SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(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, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
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[ ] 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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INTER-TEL, INCORPORATED
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 1999
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
April 26, 1999, at 10:00 a.m., local time, at the Company's offices located at
7300 W. Boston Street, Chandler, Arizona 85226 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected and qualified.
2. 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. Each of these items will be discussed at the
Annual Meeting with adequate time allotted for shareholder questions.
Only shareholders of record at the close of business on March 12, 1999
are entitled to notice of and to vote at the meeting. A copy of the Company's
1998 Annual Report to Shareholders, which includes certified financial
statements, was mailed with this Notice and Proxy Statement on or about March
26, 1999, 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 or she has previously returned a
proxy.
Sincerely,
KURT R. KNEIP,
Secretary
Phoenix, Arizona
March 26, 1999
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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 April 26, 1999 at 10:00 a.m., local time or at any postponement or
continuation of the meeting, if applicable, or at any adjournment thereof (the
"Annual Meeting"), 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 offices located at 7300 W. Boston Street, Chandler, Arizona 85226.
These proxy solicitation materials were mailed on or about March 26,
1999 to all shareholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on March 12, 1999
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, 26,157,657 shares of the Company's Common Stock were
issued and outstanding.
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. Attendance at the meeting
will not, by itself, revoke a proxy.
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 five 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 telecopier, without additional compensation.
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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, 1999 must be received by the Company no later
than November 23, 1999, 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, 1998 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
Five 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 to ensure 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.
Director
Name of Nominees Age Position(s) Since
- ---------------- --- ----------- -----
Steven G. Mihaylo 55 Chairman, Chief Executive 1969
Officer and President
J. Robert Anderson 62 Director 1997
Gary D. Edens 57 Director 1994
Maurice H. Esperseth 73 Director 1986
C. Roland Haden 58 Director 1983
Mr. Mihaylo, the founder of the Company, has served as Chairman of the
Board of Directors of the Company since September 1983, as Chief Executive
Officer of the Company since its formation in July 1969, and President since May
1998. Mr. Mihaylo served as President of the Company from 1969 to 1983 and from
1984 to 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. Anderson has been a director of the Company since February 1997.
Mr. Anderson held various positions at Ford Motor Company from 1963 to 1983,
serving from 1978 to 1983 as President of the Ford Motor Land Development
Corporation. He served as Senior Vice President, Chief Financial Officer and a
member of the Board of Directors of The Firestone Tire and Rubber Company from
1983 to 1989, and as Vice Chairman of Bridgestone/Firestone, Inc. from 1989
through 1991. He most recently served as Vice Chairman, Chief Financial Officer
and a member of the Board of Directors of the Grumman Corporation from 1991 to
1994. Mr. Anderson is currently semi-retired, and he is an active leader in
various business, civic and philanthropic organizations.
Mr. Edens has been a director of the Company since October 1994. He was
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
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corporation's nine radio stations were sold. He is currently 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 also
served on the faculty of the University of Oklahoma.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" EACH NOMINEE LISTED ABOVE.
SECURITY OWNERSHIP OF MANAGEMENT
The following table and footnotes thereto set forth the beneficial
ownership of Common Stock of the Company as of the Record Date, by (a) each
director and nominee for director of the Company who owned shares as of such
date, (b) each of the Named Officers (defined below), (c) all directors and
executive officers of the Company as a group and (d) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock:
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
NUMBER PERCENT
NAME (1) OF SHARES OF TOTAL
- -------- --------- --------
Steven G. Mihaylo 5,408,484 20.4
120 North 44th Street, Suite 200
Phoenix, Arizona 85034
J. Robert Anderson 15,000 (2) *
Gary D. Edens 30,000 (3) *
Maurice H. Esperseth 33,529 (4) *
C. Roland Haden 19,278 (4) *
Norman Stout 45,000 (5) *
Craig W. Rauchle 117,031 (6) *
Ross E. McAlpine 57,466 (7) *
Jeffrey T. Ford 91,359 (8) *
Kurt R. Kneip 52,659 (9) *
All directors and executive officers
as a group (10 persons) 5,869,806 (10) 22.1
Other Beneficial Owners:
Thomson Horstmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663 2,051,450 (11) 7.7
* Less than 1%.
(1) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the Record Date upon the exercise of options. Each beneficial
owner's percentage ownership is determined by assuming that all options
held by such person (but not those held by any other person) that are
exercisable within 60 days from that date have been exercised. All persons
named in the table have sole voting and investment power with respect to
all shares issuable pursuant to stock options. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
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(2) Includes 15,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date.
(3) Includes 25,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date.
(4) Includes 10,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date
(5) Includes 25,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date. Of these
shares, 20,000 shares have shared voting and investment power with Mr.
Stout's spouse.
(6) Includes 107,995 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date.
(7) Includes 56,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date.
(8) Includes 62,700 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date. Of these
shares, 27,417 shares have shared voting and investment power with Mr.
Ford's spouse.
(9) Includes 36,000 shares issuable pursuant to stock options which were
exercisable on March 1, 1999, or within 60 days of that date. Of these
shares, 14,000 shares have shared voting and investment power with Mr.
Kneip's spouse.
(10) Includes 347,695 shares issuable pursuant 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, 1999.
(11) Based solely upon information contained in a Schedule 13G filed January 28,
1999.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four regularly
scheduled meetings during the fiscal year ended December 31, 1998. Mr. Stout
resigned from the board of directors and the Audit and Compensation Committees
to become the Company's Executive Vice President and Chief Administrative
Officer on June 1, 1998.
The Audit Committee of the Board of Directors consisted of directors
Anderson, Esperseth, and Stout through May, 1998. Mr. Stout resigned from the
board of directors and the Audit Committee on June 1, 1998. Mr. Esperseth also
resigned from the Audit Committee and Mr. Haden was appointed to the Audit
Committee on July 27, 1998. The Audit Committee consisted of directors Anderson
and Haden at December 31, 1998. The Audit Committee met two times 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 Stout through May, 1998. Mr. Stout
resigned from the board of directors and the Compensation Committee on June 1,
1998. The Compensation Committee consisted of directors Esperseth and Edens at
December 31, 1998. The Compensation Committee met three times during the last
fiscal year. The Compensation Committee reviews employee compensation and makes
recommendations thereon to the Board of Directors and administers the Company's
Stock Incentive Plans. The Compensation Committee also determines, upon review
of relevant information, 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, 1998, each director attended
all meetings of the Board of Directors and of the committee(s) on which such
director served, in person or by consent.
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DIRECTOR COMPENSATION
Each director was paid a fee of $1,000 for each regularly scheduled
Board of Directors meeting attended and $500 for each committee meeting
attended. In addition, board members not employed by the Company received
quarterly stipends of $4,000, and committee chairmen received an additional $500
per quarter. Board members received $1,000 each for attendance at special
meetings of the board. 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 5,000 shares of Common Stock annually at
the market price five business days after the date of the third quarter board
meeting.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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 December 31, 1998, all Section
16(a) filing requirements applicable to its officers, directors and ten percent
shareholders were complied with, except as follows: Mr. Stout failed to timely
file one Form 4 with respect to two transactions at the end of July 1998 -- such
transactions were subsequently reported on a Form 4 filing for August which
included the July and August transactions and on Form 5.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation paid
by the Company for services rendered during the fiscal years 1998, 1997 and 1996
by the Chief Executive Officer and the five other most highly compensated
executive officers of the Company (the "Named Officers"), whose aggregate salary
and bonus exceeded $100,000 in 1998.
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INTER-TEL, INCORPORATED
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Long-Term
Compensation
Awards
------
Number of
Securities All
Underlying Other
Salary Bonus Options Compensation
Name and Position Year ($) ($) (#) (1) ($)
(a) (b) (c) (d) (g) (i)
- --------------------- ---- ------- ------- --------- -----
Steven G. Mihaylo (3) 1998 300,000 210,000 (160,000) 6,000
Chairman, Chief Executive 1997 300,000 100,000 400,000 8,525
Officer and President 1996 300,000 48,000 -- 9,215
Norman Stout (3), (4) 1998 153,125 146,026 160,000 548,447
Exec. Vice President and 1997 -- -- -- --
Chief Administrative Officer 1996 -- -- -- --
Craig W. Rauchle 1998 241,154 232,750 -- 10,953
Exec. Vice President -- 1997 225,000 174,801 160,000 15,627
Corporate Development 1996 189,807 87,734 90,000 17,000
Ross E. McAlpine 1998 170,000 151,500 -- 14,331
Senior Vice President 1997 141,724 114,580 100,000 6,702
1996 110,000 89,646 -- 5,529
Jeffrey T. Ford 1998 153,192 57,000 20,000 2,053
Sr. Vice President and 1997 126,154 20,000 48,000 3,019
Chief Technology Officer 1996 103,269 15,000 10,000 2,695
Kurt R. Kneip 1998 128,077 55,750 -- 2,053
Vice President/CFO/ 1997 120,000 45,000 40,000 2,053
Secretary/Asst. Treasurer 1996 112,039 11,040 -- 2,375
(1) The Company contribution under 401(k) Retirement Plan for 1998 is estimated
to be $2,053 each for Messrs. Rauchle, McAlpine, Ford and Kneip. Messrs.
Mihaylo, Stout and Rauchle also received auto allowances of $6,000; $3,762;
and $6,000; respectively during 1998, and Messrs. Stout and Rauchle
received reimbursements for club dues and expenses. In addition, each
executive officer, except Norman Stout, was allocated common stock through
1997 under the Employee Stock Ownership Plan (a maximum for each executive
officer of 44 shares in 1997 and 129 shares in 1996).
(2) No compensation is present under omitted columns (e), (f) and (h).
(3) Mr. Mihaylo was granted an option to purchase 400,000 shares of the
Company's Common Stock during 1997. In 1998, Mr. Mihaylo forfeited an
option to purchase 160,000 of these 400,000 shares, leaving Mr. Mihaylo an
option to purchase a total of 240,000 shares as of June 1, 1998. Mr. Stout
was granted an option to purchase 160,000 shares of the Company's Common
Stock on this same date. Mr. Mihaylo's forfeited options were deemed to be
forfeited on a pro-rata basis for vesting purposes.
(4) Other Compensation includes a payment for forfeited bonus and in-the-money
stock options totaling $531,840 due to Mr. Stout during prior employment,
$11,500 for services that Mr. Stout performed while on the board of
directors, and other expenses as described in note (1) above.
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AGGREGATED OPTION EXERCISES IN 1998 AND
DECEMBER 31, 1998 OPTION VALUES
Number of Value of
Unexercised in-the-Money
Options at Options at
Shares December 31, December 31,
Acquired 1998 (#) 1998 ($) (1)
on Value -------- ------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
---- -------- -------- ------------ ------------
Steven G. Mihaylo
Exercised -- --
Exercisable 48,000 741,000
Unexercisable 192,000 2,964,000
Norman Stout:
Exercised -- --
Exercisable 25,000 (2) 327,188
Unexercisable 160,000 880,000
Craig W. Rauchle
Exercised -- --
Exercisable 100,495 1,757,144
Unexercisable 193,000 3,100,688
Ross E. McAlpine
Exercised 20,000 407,750
Exercisable 50,000 893,000
Unexercisable 92,000 1,371,500
Jeffrey T. Ford
Exercised 8,000 164,000
Exercisable 54,600 1,042,188
Unexercisable 73,400 888,438
Kurt R. Kneip
Exercised 3,600 68,850
Exercisable 34,000 663,125
Unexercisable 40,000 678,500
(1) Potential unrealized value is (i) the fair market value of the Common Stock
at December 31, 1998 ($23.375 per share) less (ii) the option exercise
price multiplied by (iii) the number of shares held by each person.
(2) Options granted while Mr. Stout was a director of the Company, prior to his
election as an Officer.
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OPTION GRANTS IN LAST FISCAL YEAR
The Company granted stock options to the Named Officers during the
fiscal year ended December 31, 1998, as follows:
<TABLE>
<CAPTION>
Potential Realizable Value
Number of at Value Assumed Annual
Securities Percent of Total Rates of Stock Price Apprecia-
Underlying Options Granted tion for Option Terms (3)
Options To Employees Exercise Expiration ------------------------------
Name Granted in Fiscal Year (1) Price ($/Sh) Date (2) 5%($) 10%($)
- ---- ------- ------------------ ------------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Norman Stout 160,000 27.7% $17.875 6/1/2008 1,798,639 4,558,103
Jeffrey T. Ford 20,000 3.5% $26.00 4/22/2008 327,025 828,746
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Increase in market value of the Company's Common Stock 5%(to $38.08/sh) 10%(to $60.63/sh)
for all stockholders at assumed annual rates of stock
price appreciation (as used in the table above) from
$23.375 per share, over the ten-year period, based on
26.0 million shares outstanding on December 31, 1998. $382.3 million $968.6 million
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</TABLE>
(1) The Company granted options to purchase 576,928 shares of Common Stock to
employees and directors in fiscal 1998 pursuant to the Company's 1994 and
1997 Long Term Incentive Plans and 1990 Director Stock Option Plan, as
amended. With the exception of options granted to on April 23 and September
5, 1997 and April 22 and June 1, 1998, all executive officer option grants
vest at a rate of 20% per year from the grant date only if the market price
of the Company's Common Stock increases at least 30% per year over the
option grant price. Options that do not vest pursuant to this accelerated
vesting provision vest at the end of five years from the date of grant.
Options granted on April 23 and September 5, 1997 and April 22 and June 1,
1998 vest at 20% per year on the anniversary of the grant date. All
Director Stock Option Plan grants vest six months from the date of grant.
All options to purchase Common Stock were granted with exercise prices
equal to the fair market value of the Common Stock on the date of grant.
(2) The term of each option is ten years, with five year vesting provisions.
Options may terminate before their expiration upon the termination of the
optionee's status as an employee or consultant, or upon the death of the
optionee.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual
rate specified (5% and 10%). Annual compounding results in total
appreciation of 62.9% (at 5% per year) and 159.4% (at 10% per year). The
assumed annual rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future stock price growth. Actual gains, if any,
on stock option exercises are dependent upon the Company's future financial
performance, overall market conditions and the option holders' continued
employment or consultancy through the vesting period.
COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Compensation Committee's responsibilities include
determining the cash and non-cash compensation of executive officers. The
Committee's policy regarding compensation of the Company's executive officers is
to provide generally competitive salary levels and compensation incentives in
order to attract and retain individuals of outstanding ability; to recognize
individual performance and the performance of the Company; and to support the
Company's primary goal of increasing shareholder value. Through 1998, non-cash
compensation had been limited to stock option grants to purchase Common Stock at
fair market value at the grant date. All executive officers and some middle
managers of the Company participate in such stock incentive plans. All options
to purchase Common Stock were granted with exercise prices equal to the fair
market value of the Common Stock on the date of grant. These plans are designed
to attract and retain qualified personnel and to tie their performance to the
enhancement of shareholder value. Stock options granted to Named Officers on May
28, 1997 include market price "hurdles" which must be met in order to accelerate
the stock option vesting provisions. These stock options vest at a rate of 20%
per year from the grant date only if the market price of the Company's Common
Stock increases at a rate of at least 30% per year from the exercise price.
Options that do not vest pursuant to this accelerated vesting provision vest at
the end of five years from the date of grant.
Executive officers, together with other permanent Inter-Tel employees,
may also participate in the Company's 401(k) Thrift Savings Plan, the Inter-Tel
Employee Stock Purchase Plan and the Inter-Tel Employee Stock Ownership Plan.
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The Compensation Committee intends to continue to consider expansion of
executive compensation to include deferred cash and equity-based compensation
integrated with the attainment of specific long-term performance goals and
shareholder value enhancement.
EXECUTIVE COMPENSATION PROGRAM
KEY EXECUTIVES
The total compensation program for executives 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 assessment of the executive's performance and the scope and
complexity of the position held.
At the beginning of 1998, the Compensation Committee considered the
Company's target earnings per share goals and the business plans of the Company.
Consideration included past and anticipated performance, new product and market
expectations, assets employed and similar factors. The Committee set earnings
per share performance levels for the consolidated Company, upon which incentives
were placed for each of the executives. 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. Maximum bonus awards, ranging from 50% to
100% of annual base compensation were set for the Named Officers. No Named
Officer reached his maximum goal during 1998.
As indicated above, annual cash bonus awards are integrated with
performance against specific earnings per share goals set forth in the Company's
business plan. Performance benchmarks are tied to the specific earnings per
share performance of the Company. The cash bonuses in the Summary Compensation
Table reflect the performance of the named officers against the earnings per
share targets 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 1997 performance. The Compensation Committee
determined the CEO's 1998 bonus based on similar Company consolidated earnings
performance criteria used to determine bonuses for the other executive officers.
In May 1997, Mr. Mihaylo was granted stock options for the first time in the
Company's history. The Compensation Committee granted an option to purchase
400,000 shares of Common Stock with an exercise price equal to the fair market
value of the Common Stock on May 28, 1997. During 1998, Mr. Mihaylo forfeited
160,000 of those options, which were deemed to be forfeited on a pro-rata basis
for vesting purposes. Mr. Mihaylo's options vest at a rate of 20% per year from
the grant date only if the market price of the Company's Common Stock increases
at least 30% per year over the option grant price. Stock options that do not
vest pursuant to this accelerated vesting provision set forth above vest and
become exercisable at the end of five years from the date of grant.
COMPENSATION COMMITTEE: Maurice H. Esperseth, Chairman; Gary D. Edens.
9
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURNS
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 December 31, 1993 to December 31, 1998. 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.
<TABLE>
<CAPTION>
Legend
Description 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Inter-Tel, Incorporated 100.0 82.9 176.4 217.1 442.9 535.5
Nasdaq Composite Index 100.0 96.8 135.4 166.2 202.2 282.3
Self-determined Peer Group 100.0 103.6 121.3 136.7 199.1 156.4
</TABLE>
Companies in the Self-determined Peer Group
Comdial Corp, Executone Information Sys Inc, Mitel Corp, Norstan Inc
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 On 12/31/93.
10
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any matters that will be
presented for consideration at the Annual Meeting other than those described in
this Proxy Statement. If any other matters properly come before the Annual
Meeting, the persons named on the accompanying Proxy will have the authority to
vote on those matters in accordance with their own judgment.
By Order of the Board of Directors
Kurt R. Kneip
Secretary
March 26, 1999
11
<PAGE>
INTER-TEL, INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
MONDAY, APRIL 26, 1999
10:00 A.M. M.S.T.
INTER-TEL, INCORPORATED
7300 W. BOSTON STREET
CHANDLER, AZ 85226
- --------------------------------------------------------------------------------
INTER-TEL INCORPORATED
7300 W. BOSTON STREET
CHANDLER, AZ 85226 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON APRIL 26, 1999.
The shares of stock you hold in your account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" Items 1 and 2.
By signing the proxy, you revoke all prior proxies and appoint Norman Stout,
Kurt R. Kneip, and N. Thomas Peiffer, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Election of directors: 01 Steven G. Mihaylo 04 Maurice H. Esperseth
02 J. Robert Anderson 05 C. Roland Haden
03 Gary D. Edens
[ ] Vote FOR all nominees
[ ] Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
2. To consider and act upon such other matters as may properly come before the
meeting and adjournments thereof.
[ ] For [ ] Against [ ] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Date
Indicate changes below: -------------------------
[ ]
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy. If held in joint tenancy,
all persons must sign. Trustees, administrators, etc., should include title and
authority. Corporations should provide full name of corporation and title of
authorized officer signing the proxy.
