORLD HEADQUARTERS EUROPEAN HEADQUARTERS ASIA/PACIFIC HEADQUARTERS
8909 PURDUE ROAD, SUITE 300 580 AVENUE WOLFGANG AMADEUS MOZART FERRARE BUILDING 3F, 1-24-15 EBISU
INDIANAPOLIS, IN 46268 USA AIX-EN-PROVENCE - CEDEX 1, 13100 FRANCE SHIBUYA-KU, TOKYO 1 50-0013, JAPAN
317.872.3000 VOICE & FAX +33 442.910.910 VOICE & FAX +81 3.5423.7141 VOICE
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligations to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
[LOGO]
INTERACTIVE INTELLIGENCE, INC.
COMMON STOCK
--------------
P R O S P E C T U S
--------------
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All the amounts
shown are estimates, except the Securities and Exchange Commission registration
fee, the Nasdaq National Market listing fee and the NASD filing fee. Items that
are not included will be supplied by amendment.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 12,788
Nasdaq National Market listing fee................................
NASD filing fee................................................... 5,100
Blue sky fees and expenses........................................ 5,000
Accounting fees and expenses...................................... 125,000
Legal fees and expenses........................................... 100,000
Printing and engraving expenses................................... 225,000
Transfer Agent and Registrar fees and expenses.................... 10,000
Miscellaneous expenses............................................
---------
Total...........................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Indiana Business Corporation Law provides that a corporation, unless
limited by its articles of incorporation, is required to indemnify its directors
and officers against reasonable expenses incurred in the successful defense of
any proceeding arising out of their serving as a director or officer of the
corporation.
As permitted by the Indiana Business Corporation Law, the Registrant's
Restated Articles of Incorporation provide for indemnification of directors,
officers, employees and agents of the Registrant against any and all liability
and reasonable expense that may be incurred by them, arising out of any claim or
action, civil, criminal, administrative or investigative, in which they may
become involved by reason of being or having been a director, officer, employee
or agent. To be entitled to indemnification, those persons must have been wholly
successful in the claim or action or the board of directors must have
determined, based upon a written finding of legal counsel or another independent
referee, or a court of competent jurisdiction must have determined, that such
persons acted in good faith in what they reasonably believed to be the best
interest of the Registrant (or at least not opposed to its best interests) and,
in addition, in any criminal action, had reasonable cause to believe their
conduct was lawful (or had no reasonable cause to believe that their conduct was
unlawful). The Restated Articles of Incorporation authorize the Registrant to
advance funds for expenses to an indemnified person, but only upon receipt of an
undertaking that he or she will repay the same if it is ultimately determined
that such party is not entitled to indemnification.
The Registrant also has an Indemnity Agreement with each of its directors
and executive officers. The standard for indemnification under the Indemnity
Agreement is substantially the same as under the Registrant's Restated Articles
of Incorporation. The Indemnity Agreement, however, provides for mandatory
advancement of expenses if the indemnitee provides the Registrant with a written
affirmation of the indemnitee's good faith belief that he or she is entitled to
indemnification and a written undertaking to repay the advance if it is
ultimately determined that the indemnitee is not entitled to indemnification.
The undertaking need not be secured. The Indemnity Agreement also provides for
mandatory advancement of expenses in derivative actions on behalf of the
Registrant against an indemnitee.
S-1
<PAGE>
The rights of indemnification provided by the Restated Articles of
Incorporation and the Indemnity Agreements are not exhaustive and are in
addition to any rights to which a director or officer may otherwise be entitled
by contract or as a matter of law. Irrespective of the provisions of the
Restated Articles of Incorporation and the Indemnity Agreements, the Registrant
may, at any time and from time to time, indemnify directors, officers, employees
and other persons to the full extent permitted by the provisions of applicable
law at the time in effect, whether on account of past or future transactions.
The Registrant, Donald E. Brown, M.D., the Registrant's Chairman of the
Board, and John R. Gibbs, the Registrant's Executive Vice President, have agreed
to indemnify the Underwriters, and the Underwriters have agreed to indemnify the
Registrant, Dr. Brown and Mr. Gibbs, against certain civil liabilities,
including liabilities under the Securities Act. See the Form of Underwriting
Agreement filed as Exhibit 1 hereto.
In addition, the Registrant is obtaining a directors' and officers'
liability and company reimbursement policy that insures against certain
liabilities under the Securities Act, subject to applicable retentions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished as to securities of the Registrant
sold within the past three years that were not registered under the Securities
Act. All of the information is adjusted for the -for- stock split
effected as a stock dividend on , 1999.
(a) On December 2, 1996, the Registrant issued 1,250,000 shares of common
stock to Donald E. Brown, M.D. for an aggregate purchase price of $250,000.
(b) On December 10, 1996, the Registrant issued 1,095,000 shares of common
stock to Donald E. Brown, M.D. for an aggregate purchase price of $219,000.
(c) From December 10, 1996 through May 1, 1999, the Registrant has issued
promissory notes to Donald E. Brown, M.D. The promissory notes had an aggregate
principal amount of $10,056,000, bear interest at a rate of 10% per annum and
mature on December 31, 2001. Certain amounts of the outstanding principal due
under such promissory notes have been converted into shares of common stock (see
paragraph (d)).
(d) On July 31, 1998, the Registrant issued 666,667 shares of common stock
to Donald E. Brown, M.D., in exchange for the cancellation of $3,000,000 in debt
of the Registrant to Dr. Brown.
(e) On July 31, 1998, the Registrant issued 74,074 shares of common stock to
John R. Gibbs for an aggregate purchase price of $333,333.
(f) On November 5, 1998, the Registrant issued 400,000 shares of common
stock to Dialogic Investment Corporation for an aggregate purchase price of
$5,000,000.
(g) On February 12, 1999, the Registrant issued 86,719 shares of common
stock to Donald E. Brown, M.D., in exchange for the cancellation of
$1,083,987.50 in accrued interest and deferred compensation payable by the
Registrant to Dr. Brown.
(h) On February 12, 1999, the Registrant issued 9,635 shares of common stock
to John R. Gibbs for an aggregate purchase price of $120,443.
(i) From August 1995 through April 16, 1999, the Registrant granted options
for an aggregate of 2,278,705 shares of common stock to 171 officers, directors,
employees and consultants under the Registrant's 1995 Incentive Stock Option
Plan and the Registrant's 1995 Nonstatutory Stock Option Incentive Plan. The per
share exercise price for such options range from $0.20 to $14.00. Through June
30, 1999, 899,019 of such outstanding options were exercised and 88,800 have
been canceled.
S-2
<PAGE>
(j) On September 22, 1998, the Registrant granted an option to purchase
45,000 shares of common stock to Donald E. Brown, M.D. The exercise price for
such option is $4.50 per share.
(k) From April 16, 1999 through June 30, 1999, the Registrant granted
options for an aggregate of 148,750 shares of common stock to 37 officers,
employees and other individuals under the Registrant's 1999 Stock Option and
Incentive Plan. The per share exercise price for such options range from $14.00
to $15.78.
(l) On May 26, 1999, the Registrant granted an option to purchase 10,000
shares of common stock to each of two new directors of the Registrant. The
exercise price for these options is $14.00 per share.
(m) On , 1999, all of the Registrant's outstanding shares of
common stock were split on a -for- basis, effected as a stock dividend.
The transactions described in paragraphs (a) through (h) above are exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act. The transactions described in paragraphs (i) through
(l) above are exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act and/or Rule 701 promulgated
thereunder. The transaction described in paragraph (m) above is exempt from the
registration requirements of the Securities Act because it did not involve a
"sale" of a security within the meaning of Section 2(3) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The list of exhibits is incorporated herein by reference to the Index to
Exhibits on page E-1.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
S-3
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, State of Indiana, on the 13th day of July, 1999.
<TABLE>
<S> <C> <C>
INTERACTIVE INTELLIGENCE, INC.
By: /s/ DONALD E. BROWN, M.D.
-----------------------------------------
Donald E. Brown, M.D.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in their
respective capacities and on the respective dates set forth opposite their
names.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman, President, Chief
/s/ DONALD E. BROWN, M.D. Executive Officer and
- ------------------------------ Director (Principal July 13, 1999
Donald E. Brown, M.D. Executive Officer)
/s/ JOHN R. GIBBS
- ------------------------------ Executive Vice President July 13, 1999
John R. Gibbs and Director
/s/ MICHAEL J. TAVLIN Chief Financial Officer
- ------------------------------ (Principal Financial July 13, 1999
Michael J. Tavlin Officer)
Vice President of Finance
/s/ KEITH A. MIDKIFF and Controller
- ------------------------------ (Principal Accounting July 13, 1999
Keith A. Midkiff Officer)
/s/ ROBERT A. COMPTON*
- ------------------------------ Director July 13, 1999
Robert A. Compton
/s/ JON ANTON, D.SC.*
- ------------------------------ Director July 13, 1999
Jon Anton, D.Sc.
/s/ MICHAEL P. CULLINANE*
- ------------------------------ Director July 13, 1999
Michael P. Cullinane
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN R. GIBBS
-------------------------
John R. Gibbs
ATTORNEY-IN-FACT
</TABLE>
S-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
INTERACTIVE INTELLIGENCE, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ------------------------------------- BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS--DESCRIBE DESCRIBE PERIOD
- ---------------------------------------- ---------- ---------------- ------------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts..... $ -- -- -- -- $ --
Year ended December 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts..... $ -- 148,000 -- -- $ 148,000
Year ended December 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts..... $ 148,000 188,000 -- 64,000(1) $ 272,000
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
1** Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of the Registrant
3.2 By-Laws of the Registrant, as amended to date
5** Opinion of Baker & Daniels
10.1 1995 Incentive Stock Option Plan
10.2 1995 Nonstatutory Stock Option Incentive Plan
10.3 1999 Stock Option and Incentive Plan
10.4* Outside Directors Stock Option Plan, as amended
10.5 Subscription Agreement for Shares of Common Stock between the Registrant and Dialogic Investment
Corporation
10.6 Strategic Relationship Agreement between the Registrant and Dialogic Corporation
10.7 Support Services Agreement between the Registrant and Dialogic Corporation
10.8(i) Consulting and Employment Agreement between the Registrant and John R. Gibbs, dated January 2, 1995
(ii)** Amendment A, dated May 14, 1999, to Consulting and Employment Agreement between the Registrant and
John R. Gibbs, dated January 2, 1995
10.9 Employment Agreement between the Registrant and Michael E. Ford, dated June 30, 1997
10.10 Employment Agreement between the Registrant and Keith A. Midkiff, dated February 10, 1997
10.11 Employment Agreement between the Registrant and Douglas T. Shinsato, dated May 1, 1998
10.12(i)* Employment Agreement between the Registrant and Jeremiah J. Fleming, dated as of March 1, 1997
(ii)* Amendment A, dated May 14, 1999, to Employment Agreement between the Registrant and Jeremiah J.
Fleming, dated as of March 1, 1997
10.13 Letter of Assignment between the Registrant and Michael E. Ford, effective August 1, 1998
10.14 Stock Option Agreement between the Registrant and Donald E. Brown, M.D., dated September 22, 1998
10.15 Variable Rate Commercial Revolving or Draw Note, dated August 27, 1998, made by the Registrant in
favor of People's Bank and Trust Company
10.16 Variable Rate Commercial Revolving or Draw Note, dated October 1, 1998, made by the Registrant in
favor of People's Bank and Trust Company
10.17 Revolving Credit Loan Agreement, dated August 25, 1995, between the Registrant and Society National
Bank (now KeyBank National Association) ("KeyBank"), Revolving Credit Loan Agreement Note made by
the Registrant in favor of Society National Bank, dated August 25, 1995, and Note Modification
Agreements, dated April 29, 1996, May 8, 1996, April 30, 1997 and April 20, 1998, each between the
Registrant and KeyBank
10.18 Consolidated Subordinated Promissory Note made by the Registrant in favor of Donald E. Brown, M.D.,
dated May 1, 1999
10.19 Office Lease, dated September 16, 1998, between the Registrant and College Park Plaza Associates,
Inc.
10.20(i)* Employment Agreement between the Registrant and Michael J. Tavlin, dated June 1, 1999
(ii)* Amendment A, dated June 1, 1999, to Employment Agreement between the Registrant and Michael J.
Tavlin, dated June 1, 1999
10.21* Stock Option Agreement between the Registrant and Jon Anton, D.Sc., dated May 26, 1999
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
10.22* Stock Option Agreement between the Registrant and Michael P. Cullinane, dated May 26, 1999
10.23* Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
21 Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
23.2 Consent of Baker & Daniels (contained in Exhibit 5)
23.3 Consent of Michael J. Tavlin
23.4* Consent of Woodard, Emhardt, Naughton, Moriarty & McNett
24 Power of Attorney (included on signature page)
27* Financial Data Schedule
</TABLE>
- ------------------------
* Filed with this amendment.
** To be filed by amendment.
E-2
<PAGE>
EXHIBIT 10.4
INTERACTIVE INTELLIGENCE, INC.
OUTSIDE DIRECTORS STOCK OPTION PLAN
1. PLAN PURPOSE. The purpose of the Plan is to advance the
interests of the Company and its stockholders by encouraging increased Common
Stock ownership by members of the Board who are not employees of the Company
or any of its Subsidiaries, in order to promote long-term stockholder value
through the directors' continuing ownership of the Common Stock.
2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms, when used in the Plan, shall have the meanings set forth below.
"Board" means the Board of Directors of the Company, as it may from
time to time be constituted.
"Company" means Interactive Intelligence, Inc., and any successor by
merger or consolidation.
"Eligible Director" means a member of the Board who is not at the time
of receipt of an Option an employee of the Company or any of its
Subsidiaries.
"Grantee" means an Eligible Director who has been granted an Option.
"Market Value" means the last sale price on the date in question (or,
if there is no reported sale on such date, on the last preceding date
on which any reported sale occurred) of one Share on the principal
exchange on which the Shares are listed for trading, or if the Shares
are not listed for trading on any exchange, on the NASDAQ National
Market System or any similar system then in use, or, if the Shares are
not listed on the NASDAQ National Market System, the mean between the
closing high bid and low asked quotations of one Share on the date in
question as reported by NASDAQ or any similar system then in use, or,
if no such quotations are available, the fair market value on such
date of one Share as the Board shall determine.
"Option" means a non-qualified option to purchase Shares.
"Plan" means the Interactive Intelligence, Inc. Outside Directors
Stock Option Plan, as set forth herein and as amended from time to
time.
"Reorganization" has the meaning ascribed thereto in Section 8 hereof.
"Shares" means shares of the common stock, $.01 par value, of the
Company, or in the singular means one of the Shares.
<PAGE>
"Subsidiary" means any corporation at least 50% of whose outstanding
voting stock is owned, directly or indirectly, by the Company.
3. ADMINISTRATION. The Plan shall be administered by the Board.
The Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreements embodying Options. The Board shall,
subject to the provisions of the Plan, grant Options pursuant to the Plan and
shall have the power to construe the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the Board
in the administration of the Plan, as described herein, shall be final and
conclusive.
4. PARTICIPATION. Each Eligible Director shall be eligible to
receive Option grants in accordance with Sections 6, 7, 8 and 9 herein.
5. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation
of Section 8 herein, the maximum number of Shares with respect to which Options
may be granted under the Plan is 100,000 Shares. The Shares with respect to
which grants may be made under the Plan may either be authorized and unissued
shares or unissued shares heretofore or hereafter reacquired and held as
treasury shares. With respect to any Option which terminates or is surrendered
for cancellation, new grants may be made under the Plan with respect to the
number of Shares as to which such termination or forfeiture has occurred.
6. GRANTS UNDER PLAN. Options may be granted under the Plan,
subject to the terms, conditions and restrictions specified in Sections 7, 8 and
9 herein. Shares of Common Stock that are the subject of an Option but not
purchased prior the expiration of the term of the Option, shall thereafter be
considered unissued for purposes of the maximum number of Shares that may be
issued under the Plan, and may again be the subject of Option grants under the
Plan. If at any time, the Shares remaining available for Option grants are not
sufficient to make all Option grants then required to be made under the Plan, no
Option grants shall be made. An Eligible Director to whom an Option is provided
to be granted or is granted under the Plan (and any person succeeding to such an
Eligible Director's right pursuant to the Plan), shall have no rights as a
stockholder with respect to any shares of Common Stock issuable pursuant to any
such Option until such Option is exercised. Except as provided in Sections 8
and 9 herein, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date an Option is
exercised. Except as expressly provided for in the Plan, no Eligible Director
or other person shall have any claim or right to be granted an Option. Neither
the Plan nor any action taken hereunder shall be construed as giving any
Eligible Director any right to be retained in the service of the Company.
7. OPTION GRANTS. On June 1 of each year, commencing June 1, 2000,
each Eligible Director on such date shall be automatically granted an Option to
purchase 5,000 Shares.
-2-
<PAGE>
Each Option shall be evidenced by an agreement in such form as the Board
shall prescribe from time to time in accordance with the Plan and shall
comply with the following terms and conditions and such additional terms and
conditions not inconsistent with the Plan as may from time to time be
prescribed by the Board.
(a) The Option exercise price per share shall be equal to the
Market Value of one Share on the date the Option is granted.
(b) The Option shall not be transferable by the Grantee
otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.
(c) The Option shall not be exercisable before the expiration of
six months from the date it is granted or after the expiration of ten
years from the date it is granted.
(d) Payment of the Option exercise price shall be made at the
time the Option is exercised, and shall be made in United States
dollars by cash or check or other form of consideration acceptable to
the Board.
(e) An Option shall not be exercisable unless the person
exercising the Option has been, at all times during the period
beginning with the date of grant of the Option and ending on the date
of such exercise, in continuous service on the Board, except that
(i) if any Grantee of an Option shall die or become
permanently disabled or shall retire with the consent of the
Board, holding an Option that has not expired and has not
been fully exercised, he or his executor, administrators,
heirs or distributees, as the case may be, may, at any time
within one year after the date of such event (but in no
event after the Option has expired under the provisions of
paragraph 7(c)), exercise the Option with respect to any
Shares as to which the Grantee could have exercised the
Option at the time of his death, disability, or retirement;
or
(ii) if a Grantee shall cease to serve as a director of
the Company for any reason other than those set forth in
7(e)(i) above, while holding an Option that has not expired
and has not been fully exercised, the Grantee, at any time
within three months of the date he ceased to be such an
Eligible Director (but in no event after the Option has
expired under the provisions of paragraph 7(c)), may
exercise the Option with respect to any Shares as to which
he could have exercised the Option on the date he ceased to
be such an Eligible Director.
-3-
<PAGE>
(f) Each Grantee shall pay to the Company, or make arrangements
satisfactory to the Board regarding the payment of, any federal, state
or local taxes of any kind required by law to be withheld with respect
to the Shares as to which an Option is being exercised.
8. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in
the outstanding Shares by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares or other similar event ("Reorganization"), the number or
kind of Shares that may be issued under the Plan pursuant to Sections 5 and 6
herein, the number or kind of Shares subject to any outstanding Option, and
the Option price per Share under any outstanding Option, shall be
automatically adjusted so that the proportionate interest of the Eligible
Directors or of the Grantee shall be maintained as before the occurrence of
such event. Any adjustment in outstanding Options shall be made without
change in the total Option exercise price applicable to the unexercised
portion of such Options and with a corresponding adjustment in the Option
exercise price per Share. Any adjustment permitted by this Section 8 shall
be conclusive and binding for all purposes of the Plan. The Board's
determination in this respect shall be final and conclusive.
9. EFFECT OF REORGANIZATION. Awards will be affected by a
Reorganization as follows:
(a) If the Reorganization is a dissolution or liquidation of the Company
then each outstanding Option shall terminate, but each Grantee shall have the
right, immediately prior to such dissolution or liquidation to exercise his
Option in full, notwithstanding the provisions of Section 7(c), and the Company
shall notify each Grantee of such right within a reasonable period of time prior
to any such dissolution or liquidation.
(b) If the Reorganization is a merger or consolidation, each Grantee shall
be entitled, upon exercise of his Option in accordance with all of the terms and
conditions of the Plan (other than the provisions of Section 7(c) which shall
not apply in such circumstances), to receive in lieu of Shares, shares of such
stock or other securities or consideration as the holders of Shares shall be
entitled to receive pursuant to the terms of the Reorganization.
(c) The adjustments contained in this Section 9 and the manner of
application of such provisions shall be determined solely by the Board.
10. MISCELLANEOUS PROVISIONS. (a) An Eligible Director's rights and
interests under the Plan may not be assigned or transferred in whole or in part
either directly or by operation of law or otherwise (except, in the event of a
Grantee's death, by will or the laws of descent and distribution), including,
but not by way of limitation, execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner, and no such right or interest of any Eligible
Director in the Plan shall be subject to any obligation or liability of such
Eligible Director.
-4-
<PAGE>
(b) If the Shares that are the subject of an Option are not
registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, the Grantee, if the Board shall deem it
advisable, may be required to represent and agree in writing (i) that any
Shares acquired by such Grantee pursuant to the Plan will not be sold except
pursuant to an exemption from registration under said Act and (ii) that such
Grantee is acquiring such Shares for his own account and not with a view to
the distribution thereof. No Shares shall be issued hereunder unless counsel
for the Company shall be satisfied that such issuance will be in compliance
with applicable federal, state and other securities laws. No person shall
have any rights of a shareholder (including, but not limited to, voting and
dividend rights) as to Shares subject to an Option until, after proper
exercise of the Option or other action as may be required by the Board in its
discretion, such Shares shall have been recorded on the Company's official
shareholder records (or the records of its transfer agents or registrars) as
having been issued and transferred to the Grantee. Upon exercise of the
Option or any portion thereof, the Company will have a reasonable period in
which to issue and transfer the Shares to the Grantee, and the Grantee will
not be treated as a shareholder for any purpose whatsoever prior to such
issuance and transfer. No payment or adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date such
Shares are recorded as issued and transferred in the Company's official
shareholder records (or the records of its transfer agents or registrars),
except as provided herein.
(c) By accepting any Options under the Plan, each Grantee and each
person claiming under or through him shall be conclusively deemed to have
indicated his acceptance and ratification of and consent to, the terms and
conditions of the Plan and any action taken under the Plan by the Company or
the Board.
11. AMENDMENT. The Board may at any time and from time to time and
in any respect amend or modify this Plan; provided, however, that any amendments
requiring shareholder approval under any applicable rule of the Securities and
Exchange Commission, any stock exchange, NASDAQ National Market System or other
regulatory body shall be subject to approval by the shareholders of the Company
in the manner required by such rule.
12. TERMINATION. The Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) Upon the adoption of a resolution of the Board terminating
the Plan; or
(b) Upon the award or the purchase upon exercise of Options of
all the Shares provided to be the subject of Options under Sections 6
and 7, as adjusted pursuant to Section 8.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any Grantee, without his consent, under any Option
theretofore granted under the Plan.
-5-
<PAGE>
13. EFFECTIVE DATE. The Plan shall be effective upon its approval by
the holders of at least a majority of the outstanding Shares at a meeting at
which approval of the Plan is considered and shall continue in effect until
terminated under Section 12 hereof.
-6-
<PAGE>
EXHIBIT 10.12(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into, effective
as of the 1st day of March, 1997, by and between Jeremiah H. Fleming
("Employee") and Interactive Intelligence, Inc. ("Company"), an Indiana
corporation.
WITNESSETH:
WHEREAS, the Employee possesses certain skills which the Company wishes to
utilize in its business, and the Employee wishes to provide certain services to
the Company upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and agreements contained herein and other good and valuable consideration, the
receipt, legal adequacy and sufficiency of which are hereby acknowledged, the
parties agree as follows:
SECTION 1. EMPLOYMENT. The Company engages the Employee to serve the
Company, and the Employee agrees to serve the Company as an employee in such
capacities as the Board of Directors of the Company may, from time to time,
determine, upon the terms and conditions hereinafter set forth.
SECTION 2. TERM; RENEWAL. The term of the Employee's employment under
this Agreement shall be for an initial term commencing and ending on the dates
set forth on the Addendum attached hereto and incorporated herein by reference
("Addendum"), which term shall automatically renew for successive one (1) year
terms, on the same terms and conditions set forth herein unless either the
Company or the Employee gives written notice to the other, at least thirty (30)
days prior to the expiration of the initial term or any renewal term, that the
term will not renew.
SECTION 3. TITLE, SERVICES AND DUTIES.
(a) During the term of employment hereunder, the Employee shall serve in
the capacities described on the Addendum and shall perform the duties and
responsibilities described on the Addendum or as are normally associated with
such a position in the Company's industry and as may be delegated to the
Employee by the President or the Company's Board of Directors.
(b) During such employment, the Employee shall devote substantially all of
the Employee's business time, attention, energy and skill to the business of
the Company, and shall perform such services in a faithful, competent and
diligent manner at the direction of the President and of the Company's Board of
Directors.
(c) During the Employee's employment, the Company shall provide the
Employee with such office facilities and support services as the Company
determines in its business judgment to be appropriate for the Employee to
perform the Employee's duties and responsibilities hereunder.
<PAGE>
(d) The Employee shall comply with all policies and procedures adopted by
the Company from time to time, including without limitation, policies regarding
reimbursement for business expenses incurred on behalf of the Company, and
compliance with applicable laws.
SECTION 4. COMPENSATION AS EMPLOYEE. At all times during the initial
term or any renewal term of this Agreement, the Company shall pay the Employee
an annual salary in the amount set forth in the Addendum, payable at the usual
payroll payment dates of the Company, and any other options or benefits set
forth in the Addendum. All amounts paid hereunder by Company to the Employee
shall be subject to all applicable local, state and federal withholding taxes.
The Company may increase or decrease the salary set forth herein from time to
time, in its sole discretion, but any decrease may only be made upon fifteen
(15) days prior notice.
SECTION 5. TERMINATION AND SEVERANCE PAYMENTS
(a) In the event that the employment of the Employee is terminated for
cause or in the event that the Employee resigns his/her employment with the
Company, the Employee shall be paid any salary and any other benefits which have
then accrued and to which the Employee is entitled to at such time. However, in
such event, the Employee shall not be entitled to any severance compensation as
set forth in subparagraph (b) below.
(b) In the event that the employment of the Employee is terminated by the
Company for any reason other than for cause, in addition to receiving all
accrued salary and benefits to which the Employee is entitled to at such time,
the Company further agrees to pay the Employee as severance pay an amount equal
to the Employee's salary as in effect at such time for an additional one (1)
month from the date of termination, with payments to be made on the Company's
usual payroll payment dates.
(c) All amounts paid under Subsections (a) or (b) hereof to the Employee
shall be subject to all applicable local, state or federal withholding taxes, if
any.
SECTION 6. EMPLOYEE BENEFITS.
(a) The Employee shall be limited each calendar year to a vacation benefit
for the amount of time shown in the Addendum (prorated from the date of
commencement to the end of that applicable calendar year). All vacation
benefits must be fully utilized in the calendar year in which accrued, provided
that (i) no vacation may be taken during the first six (6) months of the initial
term hereof without the prior written consent of the Company, (ii) the Employee
must comply with procedures adopted from time to time by the Company with
respect to the scheduling of vacations, and (iii) if because of the Company's
requirements, the Company does not approve the Employee's requested vacation
schedule and thus prevents the Employee from fully utilizing all of the
Employee's vacation in the year earned, the Company and the Employee shall in
good faith make arrangements for either the carryover of such unused vacation to
the next calendar year or such other arrangements as are mutually satisfactory.
(b) During the term of the Employee's employment hereunder, the Employee
shall be entitled to participate, upon the same terms and conditions applicable
to employees generally in any life, health, hospitalization or any other
insurance program, or any other pension or benefit
2
<PAGE>
plan which the Company may from time to time provide or make available to the
Company's employees and for which the Employee is eligible and qualified;
provided that if the inclusion of the Employee under any such program or plan
causes or would cause either such program or plan to be terminated or the
Company to incur a materially disproportionate additional cost, the Company
may elect to provide benefits of a substantially similar nature which avoids
such adverse effects.
SECTION 7. COVENANT NOT TO COMPETE.
(a) During the Employee's service hereunder and for a period of eighteen
(18) months thereafter, regardless of the reason or method of termination, the
Employee will not, directly or indirectly, for the Employee's own benefit or the
benefit of any other person or entity:
(i) solicit in any manner, seek to obtain, or service the business of
any customer of the Company, other than for the Company;
(ii) become an owner of any business, if such business competes with
the Company;
(iii) become employed by or serve as an agent, independent contractor
or representative of any business which competes with the Company;
(iv) solicit the employment of or hire any employee of the Company, or
encourage any employee to terminate his or her employment with the Company; or
(v) prepare in any manner to compete with the Company.
(b) For purposes of this Agreement, a "customer" shall be deemed to be any
person, business, partnership, proprietorship, firm, organization or corporation
which has done business with the Company or which has been solicited or serviced
in any manner, directly or indirectly, by the Company within eighteen (18)
months prior to the date of the termination of the Employee, and the phrase
"service the business of any customer" means the development, modification,
enhancement or improvement of any product or service offered by the Company or
which is reasonably related to the products or services offered by the Company.
The Employee hereby acknowledges that, by virtue of the Employee's position and
access to information, the Employee will have advantageous familiarity and
personal contacts with the Company's customers, wherever located, and that the
restrictions contemplated hereby are reasonable for the protection of the
Company's goodwill and customer base, and the Company's efforts in the
development of such customers.
(c) If the Employee does not comply with the provisions of this Section
7, the eighteen (18) month period of non-competition provided herein shall be
tolled and deemed not to run during any period(s) of noncompliance, the
intention of the parties being to provide eighteen (18) full months of
non-competition by the Employee after the termination or expiration of this
Agreement.
SECTION 8. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
(a) The term "Confidential Information" as used herein shall mean any and
all software programs, customer lists, trade secrets and information, know-how,
skills, knowledge, ideas, knowledge of customer's commercial requirements,
pricing methods, sales and marketing techniques, dealer relationships and
agreements, financial information, intellectual property,
3
<PAGE>
codes, algorithms, research, development, research and development programs,
processes, documentation, inventions, or devices used in or pertaining to the
Company's business (i) which relate in any way to the Company's business,
products or processes; or (ii) which are discovered, conceived, developed or
reduced to practice by the Employee, either alone or with others either (x)
during the term of this Agreement; or (y) at the Company's expense; or (z) on
the Company's premises or with the Company's equipment.
(b) During the course of his/her services hereunder, the Employee may
become knowledgeable about, or become in possession of, Confidential
Information. If such Confidential Information were to be divulged or become
known to any competitor of the Company or to any other person outside the employ
of the Company, or if the Employee were to consent to be employed by any
competitor of the Company or to engage in competition with the Company, the
Company would be harmed. In addition, the Employee has or may develop
relationships with the Company's customers which could be used to solicit the
business of such customers away from the Company. The parties have entered into
this Agreement to guard against such potential harm.
(c) The Employee shall not, directly or indirectly, use any Confidential
Information for any purpose other than the benefit of the Company or
communicate, deliver, exhibit or provide any Confidential Information to any
person, firm, partnership, corporation, organization or entity, except other
employees or agents of the Company as required in the normal course of the
Employee's service as an employee or except as the President or any authorized
officer of the Company may direct in writing. The covenant contained in this
Section 8 shall be binding upon the Employee during the term of this Agreement
and following the termination hereof, for the shorter of the period until either
(i) until such Confidential Information becomes obsolete; or (ii) until such
Confidential Information becomes generally known in the Company's trade or
industry by means other than a breach of this covenant.
(d) The Employee agrees that all Confidential Information and all records,
documents and materials relating to all of such Confidential Information, shall
be and remain the sole and exclusive property of the Company.
SECTION 9. REMEDIES.
(a) The Employee agrees that the Company will suffer irreparable damage
and injury and will not have an adequate remedy at law in the event of any
breach by the Employee of any provision of Sections 7 or 8 hereof. Accordingly,
in the event of a breach or of a threatened or attempted breach by the Employee
of Sections 7 or 8 hereof, in addition to all other remedies to which the
Company is entitled under law, in equity, or otherwise, the Company shall be
entitled to a temporary restraining order and permanent injunction (without the
necessity of showing any actual damage) or a decree of specific performance of
the provisions of Sections 7 or 8 hereof and no bond or other security shall be
required in that connection. The Company shall be entitled to recover from the
Employee, reasonable attorneys' fees and expenses incurred in any action wherein
the Company successfully enforces the provisions of Sections 7 or 8 hereof
against the breach or threatened breach of those provisions by the Employee.
4
<PAGE>
(b) The Employee acknowledges and agrees that in the event of termination
of this Agreement for any reason whatsoever, the Employee can obtain other
engagements or employment of a kind and nature similar to that contemplated
herein and that the issuance of an injunction to enforce the provisions of
Sections 7 or 8 hereof will not prevent the Employee from earning a livelihood.
(c) The covenants on the part of the Employee contained in Sections 7 or 8
hereof are essential terms and conditions to the Company entering into this
Agreement, and shall be construed as independent of any other provision in this
Agreement. The existence of any claim or cause of action the Employee has
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of these covenants.
SECTION 10. INVENTIONS.
(a) The Employee shall disclose fully to the Company all inventions (as
defined below) conceived or discovered by the Employee, whether solely or
jointly with others during the term of this Agreement. Such inventions shall
belong solely to the Company and shall not belong to the Employee. During the
term of this Agreement, the Employee shall assign to the Company, exclusively
and free from any royalty obligation or any other legal or equitable title or
right of the Employee, all such inventions referred to above and all patents,
trademarks, copyrights, and maskworks, and any and all applications and rights
pertaining thereto on a worldwide basis. The Employee shall assist the Company,
during and subsequent to the term hereof, in every proper way, but without any
further compensation or additional consideration, to transfer and assign such
inventions to and for the Company's benefit and enjoyment and to cooperate as
may be reasonably requested to perfect the Company's ownership therein and, if
requested by the Company, to prosecute or direct in prosecuting any application
for or registration with respect to any patent or other applicable intellectual
property right, including, but not in limitation thereof, the execution and
delivery of applications for the registration of one or more intellectual
property rights and assignments of the same as may be deemed necessary or
desirable by the Company in any office selected by the Company. The judgment of
the Company with respect to the registrability of any particular item of
intellectual property shall be final and conclusive as between the Employee and
the Company.
(b) Any improvements made upon such inventions by the Employee subsequent
to the term hereof shall be presumed to have been developed during the term
hereof and by and for the benefit of the Company and accordingly shall be the
property of the Company.
(c) The Employee agrees to execute such other standard forms relating to
the invention or development of inventions and other intellectual properties as
the Company may require of its consultants and employees generally.
(d) Prior inventions of the Employee, if any, as listed on the Addendum,
are excluded from the scope of this Agreement.
(e) For purposes of this Agreement, "inventions" includes all inventions,
creations, developments, software programs, algorithms, routines, patterns,
components, compilations,
5
<PAGE>
devices, or improvements of any kind or nature, whether or not trade secret,
patented, patentable, copyrighted or copyrightable, which the Employee had
made or conceived or developed or may make, conceive or develop, either
solely or jointly with others, while in the employ of the Company or with the
use of the Company's time, materials, equipment or facilities or relating in
any way to the Company's actual, anticipated, or subsequently arising
business, products, services or activities, or arising out of or suggested by
any task assigned to be performed by the Employee, solely or jointly with
others, for or on behalf of the Company.
SECTION 11. SURRENDER OF RECORDS. Upon termination of the Employee's
employment for any reason, the Employee shall immediately surrender to the
Company any and all records, notes, documents, forms, manuals, photographs,
instructions, lists, drawings, blueprints, programs, diagrams or other written,
printed or electronic material (including any and all copies made at any time
whatsoever) in his or her possession or control which pertain to the business of
the Company.
SECTION 12. TERMINATION. During the initial term or any renewal term,
the employment of the Employee may be terminated at will for any reason by
either the Company or the Employee, with at least ten (10) days prior written
notice by the terminating party delivered to the other setting forth whether
such termination was for cause or without cause to determine whether the
Employee is entitled to any severance payment pursuant to Section 5 above.
Notwithstanding the foregoing, this Agreement shall be terminated immediately,
without any notice or waiting period, upon the Employee's death. This Agreement
may be terminated at any time by mutual agreement of the parties.
SECTION 13. PARTIES BOUND. All provisions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto, their heirs, personal
representatives, successors and assigns.
SECTION 14. EFFECT AND MODIFICATION. This Agreement comprises the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other earlier agreements relating to the subject matter hereof.
No statement or promise, except as herein set forth, has been made with respect
to the subject matter of this Agreement. No modification or amendment hereof
shall be effective unless in writing and signed by the Employee and an officer
of the Company (other than the Employee).
SECTION 15. NON-WAIVER. The Company's or the Employee's failure or
refusal to enforce all or any part of, or the Company's or the Employee's waiver
of any breach of this Agreement, shall not be a waiver of the Company's or the
Employee's continuing or subsequent rights under this Agreement, nor shall such
failure or refusal or waiver have any affect on the subsequent enforceability of
this Agreement.
SECTION 16. NON-ASSIGNABILITY. This Agreement contemplates that the
Employee will personally provide the services described herein, and accordingly,
the Employee may not assign the Employee's rights or obligations hereunder,
whether by operation of law or otherwise, in whole or in part, without the prior
written consent of the Company.
6
<PAGE>
SECTION 17. NOTICE. Any notice, request, instruction or other document to
be given hereunder to any party shall be in writing and delivered by hand,
telegram, registered or certified United States mail return receipt requested,
or other form of receipted delivery, with all expenses of delivery prepaid, as
follows:
If to the Employee: To the most recent address the Company has on its
records. Employees most recent address (please
fill in):
1332 Wild Horse Parkway
Wildwood, MO 63005
If to the Company: Interactive Intelligence, Inc.
3500 DePauw Boulevard, Suite 1060
Indianapolis, Indiana 46268
Attn: Donald E. Brown, M.D., President
Any notice to the employee shall also be sufficient, if sent to the most recent
address of the employee on the Company's books and records.
SECTION 18. GOVERNING LAW. This Agreement is being delivered in and shall
be governed by the laws of the State of Indiana. All actions or proceedings
shall be tried in the state or federal courts whose venue includes Marion County
or Hamilton County, Indiana.
SECTION 19. PRIOR AGREEMENTS.
(a) The Employee represents and warrants to the Company that the Employee
is not a party to or otherwise bound by any agreement that would restrict in any
way the performance by the Employee of the Employee's duties, services and
obligations under this Agreement, that the Employee has disclosed to the Company
all employment type agreements to which the Employee has been bound, including
without limitation employment agreements, consulting agreements, non-compete
agreements or covenants, confidentiality or non-disclosure agreements or
covenants, and intellectual property assignment agreements, and that the Company
will not have any liability to any third party arising out of the Employee
entering into this Agreement or performing hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
/s/ Jeremiah J. Fleming
-------------------------------
Printed: Jeremiah J. Fleming
INTERACTIVE INTELLIGENCE, INC.
By: /s/ Donald E. Brown
--------------------------------
Donald E. Brown, M.D., President
7
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
BETWEEN INTERACTIVE INTELLIGENCE, INC.
AND
JEREMIAH J. FLEMING, DATED MARCH 3, 1997
This Addendum relates to the Employment Agreement between Interactive
Intelligence, Inc. and, Jeremiah J. Fleming, dated March 3, 1997. This
Addendum is incorporated therein by reference and shall be an integral part
of the Employment Agreement.
<TABLE>
<CAPTION>
<S> <C>
1. Name of Employee: Jeremiah J. Fleming
2. Initial Term: Two (2) Years
3. Date of Commencement: March 3, 1997
4. Date Initial Term Ends: March 2, 1999
5. Title: Vice-President, Sales, North America
6. Job Description: Sales Activities and Management
7. Initial Compensation: $125,000 (+ bonus) salary per year
(and + commission)
8. Stock Options:
- Plan Incentive Stock Option Plan ("Qualified")
- Number 75,000 (seventy-five thousand) shares
- Exercise Price $1.30 (one dollar and thirty cents) per share
9. Amount of Vacation: Two (2) weeks per calendar year
10. Other Benefits: Medical and Dental Insurance, 401k Plan,
11. Prior Inventions: ________________________________
</TABLE>
Date: March 3, 1997 /s/ DEB /s/JJF
------------ -----------
Initials Initials
(#31613 and 40525)
<PAGE>
EXHIBIT 10.12(ii)
EMPLOYMENT AGREEMENT
AMENDMENT A
THIS EMPLOYMENT AGREEMENT AMENDMENT A ("Amendment") is made and entered
into, effective as of May 14, 1999, by and between Jeremiah J. Fleming
("Employee") and Interactive Intelligence, Inc. ("Company"), an Indiana
Corporation.
WHEREAS, the Company and Employee have entered into an Employment
Agreement, and this Amendment is to be executed as a part of that Employment
Agreement;
NOW, THEREFORE, pursuant to Section 14. Effect and Modification of that
Employment Agreement, the following modifications or amendments are in effect.
SECTION 5. TERMINATION AND SEVERANCE PAYMENTS.
(b) After the word "salary" in two places, add the words ",bonus and
commission". After the language, "the Company further agrees to pay the
Employee as severance pay" add the phrase "and as further consideration for
Covenant Not to Compete provisions and Covenant Not to Disclose
Confidential Information provisions in Sections 7 and 8". Change "one (1)
month" to "twelve (12) months" in the last sentence of this subsection.
(c) add new subsection (c) to read, "In the event of change of control,
severance payments as described in subsection (b) above would also be in
effect if the new controlling party made a reduction in targeted
compensation of greater than 5%, demotes Employee in a fashion that would
materially reduce Employee's professional stature, assigns Employee duties
materially inconsistent with the status of Employee's position within the
Company, requires Employee to relocate more than 50 miles from Employee's
present residence, or makes any requirement for employee to travel on a
regular basis a greater number of days per month or greater number of
consecutive days than is consistent with past practice. Further, in the
event of a change of control, the last sentence of Section 4 is deleted.
Change of control is defined as the acquisition by any individual, entity
or group of more than forty percent (40%) or more of either (A) the then
outstanding shares of common stock of the Company, or (B) the combined
voting power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors.
SECTION 7. COVENANT NOT TO COMPETE.
(a) delete "for a period of eighteen (18) months" and insert in lieu
thereof "for a period of twelve (12) months"
(i) delete this entire sentence, "solicit in any manner, seek to obtain,
or service the business of any customer of the Company, other than for
the Company"
(iii) for this subsection, competitor means companies, persons or entities
in which the Company actually competes for substantially the same business,
project or request for proposal.
(iv) after this sentence, "solicit the employment of or hire any employee
of the Company, or encourage any employee to terminate his or her
employment with the Company", add the phrase "if the Employee is terminated
with cause or voluntarily terminates employment, but may solicit employment
of employees if Employee is terminated without cause;"
<PAGE>
EMPLOYMENT AGREEMENT AMENDMENT
JEREMIAH J. FLEMING
PAGE 2
(b) delete this entire subsection that defines "customer". Insert the
following sentence, "Employee agrees not to make disparaging remarks
regarding the Company."
(c) change "eighteen (18) months" to "twelve (12) months" in two places in
this subsection.
SECTION 9. REMEDIES.
(a) delete the last line of this subsection that reads, "The Company shall
be entitled to recover from the Employee, reasonable attorney's fees
and expenses incurred in any action wherein the Company successfully
enforces the provisions of Sections 7 or 8 hereof against the breach
or threatened breach of those provisions by the Employee.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
/s/ Jeremiah J. Fleming
--------------------------------
Jeremiah J. Fleming ("Employee")
Interactive Intelligence, Inc. by: /s/ Donald E. Brown
--------------------------------
Donald E. Brown, M.D., President
<PAGE>
EXHIBIT 10.20(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into, effective
as of the 1st day of June, 1999, by and between Michael J. Tavlin ("Employee")
and Interactive Intelligence, Inc. ("Company"), an Indiana corporation.
WITNESSETH:
WHEREAS, the Employee possesses certain skills which the Company wishes to
utilize in its business, and the Employee wishes to provide certain services to
the Company upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and agreements contained herein and other good and valuable consideration, the
receipt, legal adequacy and sufficiency of which are hereby acknowledged, the
parties agree as follows:
SECTION 1. EMPLOYMENT. The Company engages the Employee to serve the
Company, and the Employee agrees to serve the Company as an employee in such
capacities as the Board of Directors of the Company may, from time to time,
determine, upon the terms and conditions hereinafter set forth.
SECTION 2. TERM; RENEWAL. The term of the Employee's employment under
this Agreement shall be for an initial term commencing and ending on the dates
set forth on the Addendum attached hereto and incorporated herein by reference
("Addendum"), which term shall automatically renew for successive one (1) year
terms, on the same terms and conditions set forth herein unless either the
Company or the Employee gives written notice to the other, at least thirty (30)
days prior to the expiration of the initial term or any renewal term, that the
term will not renew.
SECTION 3. TITLE, SERVICES AND DUTIES.
(a) During the term of employment hereunder, the Employee shall serve in
the capacities described on the Addendum and shall perform the duties and
responsibilities described on the Addendum or as are normally associated with
such a position in the Company's industry and as may be delegated to the
Employee by the President or the Company's Board of Directors.
(b) During such employment, the Employee shall devote substantially all of
the Employee's business time, attention, energy and skill to the business of
the Company, and shall perform such services in a faithful, competent and
diligent manner at the direction of the President and of the Company's Board of
Directors.
(c) During the Employee's employment, the Company shall provide the
Employee with such office facilities and support services as the Company
determines in its business judgment to be appropriate for the Employee to
perform the Employee's duties and responsibilities hereunder.
<PAGE>
(d) The Employee shall comply with all policies and procedures adopted by
the Company from time to time, including without limitation, policies regarding
reimbursement for business expenses incurred on behalf of the Company, and
compliance with applicable laws.
SECTION 4. COMPENSATION AS EMPLOYEE. At all times during the initial
term or any renewal term of this Agreement, the Company shall pay the Employee
an annual salary in the amount set forth in the Addendum, payable at the usual
payroll payment dates of the Company, and any other options or benefits set
forth in the Addendum. All amounts paid hereunder by Company to the Employee
shall be subject to all applicable local, state and federal withholding taxes.
The Company may increase or decrease the salary set forth herein from time to
time, in its sole discretion, but any decrease may only be made upon fifteen
(15) days prior notice.
SECTION 5. TERMINATION AND SEVERANCE PAYMENTS
(a) In the event that the employment of the Employee is terminated for
cause or in the event that the Employee resigns his/her employment with the
Company, the Employee shall be paid any salary and any other benefits which have
then accrued and to which the Employee is entitled to at such time. However, in
such event, the Employee shall not be entitled to any severance compensation as
set forth in subparagraph (b) below.
(b) In the event that the employment of the Employee is terminated by the
Company for any reason other than for cause, in addition to receiving all
accrued salary and benefits to which the Employee is entitled to at such time,
the Company further agrees to pay the Employee as severance pay an amount equal
to the Employee's salary as in effect at such time for an additional one (1)
month from the date of termination, with payments to be made on the Company's
usual payroll payment dates.
(c) All amounts paid under Subsections (a) or (b) hereof to the Employee
shall be subject to all applicable local, state or federal withholding taxes, if
any.
SECTION 6. EMPLOYEE BENEFITS.
(a) The Employee shall be limited each calendar year to a vacation benefit
for the amount of time shown in the Addendum (prorated from the date of
commencement to the end of that applicable calendar year). All vacation
benefits must be fully utilized in the calendar year in which accrued, provided
that (i) no vacation may be taken during the first six (6) months of the initial
term hereof without the prior written consent of the Company, (ii) the Employee
must comply with procedures adopted from time to time by the Company with
respect to the scheduling of vacations, and (iii) if because of the Company's
requirements, the Company does not approve the Employee's requested vacation
schedule and thus prevents the Employee from fully utilizing all of the
Employee's vacation in the year earned, the Company and the Employee shall in
good faith make arrangements for either the carryover of such unused vacation to
the next calendar year or such other arrangements as are mutually satisfactory.
(b) During the term of the Employee's employment hereunder, the Employee
shall be entitled to participate, upon the same terms and conditions applicable
to employees generally in any life, health, hospitalization or any other
insurance program, or any other pension or benefit
2
<PAGE>
plan which the Company may from time to time provide or make available to the
Company's employees and for which the Employee is eligible and qualified;
provided that if the inclusion of the Employee under any such program or plan
causes or would cause either such program or plan to be terminated or the
Company to incur a materially disproportionate additional cost, the Company
may elect to provide benefits of a substantially similar nature which avoids
such adverse effects.
SECTION 7. COVENANT NOT TO COMPETE.
(a) During the Employee's service hereunder and for a period of eighteen
(18) months thereafter, regardless of the reason or method of termination, the
Employee will not, directly or indirectly, for the Employee's own benefit or the
benefit of any other person or entity:
(i) solicit in any manner, seek to obtain, or service the business of
any customer of the Company, other than for the Company;
(ii) become an owner of any business, if such business competes with
the Company;
(iii) become employed by or serve as an agent, independent contractor
or representative of any business which competes with the Company;
(iv) solicit the employment of or hire any employee of the Company, or
encourage any employee to terminate his or her employment with the Company; or
(v) prepare in any manner to compete with the Company.
(b) For purposes of this Agreement, a "customer" shall be deemed to be any
person, business, partnership, proprietorship, firm, organization or corporation
which has done business with the Company or which has been solicited or serviced
in any manner, directly or indirectly, by the Company within eighteen (18)
months prior to the date of the termination of the Employee, and the phrase
"service the business of any customer" means the development, modification,
enhancement or improvement of any product or service offered by the Company or
which is reasonably related to the products or services offered by the Company.
The Employee hereby acknowledges that, by virtue of the Employee's position and
access to information, the Employee will have advantageous familiarity and
personal contacts with the Company's customers, wherever located, and that the
restrictions contemplated hereby are reasonable for the protection of the
Company's goodwill and customer base, and the Company's efforts in the
development of such customers.
(c) If the Employee does not comply with the provisions of this Section
7, the eighteen (18) month period of non-competition provided herein shall be
tolled and deemed not to run during any period(s) of noncompliance, the
intention of the parties being to provide eighteen (18) full months of
non-competition by the Employee after the termination or expiration of this
Agreement.
SECTION 8. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
(a) The term "Confidential Information" as used herein shall mean any and
all software programs, customer lists, trade secrets and information, know-how,
skills, knowledge, ideas, knowledge of customer's commercial requirements,
pricing methods, sales and marketing techniques, dealer relationships and
agreements, financial information, intellectual property,
3
<PAGE>
codes, algorithms, research, development, research and development programs,
processes, documentation, inventions, or devices used in or pertaining to the
Company's business (i) which relate in any way to the Company's business,
products or processes; or (ii) which are discovered, conceived, developed or
reduced to practice by the Employee, either alone or with others either (x)
during the term of this Agreement; or (y) at the Company's expense; or (z) on
the Company's premises or with the Company's equipment.
(b) During the course of his/her services hereunder, the Employee may
become knowledgeable about, or become in possession of, Confidential
Information. If such Confidential Information were to be divulged or become
known to any competitor of the Company or to any other person outside the employ
of the Company, or if the Employee were to consent to be employed by any
competitor of the Company or to engage in competition with the Company, the
Company would be harmed. In addition, the Employee has or may develop
relationships with the Company's customers which could be used to solicit the
business of such customers away from the Company. The parties have entered into
this Agreement to guard against such potential harm.
(c) The Employee shall not, directly or indirectly, use any Confidential
Information for any purpose other than the benefit of the Company or
communicate, deliver, exhibit or provide any Confidential Information to any
person, firm, partnership, corporation, organization or entity, except other
employees or agents of the Company as required in the normal course of the
Employee's service as an employee or except as the President or any authorized
officer of the Company may direct in writing. The covenant contained in this
Section 8 shall be binding upon the Employee during the term of this Agreement
and following the termination hereof, for the shorter of the period until either
(i) until such Confidential Information becomes obsolete; or (ii) until such
Confidential Information becomes generally known in the Company's trade or
industry by means other than a breach of this covenant.
(d) The Employee agrees that all Confidential Information and all records,
documents and materials relating to all of such Confidential Information, shall
be and remain the sole and exclusive property of the Company.
SECTION 9. REMEDIES.
(a) The Employee agrees that the Company will suffer irreparable damage
and injury and will not have an adequate remedy at law in the event of any
breach by the Employee of any provision of Sections 7 or 8 hereof. Accordingly,
in the event of a breach or of a threatened or attempted breach by the Employee
of Sections 7 or 8 hereof, in addition to all other remedies to which the
Company is entitled under law, in equity, or otherwise, the Company shall be
entitled to a temporary restraining order and permanent injunction (without the
necessity of showing any actual damage) or a decree of specific performance of
the provisions of Sections 7 or 8 hereof and no bond or other security shall be
required in that connection. The Company shall be entitled to recover from the
Employee, reasonable attorneys' fees and expenses incurred in any action wherein
the Company successfully enforces the provisions of Sections 7 or 8 hereof
against the breach or threatened breach of those provisions by the Employee.
4
<PAGE>
(b) The Employee acknowledges and agrees that in the event of termination
of this Agreement for any reason whatsoever, the Employee can obtain other
engagements or employment of a kind and nature similar to that contemplated
herein and that the issuance of an injunction to enforce the provisions of
Sections 7 or 8 hereof will not prevent the Employee from earning a livelihood.
(c) The covenants on the part of the Employee contained in Sections 7 or 8
hereof are essential terms and conditions to the Company entering into this
Agreement, and shall be construed as independent of any other provision in this
Agreement. The existence of any claim or cause of action the Employee has
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of these covenants.
SECTION 10. INVENTIONS.
(a) The Employee shall disclose fully to the Company all inventions (as
defined below) conceived or discovered by the Employee, whether solely or
jointly with others during the term of this Agreement. Such inventions shall
belong solely to the Company and shall not belong to the Employee. During the
term of this Agreement, the Employee shall assign to the Company, exclusively
and free from any royalty obligation or any other legal or equitable title or
right of the Employee, all such inventions referred to above and all patents,
trademarks, copyrights, and maskworks, and any and all applications and rights
pertaining thereto on a worldwide basis. The Employee shall assist the Company,
during and subsequent to the term hereof, in every proper way, but without any
further compensation or additional consideration, to transfer and assign such
inventions to and for the Company's benefit and enjoyment and to cooperate as
may be reasonably requested to perfect the Company's ownership therein and, if
requested by the Company, to prosecute or direct in prosecuting any application
for or registration with respect to any patent or other applicable intellectual
property right, including, but not in limitation thereof, the execution and
delivery of applications for the registration of one or more intellectual
property rights and assignments of the same as may be deemed necessary or
desirable by the Company in any office selected by the Company. The judgment of
the Company with respect to the registrability of any particular item of
intellectual property shall be final and conclusive as between the Employee and
the Company.
(b) Any improvements made upon such inventions by the Employee subsequent
to the term hereof shall be presumed to have been developed during the term
hereof and by and for the benefit of the Company and accordingly shall be the
property of the Company.
(c) The Employee agrees to execute such other standard forms relating to
the invention or development of inventions and other intellectual properties as
the Company may require of its consultants and employees generally.
(d) Prior inventions of the Employee, if any, as listed on the Addendum,
are excluded from the scope of this Agreement.
(e) For purposes of this Agreement, "inventions" includes all inventions,
creations, developments, software programs, algorithms, routines, patterns,
components, compilations,
5
<PAGE>
devices, or improvements of any kind or nature, whether or not trade secret,
patented, patentable, copyrighted or copyrightable, which the Employee had
made or conceived or developed or may make, conceive or develop, either
solely or jointly with others, while in the employ of the Company or with the
use of the Company's time, materials, equipment or facilities or relating in
any way to the Company's actual, anticipated, or subsequently arising
business, products, services or activities, or arising out of or suggested by
any task assigned to be performed by the Employee, solely or jointly with
others, for or on behalf of the Company.
SECTION 11. SURRENDER OF RECORDS. Upon termination of the Employee's
employment for any reason, the Employee shall immediately surrender to the
Company any and all records, notes, documents, forms, manuals, photographs,
instructions, lists, drawings, blueprints, programs, diagrams or other written,
printed or electronic material (including any and all copies made at any time
whatsoever) in his or her possession or control which pertain to the business of
the Company.
SECTION 12. TERMINATION. During the initial term or any renewal term,
the employment of the Employee may be terminated at will for any reason by
either the Company or the Employee, with at least ten (10) days prior written
notice by the terminating party delivered to the other setting forth whether
such termination was for cause or without cause to determine whether the
Employee is entitled to any severance payment pursuant to Section 5 above.
Notwithstanding the foregoing, this Agreement shall be terminated immediately,
without any notice or waiting period, upon the Employee's death. This Agreement
may be terminated at any time by mutual agreement of the parties.
SECTION 13. PARTIES BOUND. All provisions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto, their heirs, personal
representatives, successors and assigns.
SECTION 14. EFFECT AND MODIFICATION. This Agreement comprises the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other earlier agreements relating to the subject matter hereof.
No statement or promise, except as herein set forth, has been made with respect
to the subject matter of this Agreement. No modification or amendment hereof
shall be effective unless in writing and signed by the Employee and an officer
of the Company (other than the Employee).
SECTION 15. NON-WAIVER. The Company's or the Employee's failure or
refusal to enforce all or any part of, or the Company's or the Employee's waiver
of any breach of this Agreement, shall not be a waiver of the Company's or the
Employee's continuing or subsequent rights under this Agreement, nor shall such
failure or refusal or waiver have any affect on the subsequent enforceability of
this Agreement.
SECTION 16. NON-ASSIGNABILITY. This Agreement contemplates that the
Employee will personally provide the services described herein, and accordingly,
the Employee may not assign the Employee's rights or obligations hereunder,
whether by operation of law or otherwise, in whole or in part, without the prior
written consent of the Company.
6
<PAGE>
SECTION 17. NOTICE. Any notice, request, instruction or other document to
be given hereunder to any party shall be in writing and delivered by hand,
telegram, registered or certified United States mail return receipt requested,
or other form of receipted delivery, with all expenses of delivery prepaid, as
follows:
If to the Employee: To the most recent address the Company has on its
records. Employees most recent address (please
fill in):
6320 Rogers Circle
Lincoln, Nebraska 68506
If to the Company: Interactive Intelligence, Inc.
8909 Purdue Road, Suite 300
Indianapolis, Indiana 46268
Attn: Donald E. Brown, M.D., President
Any notice to the employee shall also be sufficient, if sent to the most recent
address of the employee on the Company's books and records.
SECTION 18. GOVERNING LAW. This Agreement is being delivered in and shall
be governed by the laws of the State of Indiana. All actions or proceedings
shall be tried in the state or federal courts whose venue includes Marion County
or Hamilton County, Indiana.
SECTION 19. PRIOR AGREEMENTS.
(a) The Employee represents and warrants to the Company that the Employee
is not a party to or otherwise bound by any agreement that would restrict in any
way the performance by the Employee of the Employee's duties, services and
obligations under this Agreement, that the Employee has disclosed to the Company
all employment type agreements to which the Employee has been bound, including
without limitation employment agreements, consulting agreements, non-compete
agreements or covenants, confidentiality or non-disclosure agreements or
covenants, and intellectual property assignment agreements, and that the Company
will not have any liability to any third party arising out of the Employee
entering into this Agreement or performing hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
/s/ Michael J. Tavlin
---------------------------------------
Printed: Michael J. Tavlin
INTERACTIVE INTELLIGENCE, INC.
By: /s/ Donald E. Brown
---------------------------------
Donald E. Brown, M.D., President
7
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
BETWEEN INTERACTIVE INTELLIGENCE, INC.
AND
MICHAEL J. TAVLIN, DATED, JUNE 1, 1999
This Addendum relates to the Employment Agreement between Interactive
Intelligence, Inc. and, Michael J. Tavlin, dated June 1, 1999. This Addendum
is incorporated therein by reference and shall be an integral part of the
Employment Agreement.
<TABLE>
<CAPTION>
<S> <C>
1. Name of Employee: Michael J. Tavlin
2. Initial Term: Two (2) Years
3. Date of Commencement: June 1, 1999
4. Date Initial Term Ends: May 31, 2001
5. Title: Chief Financial Officer
6. Job Description: Financial Activities
7. Initial Compensation: $140,000 (one hundred forty thousand dollars and
no cents) salary per year + cash bonus package up
to $40,000 (forty thousand dollars and no cents)
per year based upon MBO's or stock valuation +
stock option bonus program to earn up to 5,000
(five thousand) shares per year for first 2 (two)
years based upon MBO's, stock valuation or other
metrics determined by the CEO and Board of
Directors
8. Stock Options:
- Plan Incentive Stock Option Plan ("Qualified")
- Number 55,000 (fifty-five thousand) shares
- Exercise Price Price in effect as of the grant date
9. Amount of Vacation: Three (3) weeks per calendar year
10. Other Benefits: Medical and Dental Insurance, 401k Plan,
Long Term Disability, Cafeteria 125 Plan
11. Prior Inventions: ________________________________
</TABLE>
Date: June 1, 1999 /s/ MJT /s/DEB
----------- ---------
Initials Initials
(#31613 and 40525)
8
<PAGE>
EXHIBIT 10.20(ii)
EMPLOYMENT AGREEMENT
AMENDMENT A
THIS EMPLOYMENT AGREEMENT AMENDMENT A ("Amendment") is made and entered
into, effective as of June 1, 1999, by and between Michael J. Tavlin
("Employee") and Interactive Intelligence, Inc. ("Company"), an Indiana
corporation.
WHEREAS, the Company and Employee have entered into an Employment
Agreement, and this Amendment is to be executed as a part of that Employment
Agreement:
NOW, THEREFORE, pursuant to Section 14. Effect and Modification of that
Employment Agreement, the following modifications or amendments are in effect.
SECTION 5. TERMINATION AND SEVERANCE PAYMENTS. In the event of a change of
control and termination without cause, the current base salary of Employee will
continue for a period of (1) one year from termination date, and all existing
medical and health benefits typically provided for by Company will continue for
a period of (1) one year after termination. This provision is cancelled or
terminated if Employee finds employment of comparable or similar job status.
STOCK OPTION VESTING. The Employment Agreement Addendum outlines an initial
stock option grant of 55,000 shares, which is vested over a (4) four year
period. If the Company is acquired or merged into a new entity, and if Employee
is terminated without cause, and if the valuation of the Company at that time is
greater than $200 million, then the following acceleration of vesting shall take
place: (1) if less than one year, 35% of options shall vest, (2) if more than
one year but less than two years, then 70% of options shall vest, and (3) after
2 years, then 100% of options shall vest.
RELOCATION EXPENSES. Employee shall be reimbursed for reasonable relocation
expenses incurred with the moving of family and household goods from Nebraska to
Indianapolis area.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.
/s/ Michael J. Tavlin
- ------------------------------
Michael J. Tavlin ("Employee")
Interactive Intelligence, Inc. by: /s/ Donald E. Brown
----------------------------
Donald E. Brown, M.D., President
<PAGE>
EXHIBIT 10.21
INTERACTIVE INTELLIGENCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of the 26th of
May, 1999 ("Option Date"), by and between Interactive Intelligence, Inc.
(the "Company"), an Indiana corporation, and Jon Anton, D.Sc. ("Anton").
WITNESSETH:
WHEREAS, Anton has agreed to become a director of the Company; and
WHEREAS, the Company and Anton have agreed that in consideration
thereof, the Company will grant to him options to acquire ten thousand
(10,000) shares of the Company's Common Stock; and
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company for the Company to grant Anton an option
to purchase such shares of the Company's Common Stock pursuant to the terms,
conditions and limitations of this Agreement; and
WHEREAS, Anton desires to have the option to purchase such shares
pursuant to the terms, conditions and limitations of this Agreement; and
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and Anton hereby agree as
follows:
1. GRANT OF OPTION. The Company hereby grants to Anton the right,
privilege and option ("Option") to purchase ten thousand (10,000) shares of
Common Stock of the Company ("Shares") at the purchase price of Fourteen and
No/100 Dollars ($14.00) per share (the "Option Price"), in the manner and
subject to the terms and conditions provided in this Agreement. The Option
shall be a non-qualified stock option.
2. VESTING, EXERCISABILITY AND TERMINATION OF OPTION. The Option
shall vest and become exercisable for (a) one-half (1/2) of the Shares on the
first anniversary of the Option Date, and (b) one-half (1/2) of the Shares on
the second anniversary of the Option Date. The Option is exercisable for the
Shares with respect to which the Option has vested and become exercisable at
any time from the date of vesting until the tenth anniversary of the Option
Date. The Option shall terminate and no longer be exercisable upon the first
to occur of the following events: (i) Anton's resignation as a director of
the Company, (ii) the thirtieth (30th) day after Anton's removal as a
director of the Company, other than as a result of his death, (iii) the
expiration of the periods set forth in Section 4 hereof following Anton's
death, (iv) the tenth anniversary of the Option Date, or (v) a breach of any
of the
<PAGE>
terms and conditions hereof by Anton, provided that if such breach is subject
to cure, the Option shall not terminate if Anton cures such breach promptly
and in any event within thirty (30) days of the occurrence thereof.
3. METHOD OF EXERCISE. Anton may exercise, in whole or in part, the
Option for the Shares with respect to which the Option has vested and become
exercisable at any time by written notice from Anton directed to the Company
in substantially the form attached hereto as Exhibit "A", accompanied by a
check or other consideration acceptable to the Company in full payment of the
Option Price for the specified number of Shares purchased. The Company shall
make prompt delivery of the certificate or certificates for such Shares,
provided that if any law or regulation requires the Company to take any
action with respect to the Shares specified in such notice before the
issuance thereof, then the date of delivery of such Shares shall be extended
for the period necessary to take such action. Neither Anton nor any person
claiming under or through him shall have any rights as a shareholder of the
Company with respect to any of the Shares until full payment of the Option
Price and delivery to him of certificates for such Shares as provided herein.
4. DEATH OF ANTON. In the event Anton dies during the term of this
Option Agreement, any Options which have become exercisable may be exercised
by Anton's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance at any time during the six (6) month period
following his death, and any Options which have not become exercisable shall
immediately expire upon his death.
5. RESTRICTIONS ON TRANSFER. (a) Without the prior written consent of
the Company and then only upon registration or pursuant to an exemption from
registration under applicable securities laws, the Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised during Anton's life-time only by Anton and, following his death,
only as provided in Section 4 hereof.
(b) The Shares, when issued, will involve certain risks. Neither the
Securities and Exchange Commission nor any other securities regulatory body,
including the Indiana Securities Division, has passed upon the merits of such
Shares. The certificates representing the Shares will bear a legend to the
following effect:
"RESTRICTION ON TRANSFER"
"The shares of Common Stock of Interactive Intelligence, Inc.
represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"), any state securities laws,
including those of the State of Indiana, or any rules or regulations
promulgated pursuant thereto. These shares may not be transferred by the
holder unless the shares are registered pursuant to the Act and applicable
state securities laws, rules and regulations or unless an exemption is
available and the Company has been provided an opinion of counsel
acceptable to the Company that one or more exemptions from such
-2-
<PAGE>
registration requirements are available for the transaction pursuant to
which the sale or other transfer will occur."
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares
of Common Stock covered by the Option, as well as the price per share of
Common Stock covered by the Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock of the Company or the
payment of a stock dividend with respect to the Common Stock or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." No issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option.
7. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate
immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board. The Board may, in the exercise of its sole
discretion in such instances, declare that the Option shall terminate as of a
date fixed by the Board.
8. CONDITIONS UPON ISSUANCE OF SHARES. (a) Shares shall not be
issued pursuant to the exercise of the Option, in whole or in part, unless
the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(b) As a condition to the exercise of an Option, the Company may
require Anton to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
9. BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, without regard to its
conflict of laws provisions.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Stock Option
Agreement to be executed as of the day and year first written.
/s/ Jon Anton
--------------------------
Jon Anton, D.Sc. ("Anton")
INTERACTIVE INTELLIGENCE, INC.
("Company")
By: /s/ John R. Gibbs
------------------------------
John R. Gibbs, Executive Vice-
President of Administration and
Corporate Development
-4-
<PAGE>
EXHIBIT A TO STOCK OPTION AGREEMENT
INTERACTIVE INTELLIGENCE, INC.
NOTICE OF EXERCISE OF STOCK OPTION
Date: _____________, 19/20__
Interactive Intelligence, Inc.
8900 Purdue Road, Suite 300
Indianapolis, Indiana 46268
Attn: President
RE: Election to Exercise Stock Options
Ladies and Gentlemen:
Pursuant to Section 3 of the Stock Option Agreement dated May 26, 1999
between Jon Anton, D.Sc. and Interactive Intelligence, Inc. ("Stock Option
Agreement"), I hereby give notice ("Notice") to you of my election to exercise
the Option granted to me under the Stock Option Agreement. Terms defined in the
Stock Option Agreement which are used herein shall have the same meaning set
forth therein unless otherwise specified in this Notice. The terms of this
Notice are as follows:
1. I elect to exercise the Option granted to me by the Company on May 26,
1999 pursuant to the Stock Option Agreement with respect to ________ Shares
which have vested and become exercisable. The effective date of this exercise
is ___________, 19__. The exercise price is $14.00 per share, for a total
exercise price of $______________.
2. As payment for the Shares purchased pursuant to the exercise of the
Option contemplated herein, I am enclosing:
/ / A check in the amount of $_______________ as payment of the full
Option Price for the Shares for which the Option is being
exercised.
/ / The amount of $__________ in the form of [insert description]
_______________________________________as payment of the full
Option Price for the Shares for which the Option is being
exercised. I acknowledge and agree that acceptance of this form
of payment is subject to the approval of the Board of Directors
in its sole discretion.
-5-
<PAGE>
3. All Shares being acquired by the exercise of the Option described
herein should be issued in my name and should be forwarded to me at the address
above.
4. I understand and acknowledge that:
(a) I have received copies of and have reviewed the Articles of
Incorporation and By-Laws of the Company, and I am familiar with the
organization, management and financial condition of the Company. I have
been given access to the books, financial information and other records
and information concerning the Company as I have requested and have
inspected such documents and records as I have deemed appropriate to make
this investment decision.
(b) I have no anti-dilution rights with regard to the Shares which I
am purchasing.
(c) The Shares which I am hereby acquiring are highly speculative and
constitute an illiquid investment.
(d) The Shares which I am hereby acquiring involve certain risks.
Neither the Securities and Exchange Commission nor any other securities
regulatory body, including the Indiana Securities Division, has passed upon
the merits of such Shares.
5. I hereby represent and warrant to the Company:
(a) I am familiar with the Company's business.
(b) I have complied with all representation, warranties and covenants
which are applicable to me under the Stock Option Agreement.
(c) The Options have vested and are exercisable under the Stock
Option Agreement.
(d) I am purchasing these Shares as an investment for my own account
and not with a view to resale, distribute, subdivide or fractionalize. I
understand and agree that the Shares I receive pursuant to the exercise of
the Option will bear the following legend:
"RESTRICTION ON TRANSFER"
"The shares of Common Stock of Interactive Intelligence, Inc.
represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"), any state securities laws,
including those of the State of Indiana, or any rules or regulations
promulgated pursuant thereto. These shares may not be transferred by the
holder unless the shares are registered pursuant to the Act and applicable
state securities laws, rules and regulations or unless an exemption is
available and the Company has been provided an
-6-
<PAGE>
opinion of counsel acceptable to the Company that one or more exemptions
from such registration requirements are available for the transaction
pursuant to which the sale or other transfer will occur."
(e) I have sufficient assets to bear the economic risk of loss of my
entire investment in such Shares. In addition, I have adequate resources
to meet my current needs and personal contingencies and have no need for
liquidity with regard to my investment in the Shares.
(f) I am a resident of the State of _____________________.
6. I agree to indemnify and hold harmless the Company, its directors,
officers and agents, from and against all loss, damage or liability, including
reasonable attorneys' fees, due to or arising out of my breach of any of the
representations, covenants, or terms contained in this Notice and/or the Stock
Documents.
_______________________________
Jon Anton, D.Sc.
_______________________________
Social Security Number
Address and Contact Information:
________________________________
________________________________
Telephone: _______________________
Facsimile:________________________
E-mail:___________________________
Accepted this ______ day of ________, 19__.
INTERACTIVE INTELLIGENCE, INC.
By:_________________________________
Title:________________________________
-7-
<PAGE>
EXHIBIT 10.22
INTERACTIVE INTELLIGENCE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of the 26th of May,
1999 ("Option Date"), by and between Interactive Intelligence, Inc. (the
"Company"), an Indiana corporation, and Michael P. Cullinane ("Cullinane").
WITNESSETH:
WHEREAS, Cullinane has agreed to become a director of the Company; and
WHEREAS, the Company and Cullinane have agreed that in consideration
thereof, the Company will grant to him options to acquire ten thousand (10,000)
shares of the Company's Common Stock; and
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company for the Company to grant Cullinane an option
to purchase such shares of the Company's Common Stock pursuant to the terms,
conditions and limitations of this Agreement; and
WHEREAS, Cullinane desires to have the option to purchase such shares
pursuant to the terms, conditions and limitations of this Agreement; and
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Cullinane hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Cullinane the right,
privilege and option ("Option") to purchase ten thousand (10,000) shares of
Common Stock of the Company ("Shares") at the purchase price of Fourteen and
No/100 Dollars ($14.00) per share (the "Option Price"), in the manner and
subject to the terms and conditions provided in this Agreement. The Option
shall be a non-qualified stock option.
2. VESTING, EXERCISABILITY AND TERMINATION OF OPTION. The Option
shall vest and become exercisable for (a) one-half (1/2) of the Shares on the
first anniversary of the Option Date, and (b) one-half (1/2) of the Shares on
the second anniversary of the Option Date. The Option is exercisable for the
Shares with respect to which the Option has vested and become exercisable at
any time from the date of vesting until the tenth anniversary of the Option
Date. The Option shall terminate and no longer be exercisable upon the first
to occur of the following events: (i) Cullinane's resignation as a director
of the Company, (ii) the thirtieth (30th) day after Cullinane's removal as a
director of the Company, other than as a result of his death, (iii) the
expiration of the periods set forth in Section 4 hereof following Cullinane's
death, (iv) the tenth anniversary of the Option Date, or (v) a breach
<PAGE>
of any of the terms and conditions hereof by Cullinane, provided that if such
breach is subject to cure, the Option shall not terminate if Cullinane cures
such breach promptly and in any event within thirty (30) days of the
occurrence thereof.
3. METHOD OF EXERCISE. Cullinane may exercise, in whole or in part, the
Option for the Shares with respect to which the Option has vested and become
exercisable at any time by written notice from Cullinane directed to the Company
in substantially the form attached hereto as Exhibit "A", accompanied by a check
or other consideration acceptable to the Company in full payment of the Option
Price for the specified number of Shares purchased. The Company shall make
prompt delivery of the certificate or certificates for such Shares, provided
that if any law or regulation requires the Company to take any action with
respect to the Shares specified in such notice before the issuance thereof, then
the date of delivery of such Shares shall be extended for the period necessary
to take such action. Neither Cullinane nor any person claiming under or through
him shall have any rights as a shareholder of the Company with respect to any of
the Shares until full payment of the Option Price and delivery to him of
certificates for such Shares as provided herein.
4. DEATH OF CULLINANE. In the event Cullinane dies during the term of
this Option Agreement, any Options which have become exercisable may be
exercised by Cullinane's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance at any time during the six (6)
month period following his death, and any Options which have not become
exercisable shall immediately expire upon his death.
5. RESTRICTIONS ON TRANSFER. (a) Without the prior written consent of
the Company and then only upon registration or pursuant to an exemption from
registration under applicable securities laws, the Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised
during Cullinane's life-time only by Cullinane and, following his death, only as
provided in Section 4 hereof.
(b) The Shares, when issued, will involve certain risks. Neither the
Securities and Exchange Commission nor any other securities regulatory body,
including the Indiana Securities Division, has passed upon the merits of such
Shares. The certificates representing the Shares will bear a legend to the
following effect:
"RESTRICTION ON TRANSFER"
"The shares of Common Stock of Interactive Intelligence, Inc.
represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"), any state securities laws,
including those of the State of Indiana, or any rules or regulations
promulgated pursuant thereto. These shares may not be transferred by the
holder unless the shares are registered pursuant to the Act and applicable
state securities laws, rules and regulations or unless an exemption is
available and the Company has been provided an opinion of counsel
acceptable to the Company that one or more exemptions from such
-2-
<PAGE>
registration requirements are available for the transaction pursuant to
which the sale or other transfer will occur."
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by the Option, as well as the price per share of Common
Stock covered by the Option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment of a stock
dividend with respect to the Common Stock or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." No issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to the Option.
7. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such instances,
declare that the Option shall terminate as of a date fixed by the Board.
8. CONDITIONS UPON ISSUANCE OF SHARES. (a) Shares shall not be issued
pursuant to the exercise of the Option, in whole or in part, unless the exercise
of such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company may require
Cullinane to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
9. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, without regard to its conflict
of laws provisions.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Stock Option
Agreement to be executed as of the day and year first written.
/s/ Michael Cullinane
-------------------------------------------
Michael Cullinane ("Cullinane")
INTERACTIVE INTELLIGENCE, INC. ("Company")
By: /s/ John R. Gibbs
-------------------------------------
John R. Gibbs, Executive Vice-President
of Administration and Corporate Development
-4-
<PAGE>
EXHIBIT A TO STOCK OPTION AGREEMENT
INTERACTIVE INTELLIGENCE, INC.
NOTICE OF EXERCISE OF STOCK OPTION
Date: _____________, 19/20__
Interactive Intelligence, Inc.
8900 Purdue Road, Suite 300
Indianapolis, Indiana 46268
Attn: President
RE: Election to Exercise Stock Options
Ladies and Gentlemen:
Pursuant to Section 3 of the Stock Option Agreement dated May 26, 1999
between Jon Cullinane, D.Sc. and Interactive Intelligence, Inc. ("Stock Option
Agreement"), I hereby give notice ("Notice") to you of my election to exercise
the Option granted to me under the Stock Option Agreement. Terms defined in the
Stock Option Agreement which are used herein shall have the same meaning set
forth therein unless otherwise specified in this Notice. The terms of this
Notice are as follows:
1. I elect to exercise the Option granted to me by the Company on May 26,
1999 pursuant to the Stock Option Agreement with respect to ________ Shares
which have vested and become exercisable. The effective date of this exercise
is ___________, 19__. The exercise price is $14.00 per share, for a total
exercise price of $______________.
2. As payment for the Shares purchased pursuant to the exercise of the
Option contemplated herein, I am enclosing:
/ / A check in the amount of $_______________ as payment of the full
Option Price for the Shares for which the Option is being
exercised.
/ / The amount of $__________ in the form of [insert description]
_______________________________________as payment of the full
Option Price for the Shares for which the Option is being
exercised. I acknowledge and agree that acceptance of this form
of payment is subject to the approval of the Board of Directors
in its sole discretion.
-5-
<PAGE>
3. All Shares being acquired by the exercise of the Option described
herein should be issued in my name and should be forwarded to me at the address
above.
4. I understand and acknowledge that:
(a) I have received copies of and have reviewed the Articles of
Incorporation and By-Laws of the Company, and I am familiar with the
organization, management and financial condition of the Company. I have
been given access to the books, financial information and other records
and information concerning the Company as I have requested and have
inspected such documents and records as I have deemed appropriate to make
this investment decision.
(b) I have no anti-dilution rights with regard to the Shares which I
am purchasing.
(c) The Shares which I am hereby acquiring are highly speculative and
constitute an illiquid investment.
(d) The Shares which I am hereby acquiring involve certain risks.
Neither the Securities and Exchange Commission nor any other securities
regulatory body, including the Indiana Securities Division, has passed upon
the merits of such Shares.
5. I hereby represent and warrant to the Company:
(a) I am familiar with the Company's business.
(b) I have complied with all representation, warranties and covenants
which are applicable to me under the Stock Option Agreement.
(c) The Options have vested and are exercisable under the Stock
Option Agreement.
(d) I am purchasing these Shares as an investment for my own account
and not with a view to resale, distribute, subdivide or fractionalize. I
understand and agree that the Shares I receive pursuant to the exercise of
the Option will bear the following legend:
"RESTRICTION ON TRANSFER"
"The shares of Common Stock of Interactive Intelligence, Inc.
represented by this certificate have not been registered under the
Securities Act of 1933, as amended ("Act"), any state securities laws,
including those of the State of Indiana, or any rules or regulations
promulgated pursuant thereto. These shares may not be transferred by the
holder unless the shares are registered pursuant to the Act and applicable
state securities laws, rules and regulations or unless an exemption is
available and the Company has been provided an
-6-
<PAGE>
opinion of counsel acceptable to the Company that one or more exemptions
from such registration requirements are available for the transaction
pursuant to which the sale or other transfer will occur."
(e) I have sufficient assets to bear the economic risk of loss of my
entire investment in such Shares. In addition, I have adequate resources
to meet my current needs and personal contingencies and have no need for
liquidity with regard to my investment in the Shares.
(f) I am a resident of the State of _____________________.
6. I agree to indemnify and hold harmless the Company, its directors,
officers and agents, from and against all loss, damage or liability, including
reasonable attorneys' fees, due to or arising out of my breach of any of the
representations, covenants, or terms contained in this Notice and/or the Stock
Documents.
_______________________________
Michael Cullinane
_______________________________
Social Security Number
Address and Contact Information:
________________________________
________________________________
Telephone: _______________________
Facsimile:________________________
E-mail:___________________________
Accepted this ______ day of ________, 19__.
INTERACTIVE INTELLIGENCE, INC.
By:_________________________________
Title:________________________________
-7-
<PAGE>
EXHIBIT 10.23
INDEMNITY AGREEMENT
This AGREEMENT is made as of _________, 1999, by and between
Interactive Intelligence, Inc., an Indiana corporation (the "Corporation"), and
___________________ (the "Indemnitee"), a director and/or executive officer of
the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
directors and/or executive officers of the Corporation the most capable persons
available and persons who have significant experience in business, corporate and
financial matters; and
WHEREAS, the Corporation has identified the Indemnitee as a person
possessing the background and abilities desired by the Corporation and desires
the Indemnitee to continue to serve as a director and/or an executive officer;
and
WHEREAS, the substantial increase in corporate litigation may, from
time to time, subject directors and/or executive officers to burdensome
litigation, the risks of which frequently far outweigh the advantages of serving
in such capacity; and
WHEREAS, the Corporation and the Indemnitee recognize that serving as
a director and/or executive officer of a corporation at times calls for
subjective evaluations and judgments upon which reasonable men may differ and
that, in that context, it is anticipated and expected that directors and/or
executive officers of corporations will and do from time to time commit actual
or alleged errors or omissions in the good faith exercise of their corporate
duties and responsibilities; and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its directors and/or executive officers to the fullest
extent not prohibited by law; and
WHEREAS, the Restated Articles of Incorporation, as amended (the
"Articles"), of the Corporation require indemnification of the directors and/or
executive officers of the Corporation pursuant to the Indiana Business
Corporation Law (the "Act") and the Act expressly provides that the
indemnification provisions set forth therein are not exclusive, and thereby
contemplates that contracts may be entered into between the Corporation and
directors and/or executive officers of the Corporation with respect to
indemnification; and
WHEREAS, the Corporation and the Indemnitee desire to articulate
clearly in contractual form their respective rights and obligations with regard
to the Indemnitee's service on behalf of the Corporation and with regard to
claims for loss, liability, expense or damage which, directly or indirectly, may
arise out of or relate to such service.
NOW THEREFORE, the Corporation and the Indemnitee agree as follows:
<PAGE>
1. AGREEMENT TO SERVE. The Indemnitee shall serve as a director
and/or executive officer of the Corporation for so long as the Indemnitee is
duly elected or appointed or until the Indemnitee tenders a resignation in
writing.
2. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" includes, without limitation, any
threatened, pending or completed action, suit or proceeding, whether
brought in the right of the Corporation or otherwise and whether of a
civil, criminal, administrative, legislative or investigative nature,
formal or informal, internal or external, in which the Indemnitee may be or
may have been involved as a party, witness or otherwise, by reason of the
fact that the Indemnitee is or was a director and/or executive officer of
the Corporation or any of its subsidiaries, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
whether or not serving in such capacity at the time any liability or
expense is incurred for which exculpation, indemnification or reimbursement
can be provided under this Agreement.
(b) The term "Expenses" includes, without limitation thereto,
expenses of investigations, "Proceedings" or appeals, attorney, accountant
and other professional fees and disbursements, any other expenses or
disbursements incurred in connection with any Proceeding, and any expenses
of establishing a right to indemnification under Section 11 of this
Agreement, but shall not include amounts paid in settlement by the
Indemnitee or the amount of judgments or fines against the Indemnitee.
(c) References to "other enterprise" include, without limitation,
employee benefit plans; references to "fines" include, without limitation,
any excise tax assessed with respect to any employee benefit plan;
references to "serving at the request of the Corporation" include, without
limitation, any service as a director, officer, employee or agent which
imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants, or its beneficiaries; and a person who acted in good faith
and in a manner reasonably believed to be in the interest of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the Corporation."
3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Corporation shall
indemnify the Indemnitee in accordance with the provisions of this Section 3, if
the Indemnitee is made a party to any Proceeding (other than a Proceeding by or
in the right of the Corporation to procure a judgment in its favor), against all
Expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by the Indemnitee in connection with such Proceeding if the
conduct of the Indemnitee was in good faith and the Indemnitee reasonably
believed that the Indemnitee's conduct was in the best interests of the
Corporation, or at least not opposed to its best interests, and, in the case of
a criminal proceeding, the Indemnitee, in addition, had no reasonable cause to
believe that the Indemnitee's conduct was unlawful.
-2-
<PAGE>
However, the Indemnitee shall not be entitled to indemnification under this
Section 3 in connection with any Proceeding charging improper personal
benefit to the Indemnitee in which the Indemnitee was adjudged liable on the
basis that personal benefit was improperly received by the Indemnitee unless
and only to the extent that the court conducting such Proceeding or any other
court of competent jurisdiction determines upon application that despite the
adjudication of liability, the Indemnitee is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify the Indemnitee in accordance with the provisions
of this Section 4, if the Indemnitee is made a party to any Proceeding by or in
the right of the Corporation to procure a judgment in its favor, against all
Expenses actually and reasonably incurred by the Indemnitee in connection with
such Proceeding if the conduct of the Indemnitee was in good faith and the
Indemnitee reasonably believed that the Indemnitee's conduct was in the best
interests of the Corporation, or at least not opposed to its best interests.
However, the Indemnitee shall not be entitled to indemnification under this
Section 4 in connection with any Proceeding in which the Indemnitee has been
adjudged liable to the Corporation unless and only to the extent that the court
conducting such Proceeding or any other court of competent jurisdiction
determines upon application that, despite the adjudication of liability, the
Indemnitee is fairly and reasonably entitled to indemnification in view of all
the relevant circumstances.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
any other provisions of this Agreement, to the extent that the Indemnitee has
been successful, on the merits or otherwise, in defense of any Proceeding or in
defense of any claim, issue or matter therein, including the dismissal of an
action without prejudice, the Corporation shall indemnify the Indemnitee against
all Expenses incurred in connection therewith.
6. ADDITIONAL INDEMNIFICATION.
(a) Notwithstanding any limitation in Sections 3, 4 or 5, the
Corporation shall indemnify the Indemnitee to the fullest extent not
prohibited by law with respect to any Proceeding (including a Proceeding by
or in the right of the Corporation to procure a judgment in its favor)
against all Expenses, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection with such
Proceeding.
(b) For purposes of this Agreement, the meaning of the phrase "to the
fullest extent not prohibited by law" shall include, but not be limited to:
(i) to the fullest extent authorized or not prohibited by any
changes in the law, including but not limited to any amendments to or
replacements of the Act adopted after the date of this Agreement that
increase the extent to which a corporation may indemnify its
directors; and
-3-
<PAGE>
(ii) to the fullest extent authorized by the provision of the Act
that authorizes or contemplates additional indemnification by
agreement, or the corresponding provision of any amendment to or
replacement of the Act.
7. EXCLUSIONS. Notwithstanding any provision in this Agreement, the
Corporation shall not be obligated under this Agreement to make any
indemnification:
(a) for which payment is made to or on behalf of the Indemnitee under
any insurance policy, except with respect to any excess amount to which the
Indemnitee is entitled under this Agreement beyond the amount of payment
under such insurance policy;
(b) for any liability for profits made from the purchase and sale by
the Indemnitee of securities of the Corporation, which liability arises
under Section 16(b) of the Securities Exchange Act of 1934, as amended, or
any similar provision of any state statutory or common law;
(c) if a court having jurisdiction in the matter shall finally
determine that such indemnification is not lawful under any applicable
statute or public policy (and, in this respect, both the Corporation and
the Indemnitee have been advised that in the opinion of the Securities and
Exchange Commission indemnification for liabilities arising under the
Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable and that claims for
such indemnification should be submitted to appropriate courts for
adjudication unless, in the opinion of counsel, the matter has been settled
by controlling precedent); or
(d) in connection with any Proceeding (or part of any Proceeding)
initiated by the Indemnitee, or any Proceeding by the Indemnitee against
the Corporation or its directors, officers, employees or other persons
entitled to be indemnified by the Corporation, unless (i) the Corporation
is expressly required by law to make the indemnification, (ii) the
Proceeding was authorized by the Board of Directors of the Corporation, or
(iii) the Indemnitee initiated the Proceeding pursuant to Section 11 of
this Agreement and the Indemnitee is successful in whole or in part in the
Proceeding.
8. ADVANCES OF EXPENSES. The Corporation shall pay the Expenses
incurred by the Indemnitee in any Proceeding in advance of the final disposition
of the Proceeding at the written request of the Indemnitee, if the Indemnitee:
(a) furnishes the Corporation a written affirmation of the
Indemnitee's good faith belief that the Indemnitee is entitled to be
indemnified under this Agreement; and
(b) furnishes the Corporation a written undertaking to repay the
advance to the extent that it is ultimately determined that the Indemnitee
is not entitled to be indemnified by the Corporation. Such undertaking
shall be an unlimited general obligation of the
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<PAGE>
Indemnitee but need not be secured.
Advances pursuant to this Section 8 shall be made no later than 10
days after receipt by the Corporation of the affirmation and undertaking
described in Sections 8(a) and 8(b) above, and shall be made without regard to
the Indemnitee's ability to repay the amount advanced and without regard to the
Indemnitee's ultimate entitlement to indemnification under this Agreement. The
Corporation may establish a trust, escrow account or other secured funding
source for the payment of advances made and to be made pursuant to this
Section 8 or of other liability incurred by the Indemnitee in connection with
any Proceeding.
9. NONEXCLUSIVITY AND CONTINUITY OF RIGHTS. The indemnification and
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which the Indemnitee may be entitled under any articles
of incorporation, bylaw, any other agreement, any vote of shareholders or
directors, the Act, or otherwise, both as to action in the Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to the Indemnitee even
though the Indemnitee may have ceased to be a director and/or executive officer
of the Corporation or a director, officer, employee or agent of an enterprise
related to the Corporation and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of the Indemnitee.
10. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION. Any
indemnification under Sections 3, 4, 5 or 6 shall be made no later than 45 days
after receipt of the written request of the Indemnitee, unless a determination
is made within such 45-day period by (a) the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to the applicable
Proceeding, or (b) independent legal counsel in a written opinion (which counsel
shall be appointed if such a quorum is not obtainable) that the Indemnitee is
not entitled to indemnification under this Agreement.
11. ENFORCEMENT. The Indemnitee may enforce any right to
indemnification or advances provided by this Agreement in any court of competent
jurisdiction if (a) the Corporation denies the claim for indemnification or
advances, in whole or in part, or if the Corporation does not dispose of such
claim within the time period required by this Agreement. It shall be a defense
to any such enforcement action (other than an action brought to enforce a claim
for advancement of expenses pursuant to, and in compliance with, Section 8 of
this Agreement) that the Indemnitee is not entitled to indemnification under
this Agreement. However, except as provided in Section 12 of this Agreement,
the Corporation shall have no defense to an action brought to enforce a claim
for advancement of expenses pursuant to Section 8 of this Agreement if the
Indemnitee has tendered to the Corporation the affirmation and undertaking
required thereunder. The burden of proving by clear and convincing evidence
that indemnification is not appropriate shall be on the Corporation. Neither
the failure of the
-5-
<PAGE>
Corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification or advancement of Expenses is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct nor an
actual determination by the Corporation (including its Board of Directors or
independent legal counsel) that indemnification is improper because the
Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the Indemnitee is not
entitled to indemnification under this Agreement or otherwise. The
Indemnitee's expenses incurred in connection with successfully establishing
the Indemnitee's right to indemnification or advances, in whole or in part,
in any Proceeding shall also be indemnified by the Corporation, whether or
not an action to enforce these rights is commenced.
The termination of any Proceeding by judgment, order of court,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the Indemnitee is not entitled
to indemnification under Sections 3, 4 or 6 of this Agreement.
12. NOTIFICATION AND DEFENSE OF CLAIM. Not later than 45 days after
receipt by the Indemnitee of notice of the commencement of any Proceeding, the
Indemnitee shall, if a claim in respect of the Proceeding is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
of the Proceeding. The omission to notify the Corporation shall not relieve the
Corporation from any liability which it may have to the Indemnitee otherwise
than under this Agreement, and shall not relieve the Corporation from any
liability under this Agreement, unless the Corporation can demonstrate that its
rights have been actually prejudiced by the failure to give timely notice. With
respect to any Proceeding as to which the Indemnitee notifies the Corporation of
the commencement:
(a) The Corporation will be entitled to participate in the Proceeding
at its own expense.
(b) Except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense of the Proceeding with
legal counsel reasonably satisfactory to the Indemnitee. The Indemnitee
shall have the right to use separate legal counsel in the Proceeding, but
the Corporation shall not be liable to the Indemnitee under this Agreement,
including Section 8 above, for the fees and expenses of separate legal
counsel incurred after notice from the Corporation of its assumption of the
defense, unless (i) the Indemnitee reasonably concludes that there may be a
conflict of interest between the Corporation and the Indemnitee in the
conduct of the defense of the Proceeding, or (ii) the Corporation does not
use legal counsel to assume the defense of such Proceeding. The
Corporation shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Corporation or as to which the Indemnitee
shall have made the conclusion provided for in (i) above.
(c) If two or more persons who may be entitled to indemnification
from the
-6-
<PAGE>
Corporation, including the Indemnitee, are parties to any Proceeding,
the Corporation may require the Indemnitee to use the same legal counsel
as the other parties. The Indemnitee shall have the right to use
separate legal counsel in the Proceeding, but the Corporation shall not
be liable to the Indemnitee under this Agreement, including Section 8
above, for the fees and expenses of separate legal counsel incurred after
notice from the Corporation of the requirement to use the same legal
counsel as the other parties, unless the Indemnitee reasonably concludes
that there may be a conflict of interest between the Indemnitee and any of
the other parties required by the Corporation to be represented by the same
legal counsel.
(d) The Corporation shall not be liable to indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without its written consent, which shall not be unreasonably
withheld. The Indemnitee shall permit the Corporation to settle any
Proceeding that the Corporation assumes the defense of, except that the
Corporation shall not settle any action or claim in any manner that would
impose any penalty or limitation on the Indemnitee or be otherwise
prejudicial to his or her best interests without the Indemnitee's written
consent.
13. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provisions of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines or amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection with such
Proceeding, but not, however, for the total amount thereof, the Corporation
shall nevertheless indemnify the Indemnitee for the portion of such Expenses,
judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
14. SEVERABILITY. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
remainder of this Agreement shall continue to be valid and the Corporation shall
nevertheless indemnify the Indemnitee as to Expenses, judgments, fines and
amounts paid in settlement, with respect to any Proceeding, to the fullest
extent permitted by any applicable portion of this Agreement that shall not have
been invalidated or by any other applicable law.
15. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee. The Indemnitee shall execute all
documents required and shall do all acts that may be necessary to secure such
rights and to enable the Corporation effectively to bring suit to enforce such
rights.
16. NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) upon delivering by hand to the party to whom the notice or other
communication shall have been directed, or (b) on the third business day after
the date on which it is mailed by certified or registered mail with postage
prepaid, addressed as follows:
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<PAGE>
(i) If to the Indemnitee, to the address indicated on the signature
page of this Agreement.
(ii) If to the Corporation, to
Interactive Intelligence, Inc.
8909 Purdue Road, Suite 300
Indianapolis, IN 46268
Attention: Secretary
or to any other address as either party may designate to the other in writing.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
18. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Indiana without
regard to the principles of conflict of laws.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to
be duly executed and signed as of the day and year first above written.
CORPORATION: INDEMNITEE:
By _______________________________ By ________________________________
__________________________________ ___________________________________
Title Address
___________________________________
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 3, 1999 (except the first paragraph of
Note 5, as to which the date is April 16, 1999) in the amended Registration
Statement (Form S-1 No. 333-79509) and the related Prospectus of Interactive
Intelligence, Inc. dated July 14, 1999.
Our audits also included the financial statement schedule of Interactive
Intelligence, Inc. listed in Item 16(b). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
July 12, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF WOODARD, EMHARDT, NAUGHTON, MORIARTY & MCNETT
We hereby consent to the references to us under the headings "Risk
Factors--Infringement claims could adversely affect us" or elsewhere in the
Registration Statement on Form S-1 (Registration No. 333-79509) relating to
the Initial Public Offering of common stock of Interactive Intelligence, Inc.
Dated: July 12, 1999
WOODARD, EMHARDT, NAUGHTON,
MORIARTY & MCNETT
/s/ Thomas Q. Henry
-----------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND JUNE 30, 1999 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998
AND SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 2,021 87
<SECURITIES> 0 0
<RECEIVABLES> 3,541 3,937
<ALLOWANCES> 272 345
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,634 4,105
<PP&E> 3,593 5,247
<DEPRECIATION> 1,153 1,738
<TOTAL-ASSETS> 8,239 7,798
<CURRENT-LIABILITIES> 3,903 7,272
<BONDS> 9,490 8,523
0 0
0 0
<COMMON> 101 107
<OTHER-SE> (5,255) (8,104)
<TOTAL-LIABILITY-AND-EQUITY> 8,239 7,798
<SALES> 7,662 5,482
<TOTAL-REVENUES> 9,011 7,308
<CGS> 3,440 2,420
<TOTAL-COSTS> 10,688 7,557
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 188 73
<INTEREST-EXPENSE> 868 398
<INCOME-PRETAX> (7,392) (4,202)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,392) (4,202)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,392) (4,202)
<EPS-BASIC> (1.26) (0.59)
<EPS-DILUTED> (1.26) (0.59)
</TABLE>
