SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-1(c) or Rule 14a-12
Inter-Tel, Incorporated
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)((1) or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _/
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4) Proposed maximum aggregate value of transaction:
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_/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INTER-TEL, INCORPORATED
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 2, 1996
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TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Inter-Tel, Incorporated (the "Company"), an Arizona corporation, will be held on
Thursday, May 2, 1996, at 10:00 a.m., local time, at the Company's Chandler
offices at 7300 W. Boston Street, Chandler, Arizona 85226, for the following
purposes:
l. To elect directors to serve for the ensuing year and until their
successors are elected and qualified.
2. Approval of the Adoption of an Amendment to the Company's Directors Stock
Option Plan.
3. Approval of the Adoption of an Amendment to Article IX, Paragraph 1 of
the Company's Restated Articles of Incorporation.
4. Approval of the Adoption of an Amendment to Article IX, Paragraph 2 of
the Company's Restated Articles of Incorporation.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on March 22, 1996,
are entitled to notice of and to vote at the meeting. A copy of the Company's
1995 Annual Report to Shareholders, which includes certified financial
statements, was mailed with this Notice and Proxy Statement on or about April 1,
1996, to all shareholders of record on the record date.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he has previously returned a proxy.
Sincerely,
KURT R. KNEIP,
Secretary
Phoenix, Arizona
March 21, 1996
<PAGE>
INTER-TEL, INCORPORATED
120 North 44th Street, Suite 200
Phoenix, Arizona 85034-1822
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement is furnished by Inter-Tel, Incorporated
("Inter-Tel" or the "Company"), for use at the Annual Meeting of Shareholders to
be held Thursday, May 2, 1996, at 10:00 a.m., local time (the "Annual Meeting"),
or at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the Company's Chandler offices at 7300 West Boston Street, Chandler,
Arizona 85226 (telephone number 602-961-9000).
These proxy solicitation materials were mailed on or about April 1,
1996, to all shareholders entitled to vote at the Annual Meeting.
Record Date and Share Ownership
Shareholders of record at the close of business on March 22, 1996 are entitled
to notice of and to vote at the meeting. As of March 20, 1996, 12,779,974 shares
of the Company's Common Stock were issued and outstanding. As of the record
date, the following persons were known by the Company to be, or may be deemed to
be, the beneficial owner of more than 5% of the Company's Common Stock:
Shares of Common Stock
Beneficially Owned
------------------
Number Percent
Name of Shares of Total
Steven G. Mihaylo
120 North 44th Street, Suite 200
Phoenix, Arizona 85034 2,759,000 21.6%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109-3614 704,200 * 5.5%
Gardner Lewis Asset Management
285 Wilmington -- West Chester Pike
Chadds Ford, PA 19317 682,400 * 5.3%
* According to Schedules 13G filed (January 10, 1996 and February 6, 1996,
respectively).
Revocability of Proxies
The enclosed proxy is solicited by the Board of Directors of the
Company. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
Voting and Solicitation
Every shareholder voting at the Annual Meeting for the election of
directors may either (i) cumulate such shareholder's votes and give one nominee
for director a number of votes equal to (a) the number of directors to be
elected, multiplied by (b) the number of shares of the Company's Common Stock
held by such shareholder; or (ii) distribute such shareholder's votes on the
same principle among as many nominees for director as the shareholder thinks
fit, provided that votes cannot be cast for more than six nominees. However, no
shareholder will be entitled to cumulate votes for any nominee unless such
nominee's name has been placed in nomination prior to the voting and such
shareholder, or another shareholder, has given notice at the Annual Meeting
prior to the voting for directors of the intention of such shareholder to
cumulate such shareholder's votes. On all other matters, one vote may be cast
for each share held of the Company's Common Stock.
A quorum will be present if a majority of the votes entitled to be cast
are present in person or by valid proxy. All matters to be considered and acted
upon by the shareholders at the Annual Meeting must be approved by a majority of
the shares represented at the Annual Meeting and entitled to vote. Consequently,
abstentions will have the same legal effect as votes against a proposal. In
contrast, broker "non-votes" resulting from a broker's inability to vote a
client's shares on non-discretionary matters will have no effect on the approval
of such matters.
If the enclosed proxy is properly executed and returned to the Company
in time to be voted at the Annual Meeting, it will be voted as specified on the
proxy, unless it is properly revoked prior thereto.
The cost of this solicitation will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for expenses incurred in forwarding solicitation
material to such beneficial owners. Proxies also may be solicited by certain of
the Company's directors, officers and regular employees, personally or by
telephone or telegram, without additional compensation.
Deadline for Receipt of Shareholder Proposals
Proposals of security holders of the Company that are intended to be
presented by such shareholders at the annual meeting of the company for the
fiscal year ending December 31, 1996 must be received by the Company no later
than November 24, 1996, in order to be included in the proxy statement and form
of proxy relating to such meeting.
Independent Auditors
The independent auditors of the Company for the fiscal year ended
December 31, 1995 were Ernst & Young LLP. A representative of Ernst & Young LLP
will attend the annual meeting for the purpose of responding to appropriate
questions.
ELECTION OF DIRECTORS
(Proposal No. 1)
Nominees
Six directors are to be elected at the meeting. Each nominee named below
is currently a director of the Company. In the event that any nominee of the
Company becomes unavailable for any reason or if a vacancy should occur before
election (which events are not anticipated) the shares represented by the
enclosed proxy may be voted for such other person as may be determined by the
holders of such proxy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them cumulatively, in their discretion, in such a manner as will assure the
election of as many of the nominees listed below as possible. In such event, the
specific nominees to be voted for will be determined by the proxy holders in
their discretion. The term of office of each person elected as a director will
continue until the next annual meeting and until his successor has been elected
and qualified.
The names of the nominees and certain biographical information relating
to the nominees are set forth below.
<PAGE>
Director
Name of Nominees Age Position(s) Since
- ---------------- --- ----------- -----
Steven G. Mihaylo 52 Chairman and Chief 1969
Executive Officer
Gary D. Edens 54 Director 1994
Maurice H. Esperseth 70 Director 1986
C. Roland Haden 55 Director 1983
Norman Stout 38 Director 1994
Kathleen R. Wade 42 Director 1994
Mr. Mihaylo, the founder of the Company, has served as Chairman of the
Board of Directors of the Company since September 1983 and as Chief Executive
Officer of the Company since its formation in July 1969. Mr. Mihaylo served as
President of the Company until December 1994 and as Chairman of the Board of
Directors from July 1969 to October 1982. Mr. Mihaylo also is a director of
MicroAge, Inc. and Microtest, Inc.
Mr. Edens was elected as a director of the Company in October 1994. He
has been a broadcasting media executive from 1970 to 1994, serving as Chairman
and Chief Executive Officer of Edens Broadcasting, Inc. from 1984 to 1994 when
that corporation's nine radio stations were sold. He presently is President of
The Hanover Companies, Inc., an investment firm. He is an active leader in
various business, civic and philanthropic organizations.
Mr. Esperseth has been a director of the Company since October 1986. Mr.
Esperseth joined the Company in January 1983 as Senior Vice President-Research
and Development, after a 32-year career with GTE, and served as Executive Vice
President of Inter-Tel from 1986 to 1988. Mr. Esperseth retired as an officer of
the Company on December 31, 1989.
Dr. Haden has been a director of the Company since 1983. Dr. Haden has
been Vice Chancellor and Dean of Engineering of Texas A&M University since 1993.
Previously, he served as Vice Chancellor of Louisiana State University from 1991
to 1993, Dean of the College of Engineering and Applied Sciences at Arizona
State University from 1989 to 1991, Vice President for Academic Affairs at
Arizona State University from 1987 to 1988, and Dean of the College of
Engineering and Applied Sciences from 1978 to 1987. Dr. Haden holds a doctoral
degree in Electrical Engineering from the University of Texas and has served on
the faculties of the University of Oklahoma and Texas A & M University.
Mr. Stout was elected a director of the Company in October 1994. Mr.
Stout has been President of Superlite Block, a manufacturer of concrete block
since February 1993. Prior thereto he was employed by Bouhem-Fields, Inc. of
Dallas, Texas, a manufacturer of crushed stone, as Chief Executive Officer from
1990 to 1993 and as Chief Financial Officer from 1986 to 1990. Previously, Mr.
Stout was a Certified Public Accountant with Coopers & Lybrand.
Ms. Wade was elected a director of the Company in April 1994. Ms. Wade
is a former director and Co-Chief Executive Officer of Continental Homes Holding
Corporation, having been employed by this multi-market production homebuilder
and mortgage company and its predecessor from 1978 to 1995. In September 1995,
Ms. Wade resigned from Continental Homes and is currently acting as a consultant
to Continental Homes. Prior thereto, Ms. Wade, a Certified Public Accountant,
was employed by Ernst & Ernst, an international accounting firm.
The Board of Directors recommends that the shareholders vote "FOR" the nominees
listed above.
Security Ownership of Management
The following table sets forth the beneficial ownership of Common Stock
of the Company as of March 15, 1996, by (a) each director of the Company, (b)
each of the Named Officers (defined below) and (c) all directors and executive
officers as a group:
Shares of Common Stock
Beneficially Owned
Number Percent
Name (8) of Shares of Total
- -------- --------- --------
Steven G. Mihaylo 2,759,000 21.6%
Gary D. Edens 5,000(1) (7)
Maurice H. Esperseth 18,017(2) (7)
C. Roland Haden 5,000(2) (7)
Norman Stout 5,000(1) (7)
Kathleen R. Wade 5,000(1) (7)
Thomas C. Parise 68,690(3) (7)
Craig W. Rauchle 27,700(4) (7)
Ross McAlpine 10,000(5) (7)
Kurt R. Kneip 7,000(1) (7)
All directors and executive
officers as a group (10 persons) 2,910,407(6) 22.8%
<PAGE>
(1) Includes 5,000 shares under options which were exercisable on March 1, 1996,
or within 60 days of that date.
(2) Includes 2,500 shares under options which were exercisable on March 1, 1996,
or within 60 days of that date.
(3) Includes 17,500 shares under options which were exercisable on March 1,
1996, or within 60 days of that date.
(4) Includes 15,000 shares under options which were exercisable on March 1,
1996, or within 60 days of that date.
(5) Includes 10,000 shares under options which were exercisable on March 1,
1996, or within 60 days of that date.
(6) Includes 67,500 shares subject to stock options held by all directors and
executive officers as a group which are currently exercisable or which will
become exercisable within 60 days after March 1, 1996.
(7) Less than 1%.
(8) Address for the above named directors and executive officers: C/O Inter-
Tel, Incorporated, 120 North 44th Street, Phoenix, Arizona 85034-1822.
Board Meetings and Committees
The Board of Directors of the Company held a total of five meetings
during the fiscal year ended December 31, 1995.
The Audit Committee of the Board of Directors consisted of directors
Esperseth, Stout and Wade. The Audit Committee met twice during the last fiscal
year. This Committee recommends engagement of the Company's independent public
accountants and is primarily responsible for approving the services performed by
the Company's independent public accountants and for reviewing and evaluating
the Company's accounting principles and its system of internal controls and
financial management practices.
The Compensation and Stock Option Committee of the Board of Directors
consisted of directors Esperseth, Edens and Haden. The Committee reviews
employee compensation and makes recommendations thereon to the Board of
Directors. The Committee met one time during the year. The Committee functions
include the administration of the Company's Stock Incentive Plans. The Committee
also determines, upon review of relevant information, the fair market value of
the Company's Common Stock, the exercise price-per-share at which options shall
be granted and the employees to whom options shall be granted.
There is no nominating committee or other committee performing similar
functions.
During the fiscal year ended December 31, 1995, each director attended
all meetings of the Board of Directors and of the committee(s) on which the
director served.
Director Compensation
Each director who is not employed by the Company was paid a fee of
$3,000 for each Board of Directors meeting attended and $1,500 for each
committee meeting attended. All directors, except Mr. Mihaylo, are eligible to
participate in the Company's 1990 Directors' Stock Option Plan, under which each
director is granted options to purchase 2,500 shares of Common Stock annually at
the market price five days after the date of his or her re-election.
Section 16(a) Reporting
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended 1995, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent shareholders
were complied with; except that one report covering one transaction for Mr.
Thomas C. Parise, Craig Rauchle, Steven Nichols, Michael Sargent, W. Kris Brown
and Kurt R. Kneip was filed late by Company representatives assisting in the
filings.
Executive Compensation
The following Summary Compensation Table sets forth compensation paid by
the Company for services rendered during the fiscal years 1995, 1994 and 1993 by
the Chief Executive Officer and the four most highly compensated executive
officers of the Company (the "Named Officers") whose salary and bonus exceeded
$100,000 in 1995.
<PAGE>
INTER-TEL, INCORPORATED
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------
Number of
Securities All
Underlying Other
Salary Bonus Options Compensation (1)
Name and Position Year ($) ($) (#) ($)
- ----------------- ---- --- --- --- ---
(a) (b) (c) (d) (g) (i)
<S> <C> <C> <C> <C> <C>
Steven G. Mihaylo 1995 300,000 51,442 0 8,310
Chairman and Chief 1994 204,000 76,145 0 2,310
Executive 1993 181,700 0 0 2,248
Thomas C. Parise 1995 225,000 170,105 0 8,310
President and Chief 1994 170,000 124,675 70,000 2,310
Operating Officer 1993 170,000 54,706 (2) 2,248
Craig W. Rauchle 1995 180,000 75,000 0 8,119
Exec. Vice President -- 1994 170,000 72,510 50,000 2,119
Corporate Development 1993 170,000 0 (2) 2,119
Ross McAlpine (3) 1995 110,000 100,977 0 2,129
President -- Inter-Tel 1994 101,769 46,500 30,000 1,463
Leasing, Inc. 1993 89,769 41,775 8,000(2) 975
Kurt R. Kneip (4) 1995 104,000 45,413 0 2,310
Vice President/CFO/ 1994 85,861 24,747 20,000 1,485
Secretary/Treasurer 1993 50,351 0 4,000(2) 1,258
</TABLE>
(1) Company contribution under 401(k) Retirement Plan. Messrs. Mihaylo, Parise
and Rauchle also received auto allowances of $6,000 each during 1995. In
addition, each officer was allocated common stock under the Employee Stock
Ownership Plan. (A maximum of 142 shares in 1995, 165 shares in 1994 and 184
shares in 1993.)
(2) In addition to the options indicated, stock options granted in 1993 were
repriced and replaced by those granted in 1994. See "Compensation Committee
Report" in 1994 proxy statement.
(3) Mr. McAlpine was elected President of Inter-Tel Leasing, Inc. in April 1993.
(4) Mr. Kneip was elected Vice President and Chief Financial Officer in
September 1993 and Secretary/Treasurer in October 1994.
(5) No compensation is present under omitted columns (e), (f) and (h).
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND
DECEMBER 31, 1995 OPTION VALUES
Number of Value of
Unexercised in-the-Money
Options at Options at
Shares December 31, December 31,
Acquired 1995 (#) 1995 ($) (2)
on Value -------- ------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------- --- --- ------------- -------------
(a) (b) (c) (d) (e)
Steven G. Mihaylo (1)
Thomas C. Parise:
Exercised 7,500 80,625
Exercisable 17,750 181,578
Unexercisable 56,000 528,500
Craig W. Rauchle
Exercised 5,000 46,875
Exercisable 15,000 160,313
Unexercisable 40,000 377,500
Ross McAlpine
Exercised 2,000 12,500
Exercisable 10,000 95,375
Unexercisable 24,000 226,500
Kurt R. Kneip (4)
Exercised 1,000 10,500
Exercisable 5,000 47,438
Unexercisable 17,000 160,438
(1) Steven G. Mihaylo has elected not to participate in the Company's stock
option plans at this time.
(2) Potential unrealized value is (i) the fair market value at December 31, 1995
($15.4375 per share) less the option exercise price times (ii) the number of
shares.
Option Grants in Last Fiscal Year
The Company did not grant stock options to the Named Officers during the
fiscal year ended December 31, 1995.
<PAGE>
COMPENSATION COMMITTEE REPORT
Executive Compensation Principles
The Company's Compensation and Stock Option Committee's responsibilities
include determining both the cash and non-cash compensation of executive
officers. Through 1995, non-cash compensation had been limited to incentive
stock option grants to purchase Company common stock at fair market value at the
grant date. All executive officers and some middle managers also participate in
such stock incentive plans. These plans are designed to retain superior
personnel and to tie their performance to the enhancement of shareholder value.
Executive officers also participate in the Company's 401(k) Thrift
Savings Plan and the Inter-Tel Employee Stock Ownership Plan, together with all
other permanent Inter-Tel associates.
The Committee's policy regarding compensation of the Company's executive
officers is to provide generally competitive salary levels and compensation
incentives that attract and retain individuals of outstanding ability; that
recognize individual performance and the performance of the Company; and that
support the Company's primary goal -- to increase shareholder value.
The Compensation Committee intends to continue to consider expansion of
executive compensation to include deferred cash and equity-based compensation
integrated with attainment of specific long-term performance goals and
shareholder value enhancement.
Executive Compensation Program
Key Executives
The total compensation program for executives, other than the Chief
Executive Officer, includes both cash and equity-based compensation. The
Committee determines the level of salary for executive officers and determines
the salary or salary ranges based upon a review of base salary levels for
comparable officer positions in similar companies of comparable size and
capitalization. Salary changes are based upon the Committee's subjective
assessment of the executive's performance and the scope and complexity of the
position held.
At the beginning of 1995, the Compensation Committee considered the
business plan of each major operating unit and of the consolidated Company.
Consideration included past and anticipated performance, new product and market
expectations, assets employed and similar factors. The Committee set income
performance levels for each unit and for the consolidated Company. Cash bonus
awards, based upon meeting or exceeding such performance levels and limited to a
percentage of base salary, were set for each executive officer.
As indicated above, annual cash bonus awards are integrated with
performance against specific profit contribution goals set forth in the
Company's business plan. Performance benchmarks are specific to the
responsibilities of the individual executive. The cash bonuses in the Summary
Compensation Table reflect the performance of the named officers against the
benchmarks established at the beginning of the year.
Chief Executive Officer
The Chief Executive Officer's salary was determined based on a review of
the salaries of Chief Executive Officers of similar companies of comparable size
and capitalization and upon a review of the Chief Executive Officer's
performance against the Company's 1995 performance.
The Compensation Committee determined the CEO's 1995 bonus based on
similar Company consolidated earnings performance criteria used to determine
bonuses for the other executive officers.
The Chief Executive Officer, Steven G. Mihaylo, has voluntarily elected
not to participate in equity-based compensation plans at this time.
Maurice H. Esperseth, Chairman
C. Roland Haden
Gary Edens
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG INTER-TEL, PEER GROUP AND NASDAQ MARKET
The graph below compares the cumulative total return of the Company's
common stock with the NASDAQ market index and a self-determined peer group index
from January 1, 1991 to January 31, 1996. The common stocks of the peer group
companies have been included on a weighted basis to reflect the relative market
capitalization at the end of each period shown.
COMPARISON OF CUMULATIVE TOTAL RETURNS
Assumes December 31, 1990 = 100
- --------------------------------------------------------------------------------
CRSP Total Returns Index for:
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
-------- -------- -------- -------- -------- --------
INTER-TEL, INC. 100.0 93.8 456.3 875.0 725.0 1543.8
Nasdaq Stock Market 100.0 160.5 186.9 214.5 209.7 296.5
(US Companies)
Self-Determined 100.0 107.7 185.0 483.9 353.0 516.6
Peer Group
Companies in the Self-Determined Peer Group
COMDIAL CORP EXECUTONE INFORMATION SYS INC
MITEL CORP NORSTAN INC
- --------------------------------------------------------------------------------
<PAGE>
OTHER MATTERS
FIRST AMENDMENT TO
THE 1990 DIRECTORS STOCK OPTION PLAN
(Proposal No. 2)
The Board has adopted the First Amendment to the 1990 Directors Stock
Option Plan (the "Director Plan"), for non-employee directors of the Company
("Eligible Directors"), subject to approval by the shareholders of the Company.
Currently, the Board of Directors is composed of five non-employee directors and
one employee director. Under the Director Plan, Eligible Directors automatically
receive an annual grant of an option to purchase 2,500 shares ("Option") of the
Company's Common Stock. The First Amendment to the Director Plan changes the
date of the annual grant of an Option to Eligible Directors from five (5) days
after the date of the reelection of Eligible Directors at the Annual Meeting of
Shareholders to five (5) days after the date of the Board of Directors' meeting
during the third quarter of each year, but not later than the thirtieth (30th)
of November of each year. For transition purposes, during the 1996 fiscal year
only, Eligible Directors automatically would be granted an Option five (5) days
after the 1996 Annual Meeting of Shareholders and five (5) days after the
meeting of the Board of Directors during the third quarter of 1996 fiscal year.
The Director Plan provides a means by which the Company is able to
attract the best available persons to serve as directors of the Company and to
encourage the continued services of such persons on the Company's Board of
Directors. In considering the First Amendment, the Board of Directors noted that
the change in timing of the grant of an Option to Eligible Directors to a period
when the price of the Common Stock typically reflects the average price of the
Common Stock of each fiscal year and when Eligible Directors are contemplating
whether to continue their service on the Board would help ensure the achievement
of the purpose of the Director Plan.
Description of the Director Plan
- --------------------------------
The Director Plan and form of Stock Option Agreement were filed with the
Registrant's Registration Statement on Form S-8 (File No. 33-40353). The
following description of the material features of the Director Plan is qualified
in its entirety by reference to that filing.
The option exercise price is the fair market value of the Common Stock
on the relevant grant date. Six (6) months after the date of grant, the Option
is exercisable. The Option expires five (5) years from the date of grant of the
Option; provided, however, if the Eligible Director ceases to serve as a
director of the Company, the Option may be exercised for seven (7) months after
the date he or she ceases to be a director of the Company. The form of payment
of the option exercise price shall be cash, check, other shares of Common Stock
having a fair market value on the date of surrender equal to the option exercise
price, or any combination thereof.
On March 18, 1996, the closing price of the Common Stock, as reported on
Nasdaq National Market, was $18. The total amount of shares of Common Stock
available for Option grants under the Director Plan is 250,000.
The following table shows the number of shares of Common Stock
underlying the annual stock grants during the 1996 fiscal year under the
Director Plan assuming that the Plan is approved by the stockholders and the
current composition of the Board does not change:
Number
of Shares(1)
Non Employee Director Group (5 persons) 25,000
(1) Reflecting 2 option grants to purchase 2,500 shares of the Company's
Common Stock to be granted to each of the Company's non-employee directors
during the 1996 fiscal year. During each succeeding fiscal year, only an option
to purchase 2,500 shares of the Common Stock will be granted per year to each
non-employee director pursuant to the terms of the Director Plan.
Federal Income Tax Consequences
- ---------------------------------
The grant of an Option to an Eligible Director under the Director Plan
will not produce any taxable income to the Eligible Director, and the Company
will not be entitled to a deduction at that time. On the date the Option is
exercised, the Eligible Director recognizes ordinary income equal to the
difference between the fair market value of the Common Stock at the date of
exercise and the exercise price. The Company is entitled to a corresponding
deduction in the same amount and in the same year in which the Eligible Director
recognizes income.
Approval of this proposal requires the affirmative vote of the majority
of the holders of the outstanding shares of the Company's Common Stock present
or represented and entitled to vote thereon.
THE BOARD OF DIRECTORS THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE
FIRST AMENDMENT TO THE 1990 DIRECTOR STOCK OPTION PLAN.
Approval of the Adoption of
an Amendment to Article IX, Paragraph 1
of the Company's Restated Articles of Incorporation
(Proposal No. 3)
Description of Proposed Amendment
The first paragraph of Article IX of the Company's Restated Articles of
Incorporation (the "Indemnification Provision") reads, in part, as follows:
Subject to the further provisions hereof, the corporation
shall indemnify any and all of its existing and former directors,
officers, employees and agents against all expenses incurred by them and
each of them, including but not limited to legal fees, judgments,
penalties, and amounts paid in settlement or compromise, which may arise
or be incurred, rendered, or levied in any legal action brought or
threatened against any of them for or on account of any action or
omission alleged to have been committed while acting within the scope of
employment as director, officer, employee or agent of the corporation,
whether or not any action is or has been filed against them and whether
or not any settlement or compromise is approved by a court.
Indemnification shall be made by the corporation whether the legal
action brought or threatened is brought by or in the right of the
corporation or by any other person. Whenever such director, officer,
employee or agent shall report to the president of the corporation or
the chairman of the board of directors that he or she has incurred or
may incur expenses, including but not limited to legal fees, judgments,
penalties and amounts paid in settlement or compromise in a legal action
brought or threatened against him or her for or on account of any action
or omission alleged to have been committed by him or her while acting
within the scope of his or her employment as a director, officer,
employee or agent of the corporation, the board of directors shall, at
its next regular or at a special meeting held within a reasonable time
thereafter, determine in good faith whether, in regard to the matter
involved in the action or contemplated action, such person acted, failed
to act, or refused to act willfully or with gross negligence or with
fraudulent or criminal intent. If the board of directors determines in
good faith that such person did not act, fail to act, or refuse to act
willfully or with gross negligence or with fraudulent or criminal intent
in regard to the matter involved in the action or contemplated action,
indemnification shall be mandatory and shall be automatically extended
as specified herein, provided, however, that no such indemnification
shall be available with respect to liabilities under the Securities Act
of 1933, and, provided further, that the corporation shall have the
right to refuse indemnification in any instance in which the person to
whom indemnification would otherwise have been applicable shall have
unreasonably refused to permit the corporation, at its own expense and
through counsel of its own choosing, to defend him or her in the action.
On February 28, 1996, the Board of Directors adopted, subject to
shareholder approval at the 1996 Annual Meeting of Shareholders, a proposed
Amendment to the Company's Restated Articles of Incorporation that would revise
the Indemnification Provision by replacing it with a provision that would
require the Company to indemnify any and all of its existing and former
directors and officers to the extent permitted under Arizona law with the
exception that the Company could refuse to indemnify any person who unreasonably
refuses to cooperate with the Company in defending such person in an action or
contemplated action. A copy of the proposed Amendment, which is attached as
Exhibit A to this Proxy Statement, would replace the current Article IX,
Paragraph 1 of the Company's Restated Articles of Incorporation.
Purpose and Effect of the Amendment
The Board of Directors recommends revising the Indemnification Provision
because (i) the standard of conduct that an indemnified party must meet is no
longer consistent with Arizona law, (ii) the Indemnification Provision provides
that the Board of Directors must determine whether a director, officer, employee
or agent ("Indemnitee") has met the required standard of conduct, while the Code
provides a corporation with greater flexibility in making such a determination,
and (iii) the Board of Directors believes that the Company should be permitted,
but not required, to indemnify employees and agents.
Standard of Conduct
The Arizona Corporate Code (the "Code"), which became effective January
1, 1996, establishes the standard of conduct that a Indemnitee must meet to be
eligible for indemnification by an Arizona corporation. Generally, (i) the
Indemnitee's conduct must have been in good faith, (ii) the Indemnitee must have
reasonably believed that the conduct was in the corporation's best interests,
and (iii) in the case of any criminal proceeding, the Indemnitee must not have
had any reasonable cause to believe the conduct was unlawful (the "Code Standard
of Conduct").
As noted above, the Indemnification Provision provides that an
Indemnitee is not eligible for indemnification if the Indemnitee "did not act,
fail to act, or refuse to act willfully or with gross negligence or with
fraudulent or criminal intent in regard to the matter involved in the action or
contemplated action." Section 10-858A of the Code provides, in part, that a
director indemnification provision in a corporation's articles of incorporation
is valid only if and to the extent that it is consistent with the Code Standard
of Conduct. Because the Indemnification Provision does not require a finding
that the director to be indemnified acted in good faith or in a manner the
director reasonably believed to be in the corporation's best interests, the
Indemnification Provision is inconsistent with the Code Standard of Conduct, at
least in that respect. Rather than allowing uncertainty to remain about what
portions of the Indemnification Provision, if any, are consistent with the Code
Standard of Conduct (and therefore still effective), the Board of Directors
recommends that the Indemnification Provision be revised so that it is
consistent with Arizona law.
Section 10-856 of the Code allows an Arizona corporation, like the
Company, to provide indemnification rights to officers, employees, and agents in
the corporation's articles of incorporation or bylaws or by board resolution or
contract (any such indemnification rights being hereinafter referred as
"Contractual Indemnification Rights"). Subject to "public policy" limitations,
these Contractual Indemnification Rights would apparently allow a corporation to
indemnify an officer, employee, or agent even if the officer, employee, or agent
did not meet the Code Standard of Conduct. In the absence of such Contractual
Indemnification Rights, an officer, employee, or agent would have to meet the
Code Standard of Conduct to be eligible for indemnification. In the case of a
director, the Contractual Indemnification Rights could not lessen the Code
Standard of Conduct. If, however, the Indemnification Provision is not revised
as proposed, uncertainty may exist about whether an officer's conduct should be
evaluated under the Indemnification Provision or the Code Standard of Conduct.
Finally, the Code requires Arizona corporations to indemnify any
"outside director" (a director who is not an officer, employee, or holder of
five percent or more of any class of the corporation's stock) against liability
unless (i) the corporation's articles of incorporation limit such
indemnification, (ii) the outside director is adjudged liable in a proceeding by
or in the right of the corporation or in any other proceeding charging improper
personal benefit to the director, or (iii) a court determines, before payment to
the outside director, that the director failed to meet the Code Standard of
Conduct and is not otherwise entitled to indemnification. If the Indemnification
Provision is not revised as proposed, uncertainty may exist about whether the
Indemnification Provision is intended to limit the otherwise mandatory
indemnification to which an outside director is entitled.
Determination of Standard of Conduct
As noted above, the Indemnification Provision provides that the Board of
Directors must determine whether an Indemnitee has met the standard of conduct
to be eligible for indemnification. Under the Code, in order for an Arizona
corporation to provide indemnification, a majority of the corporation's
disinterested directors, independent legal counsel, or the shareholders must
find that the Indemnitee met the Code Standard of Conduct to be eligible for
indemnification. A disinterested director is a director who is not then a party
to the proceeding for which indemnification is sought. By requiring the Board of
Directors to make the standard of conduct determination, the Indemnification
Provision is inconsistent with the Code, at least in situations in which there
are no disinterested directors. The Code provides greater flexibility to an
Arizona corporation, like the Company, in determining whether a director or
officer is entitled to indemnification. By revising the Indemnification
Provision as proposed, it will be clear that any indemnification determination
will be made by a majority of the Company's disinterested directors, independent
legal counsel, or its shareholders.
Indemnification of Employees and Agents
As noted above, the Indemnification Provision requires the Company to
indemnify employees and agents if certain conditions are met. The Board of
Directors believes that the issues that support providing mandatory
indemnification to directors and officers (e.g., the attraction and retention of
qualified directors and officers), are not as critical in the case of employees
and agents. The Board believes that it would be in the Company's best interest
for the Company to retain the ability to determine whether it is appropriate to
indemnify employees and agents in specific circumstances. The Board notes that
pending Arizona legislation, if enacted into law, would allow the Company to
indemnify employees and agents to a greater extent than it is able to indemnify
directors and officers; if the Company is required to indemnify employees and
agents to the fullest extent permitted by Arizona law, the Company may be forced
to indemnify an employee or agent in situations in which the Company may not
otherwise choose to do so. As a result, the proposed Amendment would permit, but
not require, the Company to indemnify its employees and agents.
Vote Required and Board Recommendation
Approval of the proposed Amendment requires the affirmative vote of a
majority of the Company's outstanding shares of Common Stock. The Board believes
that it is in the best interest of the Company and its shareholders for the
Company's shareholders to so amend the Company's Restated Articles of
Incorporation.
THE BOARD OF DIRECTORS THEREFORE RECOMMENDS A VOTE FOR THIS PROPOSAL TO
AMEND ARTICLE IX, PARAGRAPH 1 OF THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION
Approval of the Adoption of
an Amendment to Article IX, Paragraph 2 of
the Company's Restated Articles of Incorporation
(Proposal No. 4)
Description of Proposed Amendment
Section 10-202B.1 of the Arizona Corporate Code (the "Code"), which
became effective January 1, 1996, permits an Arizona corporation to limit or
eliminate the liability of its directors to the corporation or its shareholders
for money damages by means of an amendment to its articles of incorporation. On
February 28, 1996, the Board of Directors adopted, subject to shareholder
approval at the 1996 Annual Meeting of Shareholders, a proposed Amendment to the
Company's Restated Articles of Incorporation that is consistent Section
10-202B.1 of the Code. A copy of the proposed Amendment, which is attached as
Exhibit A to this Proxy Statement, would replace the current Article IX,
Paragraph 2 of the Company's Restated Articles of Incorporation. The proposed
Amendment provides that a director is not subject to monetary liability in suits
brought by the Company or its shareholders for any action taken or any failure
to take any action as a director, except liability for any of the following:
(i) the amount of a financial benefit received by a director to
which the director was not entitled;
(ii) an intentional infliction of harm on the Company or its
shareholders;
(iii) an approval of a specified unlawful distribution by the
Company to its shareholders; and
(iv) an intentional violation of criminal law.
Purpose and Effect of Amendment
Section 10-202B.1 of the Code is not unique. Other states also include
in their corporate codes provisions permitting corporations to limit or reduce
the personal risks inherent in serving as a director of a corporation. The new
statutory provision is designed generally to allow Arizona corporations to limit
the liability of directors in situations involving unintentional errors or the
directors' exercise of judgment and is not designed to limit or eliminate
liability in situations involving intentional wrongdoing or bad faith.
The official commentary to the Model Business Corporation Act, on which
Section 10-202B.1 of the Code is based, states that "[d]evelopments in the mid-
and late 1980s highlighted the need to permit reasonable protection of directors
from exposure to personal liability, in addition to indemnification, so that
directors would not be discouraged from fully and freely carrying out their
duties, including responsible entrepreneurial risk-taking." The Company believes
that the proposed Amendment will enable the Company to continue to attract and
retain qualified directors. The Board of Directors believes that concerns over
possible personal liability can hamper the decision-making process to the
detriment of the Company. The Board of Directors believes that the level of
scrutiny, diligence, and care exercised by directors of the Company will not be
lessened by adoption of the proposed Amendment.
Generally, the Company has not experienced difficulty in recruiting and
retaining qualified directors, and the proposed Amendment is not being proposed
in response to any resignation or threat of resignation of any director, nor is
it being proposed in response to any refusal by any director to continue to
serve or to stand for reelection. The Company is not aware of any pending or
threatened claim which would be covered by the proposed Amendment, and the
Company is not submitting the proposed Amendment for shareholder approval in
anticipation of any such claim. However, the Board of Directors believes that
the Company should take every step to ensure that the Company will be able to
attract and retain the best possible directors.
While the Board of Directors believes that the proposed Amendment is in
the best interest of the Company and its shareholders, the shareholders should
note that adoption of the proposed Amendment will abrogate certain rights and
remedies of shareholders that might otherwise exist under Arizona law. Under the
Company's Articles of Incorporation as currently in effect, for example, the
Company's directors cannot be held liable to the corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director, except for,
among other things, (i) a breach of the director's duty of loyalty to the
corporation or its shareholders, and (ii) acts or omissions which are not in
good faith or which involve intentional misconduct or a knowing violation of
law. The official commentary to the Model Business Corporation Act, on which
Section 10-202B.1 of the Code is based, states that terms such as "duty of
loyalty" are not precise, and that "[d]irectors should be afforded reasonable
predictability; they are entitled to know whether a contemplated course of
action will result in personal liability for money damages." Although the
proposed Amendment may eliminate the ambiguity caused by terms such as "duty of
loyalty," it would do so by requiring the Company or its shareholders to
demonstrate intentional wrongdoing or bad faith on the part of a director before
the director may be held liable for money damages. This may have the practical
effect of making it more difficult for the Company or its shareholders to hold a
director liable for money damages.
The proposed Amendment will not affect the standard of conduct to which
directors are required to conform under the Code, which requires directors to
discharge their duties (i) in good faith, (ii) with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and (iii) in a manner the director reasonably believes to be in the best
interests of the corporation. If the proposed Amendment is adopted, however, it
would eliminate monetary liability of directors in suits brought by the Company
or its shareholders in instances in which the directors' conduct would have been
found to be grossly negligent (except for the four categories of conduct
referenced in the first paragraph above). Adoption of the proposed Amendment
would not eliminate or limit the right of the Company or any shareholder to seek
an injunction or any other non-monetary relief in the event of a breach of a
director's fiduciary duty, although in some circumstances injunctive relief may
not be available as a practical manner. The proposed Amendment will be
prospective only, and will not affect the rights of the Company or its
shareholders to pursue monetary claims under Federal law, including the Federal
securities laws.
Because Section 10-202B.1 of the Code has been so recently enacted,
there has not been any judicial interpretation regarding its precise scope or
validity. As a result, the potential outcome of any litigation arising out of
interpretations of Section 10-202B.1 cannot be predicted.
The Company's directors acknowledge that they have a direct personal
interest in having the proposed Amendment adopted. If adopted, the proposed
Amendment may reduce the likelihood of derivative litigation against directors
and may discourage or deter the Company or its shareholders from bringing a
lawsuit against directors for breach of their fiduciary duty even though such an
action, if successful, might otherwise have benefited the Company or its
shareholders.
Vote Required and Board Recommendation
Approval of the proposed Amendment requires the affirmative vote of a
majority of the Company's outstanding shares of Common Stock. The Board of
Directors believes that the Arizona legislature acted responsibly in adopting
Section 10-202B.1 of the Code and that, given the significant duties and
responsibilities of directors of a corporation like Inter-Tel, Incorporated,
adoption of the proposed Amendment to the Restated Articles of Incorporation, as
permitted by Section 10-202B.1 of the Code, will contribute to responsible
decisions by the Board of Directors in furtherance of the Company's corporate
mission. Accordingly, the Board believes that it is in the best interest of the
Company and its shareholders for the Company's shareholders to so amend the
Company's Restated Articles of Incorporation.
THE BOARD OF DIRECTORS THEREFORE RECOMMENDS A VOTE FOR THIS PROPOSAL TO
AMEND ARTICLE IX, PARAGRAPH 2 OF THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION
EXHIBIT A
---------
AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION
INTER-TEL, INCORPORATED
1. Paragraph 1 of Article IX of the Restated Articles of Incorporation is
amended in its entirety to reads as follows:
"The corporation shall indemnify any and all of its existing and former
directors and officers to the fullest extent permitted by Arizona law;
provided, however, that the corporation shall have the right to refuse
indemnification in any instance in which the person to whom
indemnification would otherwise have been applicable shall have
unreasonably refused to permit the corporation, at its own expense and
through counsel of its own choosing, to defend him or her in the
action."
2. Paragraph 2 of Article IX is amended in its entirety to read as follows:
"Director Liability: The liability of a director or former director to
the corporation or its shareholders shall be eliminated to the fullest extent
permitted by Section 10-202.B.1 of the Arizona Revised Statutes. If the Arizona
Business Corporation Act is amended to authorize corporate action further
eliminating or limiting the liability of directors, the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Arizona Business Corporation Act, as amended. Any repeal or
modification of this Article IX, Paragraph 2 shall not adversely affect any
right or protection of a director of the corporation existing hereunder with
respect to any act or omission occurring prior to or at the time of such
repeal."
The Company knows of no further matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: March 21, 1996
Inter-Tel, Incorporated By /s/ Kurt R. Kneip
(Phoenix, Arizona) ---------------------
Kurt Kneip
<PAGE>
APPENDIX TO 1995 PROXY STATEMENT
- --------------------------------------------------------------------------------
1990 DIRECTORS STOCK OPTION PLAN
(As Amended)
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to Directors of the
Company to serve as Directors and to encourage their continued service on the
Board.
All options granted hereunder shall be "nonstatutory stock options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Inter-Tel, Incorporated, an Arizona
Corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
(k) "Optionee" shall mean an Eligible Director who receives an option.
(l) "Eligible Director" shall mean Directors excluding the Chairman of
the Board and Employee Directors first elected or nominated after the date of
the adoption of the Plan.
(m) "Parent" shall mean a "parent corporation" whether now or hereafter
existing, as defined in Section 425(a) of the Code.
(n) "Plan" shall mean this 1990 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 250,000 Shares of Common Stock. The Shares may be
authorized, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired under exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall
be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which
Eligible Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Eligible Directors.
(ii) Each Eligible Director shall be automatically granted an
Option to purchase 2,500 Shares upon the date five (5) days after the date (on
or after the effective date of this Plan) on which such person became a
Director, whether through election by the Shareholders of the Company or
appointment by the Board of Directors to fill a vacancy.
(iii) Each Eligible Director shall automatically receive, five
(5) days after the date of his or her reelection in 1996 only, an Option to
purchase 2,500 additional Shares of the Company's Common Stock. Beginning in
1996, and continuing annually thereafter, each Eligible Director shall
automatically receive, five days after the meeting of the Board of Directors for
the Company's third quarter of each year, but in no event later than the
thirtieth (30th) of November of each year, an Option to purchase 2,500
additional Shares of the Company's Common Stock.
(iv) Each Eligible Director shall receive a one-time automatic
grant, upon the date of adoption of the Plan, of an Option to purchase 2,500
Shares of the Company's Common Stock.
(v) The terms of an Option granted hereunder shall be as
follows:
(A) The term of the Option shall be five (5) years;
provided, however, if the Eligible Director ceases to serve as a Director, the
Option may be exercised for seven (7) months as provided in Sections 9(b) and
(c) below.
(B) The Option shall be exercisable only while the
Eligible Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(C) The exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Option.
(D) Options granted under the Plan shall become
exercisable six (6) months after the date of grant.
(c) Powers of the Board. Subject to the provisions and restrictions of
the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
available for the administration of the Plan.
(d) Effect of the Board's Decision. All decisions, determination and
interpretations of the Board shall be final and binding on all Optionees and any
other holder of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive Officer
of the Company or his designee reasonably believes that an Optionee has
committed an act of misconduct, the Chief Executive Officer may suspend the
Optionee's right to exercise any Option pending a determination of the Board of
Directors (excluding the Eligible Director accused of such misconduct). If the
Board of Directors (excluding the Eligible Director accused of such misconduct)
determines an Optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty or
deliberate disregard of the Company rules resulting in loss, damage or injury to
the Company, or if an Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct constituting
unfair competition, induces any Company customer to breach a contract with the
Company or induces any principal for whom the Company acts as agent to terminate
such agency relationship, neither the Optionee nor his estate shall be entitled
to exercise any Option whatsoever. In making such determination, the Board of
Directors (excluding the Eligible Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on Optionee's behalf at a hearing before a committee of the Board.
5. Eligibility. Options may be granted only to Eligible Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any rights with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier of
(i) its adoption by the Board or (ii) its approval by the Shareholders of the
Company as described in Section 17 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be five (5) years from
the date of grant thereof; provided, however, if the Eligible Director ceases to
serve as a director, the Option may be exercised for seven (7) months as
provided in Sections 9(b) and (c) below.
8. Exercise Price and Considerations.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the Date of the grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the closing bid
price of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("NASDAQ") System) or, in the event the Common Stock is traded on the NASDAQ
National Market System or listed on a stock exchange, the fair market value per
Share shall be the closing price on such system or exchange on the date of grant
of the Option, as reported in The Wall Street Journal.
(c) Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option shall consist entirely of cash, check,
other Shares of Common Stock having a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised, which, if acquired from the Company, shall have been held
for at least six months, or any combination of such methods of payment.
9. Exercise of Option.
(a) Procedure for Exercising Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable until
Shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Options by the persons entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Stock Certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a Shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for the purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Eligible Director ceases
to serve as a Director, for any reason other than death, he may, but only within
seven (7) months after the date he ceased to be a Director of the Company,
exercise his Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise an
Option at the date of such termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Death of Optionee. Notwithstanding the provisions of Section 9(b)
above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death a Director of the Company and who shall have been in Continuous Status as
a Director since the date of grant of the Option, the Option may be exercised,
at any time within seven (7) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as a Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
seven (7) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that has been accrued at the
date of termination.
10. Nontransferability of Options. 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 the
lifetime of the Optionee only by the Optionee.
11. 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 such outstanding Option, and the number of Shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per Share of
Common Stock covered by each such outstanding 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,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares of Common Stock affected without
receipt of consideration by the Company, such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, 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 an
Option.
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 any Option shall
terminate as of the date fixed by the Board and give such Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or, an equivalent Option (with the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the happening of any such corporate event as if he had
been, immediately prior to such event, the holder of the number of shares
covered by his Option) shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation refuses to assume the Option or to substitute an
equivalent Option, the Board shall, in lieu of such assumption or substitution,
provide that the Optionee shall have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. If the Board makes an Option fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the option will
terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Eligible Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the Plan may not be amended within six (6) months of adoption
other than amendments to comply with tax laws and further provided that any
revisions or amendments requiring approval of the Shareholders of the Company
under the Code or Rule 16b-3 promulgated under the Securities Act of 1933 shall
be approved by such Shareholders in the manner described in Section 17 of the
Plan.
(b) Stockholder Approval. Stockholder Approval of any amendment
requiring stockholder approval under Section 13(a) of the Plan shall be
solicited as described in Section 17(b) of the Plan.
(c) Effect of Amendment or Termination. Except as provided in Section
11, any such amendment or termination of the Plan shall not affect Options
already granted, and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option 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 Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, 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.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for an 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.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which requisite authority shall not have been obtained.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval.
(a) Adoption of the Plan shall be subject to approval by the
Shareholders of the Company within one year of Board approval of the Plan. If
such Shareholder approval is obtained by written consent, it may be obtained by
the unanimous written consent of the holders of the outstanding shares of the
Company. If such Shareholder approval is obtained at a duly held Shareholder's
meeting, it may be obtained by the affirmative vote of the holders of the
outstanding shares of the Company present or represented and entitled to vote
thereon.
(b) Any required approval of the Shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
18. Information to Optionees. The Company shall provide each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to Shareholders, proxy statements and other
information provided to all Shareholders of the Company.
