SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[ ] 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:
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[ ] Fee paid previously with preliminary materials:
[ ] 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 3, 2000
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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
May 3, 2000, 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 amend the Inter-Tel, Incorporated 1997 Long-Term Incentive Plan to
increase the shares reserved by 1,250,000 shares and to amend the plan to
prohibit the repricing of options under the Plan.
3. 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 10, 2000 are
entitled to notice of and to vote at the meeting. A copy of the Company's 1999
Annual Report to Shareholders, which includes certified financial statements,
was mailed with this Notice and Proxy Statement on or about April 3, 2000, 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, or to vote via telephone
pursuant to instructions provided in the proxy card. 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
April 3, 2000
<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 May
3, 2000 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 April 3, 2000 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 10, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 26,321,779 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. Telephone voting will also
be allowed pursuant to instructions provided in the proxy card submitted with
this proxy.
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, 2000 must be received by the Company no later
than December 4, 2000, 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, 1999 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. Maurice Esperseth, a current board
member, is not standing for reelection to the board. 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 56 Chairman and Chief 1969
Executive Officer
J. Robert Anderson 63 Director 1997
Jerry W. Chapman 59 Director 1999
Gary D. Edens 58 Director 1994
C. Roland Haden 59 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.
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Mr. Chapman was elected as a director in December 1999 and previously
served as a director in the late 1980's and early 1990's. He is a Certified
Public Accountant and recently retired as a partner with Arthur Andersen LLP
after over 37 years in public accounting and consulting. During the first half
of his career, Mr. Chapman focused his energies in the Audit and Assurance area
of practice. In 1980, he moved into the Business and Strategic Consulting areas
of practice as well as managing major practice areas for his firms. Mr. Chapman
has now opened a consulting practice focusing on providing strategic and market
driven services for his clients.
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
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.
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 also formerly
served on the board of directors and audit committees of two companies unrelated
to Inter-Tel - Square D Company and E-Systems, Inc.. 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.
AMENDMENTS TO THE INTER-TEL, INCORPORATED
1997 LONG-TERM INCENTIVE PLAN
(PROPOSAL NO. 2)
The Company seeks shareholder approval of two amendments to the Inter-Tel,
Incorporated 1997 Long-Term Incentive Plan (the "Option Plan").
In March 2000, the Board of Directors increased the shares of the Company's
Common Stock reserved for issuance under the Option Plan by 1,250,000 shares,
bringing the total shares currently reserved for issuance under the Option Plan
to 3,650,000 shares. The Board also approved an amendment to the Option Plan to
prohibit repricing stock options granted under the Option Plan. Proposal No. 2
seeks stockholder approval of the increase in shares reserved and the amendment
to prohibit the repricing of options under the Option Plan.
The purpose of the Option Plan is to promote the success and enhance the
value of the Company by linking the personal interests of its key employees with
an incentive for outstanding performance. It is further intended to attract,
motivate and retain the services of the best available officers and key
employees. The Option Plan permits the grant of stock-based incentives to
selected officers and key employees. Such grants are traditionally in the form
of stock options, although the Option Plan permits other forms of incentives.
The Option Plan shall be administered by the Board or one or more
Committees appointed by, and serving at the discretion of the Board (referred
herein collectively as the "Administrator"). The per share exercise price of any
incentive stock options may not be less than the fair market value of a share of
Common Stock at the time of grant. No incentive stock option may be granted on
or after the tenth anniversary of the date the Option Plan was approved by the
Shareholders. The Option Plan provides that no employee may be granted, in any
fiscal year of the Company, options to purchase more than 500,000 shares of
Common Stock.
Therefore, in order to provide continuing incentives to employees, the
Board of Directors of the Company is requesting that the shareholders approve
the amendments to the Option Plan at the Annual Meeting. Approval of the Option
Plan requires the affirmative vote of a majority of the votes cast with respect
to the proposal. A copy of the Option Plan is attached at the end of this proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO AMEND THE INTER-TEL INCORPORATED 1997 LONG-TERM
INCENTIVE PLAN AS NOTED ABOVE.
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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
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Number Percent
Name (1) of Shares of Total
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Steven G. Mihaylo 5,417,484 20.2
120 North 44th Street, Suite 200
Phoenix, Arizona 85034
J. Robert Anderson 20,000 (2) *
Gary D. Edens 35,000 (3) *
Maurice H. Esperseth 32,529 (4) *
C. Roland Haden 20,487 (4) *
Norman Stout 85,719 (5) *
Craig W. Rauchle 192,537 (6) *
Ross E. McAlpine 89,740 (7) *
Jeffrey T. Ford 117,460 (8) *
Kurt R. Kneip 69,749 (9) *
All directors and executive
officers as a group (10 persons) 6,080,705 (10) 22.7
Other Beneficial Owners:
Thomson Horstmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663 1,946,100 (11) 7.3
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* 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.
(2) Includes 20,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date.
(3) Includes 30,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date.
(4) Includes 10,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date
(5) Includes 37,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, 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 167,495 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date.
(7) Includes 73,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date.
(8) Includes 73,800 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, 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 45,000 shares issuable pursuant to stock options which were
exercisable on March 10, 2000, or within 60 days of that date. Of these
shares, 16,000 shares have shared voting and investment power with Mr.
Kneip's spouse.
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(10) Includes 446,295 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 10, 2000.
(11) Based solely upon information contained in a Schedule 13G filed January 12,
2000.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four regularly
scheduled meetings and five special board meetings for a total of nine meetings
during the fiscal year ended December 31, 1999.
The Audit Committee of the Board of Directors consisted of directors
Anderson and Esperseth, through December 1, 1999. The Audit Committee consisted
of directors Anderson, Chapman and Haden from December 1 through December 31,
1999. The Audit Committee met two times during the last fiscal year. Pursuant to
revised rules of the Securities and Exchange Commission, the Board of Directors
will approve a revised Audit Committee Charter in 2000. In addition, beginning
in 2000, the Audit Committee will perform quarterly reviews of financial
information prior to filing public documents with the Securities and Exchange
Commission. The Audit Committee intends to comply with the requirements of the
new rules. This Committee also 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 and Edens. The Compensation Committee consisted
of directors Esperseth and Edens at December 31, 1999. The Compensation
Committee met two 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, 1999, 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.
DIRECTOR COMPENSATION
Each director except Mr. Mihaylo 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 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, 1999, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent shareholders
were complied with.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation paid by
the Company for services rendered during the fiscal years 1999, 1998 and 1997 by
the Chief Executive Officer and the five other
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most highly compensated executive officers of the Company (the "Named
Officers"), whose aggregate salary and bonus exceeded $100,000 in 1999.
INTER-TEL, INCORPORATED
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
----------
Number of
Securities All
Underlying Other
Salary Bonus Options Compensation(1)
Name and Position Year ($) ($) (#) ($)
- ----------------- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (g) (i)
Steven G. Mihaylo (3) 1999 300,000 -- -- 6,000
Chairman and Chief 1998 300,000 210,000 (160,000) 6,000
Executive Officer 1997 300,000 100,000 400,000 8,525
Norman Stout (3), (4) 1999 257,692 113,271 -- 9,835
Exec. Vice President and 1998 153,125 146,026 160,000 548,447
Chief Administrative Officer 1997 -- -- -- --
Craig W. Rauchle 1999 257,692 113,271 -- 11,773
Exec. Vice President -- 1998 241,154 232,750 -- 11,130
Corporate Development 1997 225,000 174,801 160,000 15,627
Ross E. McAlpine 1999 174,231 80,938 -- 7,706
Senior Vice President 1998 170,000 151,500 -- 16,561
1997 141,724 114,580 100,000 6,702
Jeffrey T. Ford 1999 172,692 73,959 -- 2,500
Sr. Vice President and 1998 153,192 57,000 20,000 2,230
Chief Technology Officer 1997 126,154 20,000 48,000 3,019
Kurt R. Kneip 1999 138,461 17,500 -- 2,500
Vice President/CFO/ 1998 128,077 56,750 -- 2,230
Secretary/Asst. Treasurer 1997 120,000 45,000 40,000 2,053
</TABLE>
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(1) The Company contribution under 401(k) Retirement Plan for 1999 is estimated
to be $2,500 each for Messrs. Stout, Rauchle, Ford and Kneip. The Company
contribution is estimated to be $2,308 for Mr. McAlpine. Messrs. Mihaylo,
Stout and Rauchle also each received auto allowances of $6,000 and Mr.
McAlpine received an auto allowance of $4,800 during 1999, 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).
(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 for 1998 includes a payment for forfeited bonus and
in-the-money stock options totaling $531,840 due to Mr. Stout during prior
employment, $11,500 for services that Mr. Stout performed while on the
board of directors, and other expenses as described in note (1) above.
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AGGREGATED OPTION EXERCISES IN 1999 AND
DECEMBER 31, 1999 OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Unexercised in-the-Money
Options at Options at
December 31, December 31,
Shares 1999 (#) (2) 1999 ($)
Acquired on Value ------------- -------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Steven G. Mihaylo
Exercised 96,000 1,638,000
Exercisable -- --
Unexercisable 144,000 2,457,000
Norman Stout:
Exercised 20,000 359,688
Exercisable 37,000 228,000
Unexercisable 128,000 912,000
Craig W. Rauchle
Exercised 15,000 330,000
Exercisable 159,995 2,971,605
Unexercisable 118,500 2,033,156
Ross E. McAlpine
Exercised 15,000 330,000
Exercisable 67,000 1,222,500
Unexercisable 75,000 1,272,750
Jeffrey T. Ford
Exercised 15,000 330,000
Exercisable 65,700 1,230,419
Unexercisable 47,300 545,706
Kurt R. Kneip
Exercised 7,000 149,500
Exercisable 43,000 886,750
Unexercisable 24,000 425,625
</TABLE>
- ----------
(1) Potential unrealized value is (i) the fair market value of the Common Stock
at December 31, 1999 ($25.00 per share) less (ii) the option exercise price
multiplied by (iii) the number of shares held by each person.
(2) Of the options noted, Mr. Stout was granted 5,000 of the exercisable stock
options while Mr. Stout was a director of the Company, prior to his
election as an Officer.
OPTION GRANTS IN LAST FISCAL YEAR
The Company granted no stock options to Named Officers during the year
ended December 31, 1999.
7
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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.
During 1999, each of the Named Executive officers and other officers and
selected employees of the Company were offered loans to acquire the Company's
common stock. Promissory Notes were established to cover the cost of exercise of
stock options, including applicable taxes, or the cost of the Company's common
stock purchased in the open market during May and June of 1999. The loans are
interest-only notes with balloon payments due or before March 15, 2004. The
loans bear interest at the mid-term applicable federal interest rate, compounded
annually. Interest payments are due on or before March 15 of each anniversary
beginning on March 15, 2000. The notes are full recourse loans and the Company
retains the common stock certificates as collateral. Messrs. Mihaylo and Kneip
each paid off their respective loans in full during 1999. Messrs. Stout,
Rauchle, Ford and McAlpine each continue to participate in the loan program. The
following table sets forth the details of the stock option loans for each of the
Named Executive officers through December 31, 1999.
Loan Payments Loan
Original Stock Accrued Through 12-31-99 Balance at
Name Loan Balance Interest (a) 12-31-99 (b) 12-31-99 (c)
- ---- ------------ ------------ ------------ ------------
Steven G. Mihaylo 471,117 4,253 475,370 --
Norman Stout 266,026 8,758 -- 274,784
Craig W. Rauchle 106,816 3,526 -- 110,342
Jeffrey T. Ford 110,024 3,618 -- 113,642
Ross E. McAlpine 114,657 3,280 -- 117,937
Kurt R. Kneip 35,921 159 36,080 --
- ----------
(a) Accrued interest is the lesser of the amount accrued through December 31,
1999 or date of loan payoff.
(b) Messrs. Mihaylo and Kneip paid off their loans on July 29, 1999 and June
26, 1999, respectively.
(c) Loan balance includes accrued interest through December 31, 1999.
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.
8
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Please refer "Executive Compensation Principles" above for information
regarding loans offered to Named Executive officers to acquire the Company's
common stock.
Two of the Company's executive officers received loans from Inter-Tel
during 1999 to acquire common stock in Cirilium, a company formed during 1999
that is jointly owned by Inter-Tel and Hypercom Corporation. Norman Stout and
Craig Rauchle received loans on December 29, 1999 of $250,000 and $200,000,
respectively, to acquire 375,000 and 300,000 shares, respectively, of voting
common stock of Cirilium. The Promissory Notes are interest-only notes with
balloon payments due or before March 15, 2004. The loans bear interest at the
mid-term applicable federal interest rate, compounded annually. Interest
payments are due on or before March 15 of each anniversary beginning on March
15, 2001. The notes are full recourse loans and the Company retains the Cirilium
common stock certificates as collateral.
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 1999, 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. Messrs.
Mihaylo, Stout, Rauchle, Ford and Kneip each donated all or part of their
respective bonuses to the Company's profit sharing and/or other bonus plans for
1999. No Named Officer reached his maximum goal during 1999.
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, less any amounts donated
to other profit sharing and/or bonus plans for 1999.
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 1998 performance. The Compensation Committee
determined the CEO's 1999 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. No stock
options were granted to Mr. Mihaylo to purchase Inter-Tel stock during 1999.
COMPENSATION COMMITTEE: J. Robert Anderson, Chairman; Maurice H. Esperseth, 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 1994 to December 1999. 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 RETURNS
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Description 12/31/94 12/31/95 12/31/96 12/29/97 12/31/98 12/31/99
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTER-TEL, INCORPORATED 100.0 212.9 262.1 534.8 646.5 693.1
Nasdaq Composite Index 100.0 139.9 171.7 208.8 291.6 541.2
Self-determined Peer Group 100.0 125.7 135.2 176.6 146.5 146.0
</TABLE>
Companies in the Self-determined
Peer Group
COMDIAL CORP, MITEL CORP, NORSTAN INC and eLot (formerly Executone Business
Information Systems, 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 12/31/94.
E. The computer-telephone business of eLot was acquired by Inter-Tel on
January 1, 2000. Accordingly, eLot will not be used as a member of the
self-determined peer group beginning in 2000.
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 10, 2000
11
<PAGE>
FIRST AMENDMENT TO THE
INTER-TEL, INCORPORATED 1997 LONG-TERM INCENTIVE PLAN
Subject to shareholder approval, the Company's Board of Directors adopted the
Inter-Tel, Incorporated 1997 Long-Term Incentive Plan (the "1997 Plan"),
effective February 24, 1997. By this instrument, the Company desires to amend
the 1997 Plan to add 1,250,000 more shares to the 1997 Plan and to limit the
Company's ability to reprice options under the Plan.
1. This First Amendment shall amend only those Sections specified herein
and those Sections not amended hereby shall remain in full force and
effect.
2. Article 5 of the Plan is hereby amended by amending Section 5.1 as
follows:
5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 14.1,
the aggregate number of shares of Stock reserved and available for
Awards or which may be used to provide a basis of measurement for or
to determine the value of an Award (such as with a Stock Appreciation
Right or Performance Share Award) shall be three million six hundred
fifty thousand (3,650,000).
3. Article 15 of the Plan is hereby amended by adding the following
Section 15.3 as follows:
15.3 Stock Option Repricing. Notwithstanding anything to the contrary,
subject to adjustment provided in Section 14.1, the Company shall not,
without previously obtaining stockholder approval, (i) reduce the
exercise price of any outstanding Options, (ii) grant new Options in
exchange for outstanding Options where the new Options have an
exercise price per share less than the exercise price per share of the
outstanding Options, or (iii) grant or amend Options, which would be
considered a "repricing" of such Options, as determined by the Board
utilizing the rules under Item 402 of Regulation S-K promulgated under
the Securities Act of 1933. This Section 15.3 may not be amended or
deleted from the Plan without prior stockholder approval.
4. Except as otherwise specifically provided herein, this First Amendment
shall be effective as of March 9, 2000.
12
<PAGE>
INTER-TEL, INCORPORATED
1997 LONG-TERM INCENTIVE PLAN
ARTICLE 1 PURPOSE
1.1. GENERAL. The purpose of the Inter-Tel, Incorporated Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
Inter-Tel, Incorporated, (the "Company") by linking the personal interests of
its key employees to those of Company shareholders and by providing its key
employees with an incentive for outstanding performance. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of employees upon whose judgment, interest, and
special effort the successful conduct of the Company's operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from time
to time to selected officers and key employees of the Company and its
Subsidiaries.
ARTICLE 2 EFFECTIVE DATE
2.1. EFFECTIVE DATE. The Plan is effective as of February 24, 1997 (the
"Effective Date"). Within one year after the Effective Date, the Plan shall be
submitted to the shareholders of the Company for their approval. The Plan will
be deemed to be approved by the shareholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held (or by the written
consent of the holders of a majority of the shares of stock of the Company
entitled to vote) in accordance with the applicable provisions of the Arizona
Corporation Law and the Company's Bylaws and Articles of Incorporation. Any
Awards granted under the Plan prior to shareholder approval are effective when
made (unless the Committee specifies otherwise at the time of grant), but no
Award may be exercised or settled and no restrictions relating to any Award may
lapse before shareholder approval. If the shareholders fail to approve the Plan,
any Award previously made shall be automatically canceled without any further
act.
ARTICLE 3 DEFINITIONS AND CONSTRUCTION
3.1. DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, Dividend Equivalent Award, or Other
Stock-Based Award, or any other right or interest relating to Stock or
cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means and includes each of the following:
13
<PAGE>
(1) A change of control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
the 1934 Act regardless of whether the Company is subject to such
reporting requirement;
(2) A change of control of the Company through a transaction or
series of transactions, such that any person (as that term is used in
Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates of the
Company as of the Effective Date, is or becomes the beneficial owner
(as that term is used in Section 13(d) of the 1934 Act) directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding
securities;
(3) Any merger, consolidation, dissolution or liquidation of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which Shares would be converted into cash,
securities or other property, other than a merger of the Company in
which the holders of the Shares immediately before the merger have the
same proportionate ownership of common stock of the surviving
corporation immediately after the merger;
(4) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
(5) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a "controlled
group of corporations" (as defined in Section 1563 of the Code) in
which the Company is a member;
(6) A majority of the Board in office at the beginning of any
thirty-six (36) month period is replaced during the course of such
thirty-six (36) month period (other than by voluntary resignation of
individual directors in the ordinary course of business) and such
replacement was not initiated by the Board as constituted at the
beginning of such thirty-six (36) month period.
The foregoing events shall not be deemed to be a Change in Control if the
transaction or transactions causing such change shall have been approved by the
affirmative vote of at least a majority of the members of the Board in office as
of the Effective Date ("Incumbents"), those serving on the Board pursuant to
nomination or appointment thereto by a majority of Incumbents ("Successors"),
and those serving on the Board pursuant to nomination or appointment thereto by
a majority of a Board composed of Incumbents and/or Successors.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the committee of the Board described in Article
4.
(g) "Disability" shall mean a total and permanent disability as
defined in Section 22(e)(3) of the Code.
(h) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
14
<PAGE>
(i) "Fair Market Value" means with respect to Stock or any other
property, the fair market value of such Stock or other property as
determined by the Committee in its discretion, under one of the following
methods: (1) the average of the closing bid and asked prices for the Stock
as reported on the NASDAQ National Market System (or any other national
securities exchange on which the Stock is then listed) for that date or, if
no prices are so reported for that date, such prices on the next preceding
date for which closing bid and asked prices were reported; or (2) the price
as determined by such methods or procedures as may be established from time
to time by the Committee.
(j) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(k) "Non-Qualified Stock Option" means an Option that is not intended
to be an Incentive Stock Option.
(l) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
(m) "Other Stock-Based Award" means a right, granted to a Participant
under Article 12, that relates to or is valued by reference to Stock or
other Awards relating to Stock.
(n) "Participant" means a person who, as an officer or key employee of
the Company or any Subsidiary, has been granted an Award under the Plan.
(o) "Performance Share" means a right granted to a Participant under
Article 9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(p) "Plan" means the Inter-Tel, Incorporated 1997 Long-Term Incentive
Plan, as amended from time to time.
(q) "Restricted Stock Award" means Stock granted to a participant
under Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(r) "Stock" means the common stock of the Company and such other
securities of the Company that may be substituted for Stock pursuant to
Article 13.
(s) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(t) "Subsidiary" means any corporation, domestic or foreign, of which
a majority of the outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Company.
15
<PAGE>
ARTICLE 4 ADMINISTRATION
4.l. COMMITTEE. The Plan shall be administered by the Board or one or more
Committees appointed by, and serving at the discretion of the Board (referred
herein collectively as the "Administrator").
(a) Multiple administrative bodies. The Plan may be administered by
different Committees with respect to different groups of employees.
(b) Section 162(m). To the extent that the Board determines it to be
desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan
shall be administered by a Committee of two or more "outside directors"
within the meaning of Section 162(m) of the Code.
(c) RULE 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934 ("Rule 16b-3"), the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(d) Other Administration. Other than as provided above, the Plan shall
be administered by the Board or a Committee serving at the discretion of
the Board, which committee shall be constituted to satisfy all applicable
laws. -
4.2. ACTION BY COMMITTEE. A majority of a Committee shall constitute a
quorum. The acts of a majority of the members present at any meeting at which a
quorum is present and acts approved in writing by a majority of a Committee in
lieu of a meeting shall be deemed the acts of such Committee. Each member of a
Committee is entitled to, in good faith, rely or act upon any report or other
information furnished to that member by any officer or other employee of the
Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3. AUTHORITY OF ADMINISTRATOR. The Administrator has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and thenumber of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Administrator in its sole discretion determines;
16
<PAGE>
(e) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(g) Decide all other matters that must be determined in connection
with an Award;
(h) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be required
under the Plan or as the Administrator deems necessary or advisable to
administer the Plan.
4.4. DECISIONS BINDING. The Administrator's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Administrator with respect to the Plan are final, binding,
and conclusive on all parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment provided in Section 1 5.1, the
aggregate number of shares of Stock reserved and available for Awards or which
may be used to provide a basis of measurement for or to determine the value of
an Award (such as with a Stock Appreciation Right or Performance Share Award)
shall be one million two hundred thousand (1,200,000).
5.2. LAPSED AWARDS. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards settled in cash will be available for the grant of an Award under
the Plan.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
with respect to one or more Awards that may be granted to any one Participant
over the term of the Plan shall be five hundred thousand (500,000).
ARTICLE 6 ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are officers or
other key employees (including employees who also are directors or officers) of
the Company or a Subsidiary, as determined by the Administrator.
17
<PAGE>
ARTICLE 7 STOCK OPTIONS
7.1. GENERAL. The Administrator is authorized to grant Options to
Participants on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Administrator.
(b) Time and Conditions of Exercise. The Administrator shall determine
the time or times at which an Option may be exercised in whole or in part,
provided that no Option may be exercisable prior to six (6) months
following the date of the grant of such Option. The Administrator also
shall determine the performance or other conditions, if any, that must be
satisfied before all or part of an Option may be exercised.
(c) Payment. The Administrator shall determine the methods by which
the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other property
(including net issuance or other "cashless" exercise arrangements), and the
methods by which shares of Stock shall be delivered or deemed to be
delivered to Participants. Without limiting the power and discretion
conferred on the Administrator pursuant to the preceding sentence, the
Administrator may, in the exercise of its discretion, but need not, allow a
Participant to pay the Option price by directing the Company to withhold
from the shares of Stock that would otherwise be issued upon exercise of
the Option that number of shares having a Fair Market Value on the exercise
date equal to the Option price, all as determined pursuant to rules and
procedures established by the Administrator.
(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Company and the Participant. The Award
Agreement shall include such provisions as may be specified by the
Administrator.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be set
by the Administrator, provided that the exercise price for any Incentive
Stock Option may not be less than the Fair Market Value as of the date of
the grant.
(b) Exercise. In no event, may any Incentive Stock Option be
exercisable for more than ten (10) years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under the
following circumstances:
(1) The Incentive Stock Option shall lapse ten (10) years after
it is granted, unless an earlier time is set in the Award Agreement.
(2) The Incentive Stock Option shall lapse upon termination of
employment for any reason, except that the Administrator may in its
discretion permit a
18
<PAGE>
Participant to exercise all or any portion of the Incentive Stock
Option for a period of up to ninety (90) days after the Participant's
termination of employment, except in the case of the Participant's
termination of employment due to Disability, in which case the
Incentive Stock Option shall lapse twelve (12) months after the date
the Participant terminates employment.
(3) If the Participant dies before the Option lapses pursuant to
paragraph (1) or (2), above, the Incentive Stock Option shall lapse,
unless it is previously exercised, on the earlier of (i) the date on
which the Option would have lapsed had the Participant lived and had
his employment status (i.e., whether the Participant was employed by
the Company on the date of his death or had previously terminated
employment) remained unchanged; or (ii) fifteen (15) months after the
date of the Participant's death. Upon the Participant's death, any
vested and otherwise exercisable Incentive Stock Options may be
exercised by the Participant's legal representative or
representatives, by the person or persons entitled to do so under the
Participant's last will and testament, or, if the Participant shall
fail to make testamentary disposition of such Incentive Stock Option
or shall die intestate, by the person or persons entitled to receive
said Incentive Stock Option under the applicable laws of descent and
distribution.
(d) Incentive Stock Option Limitation. Notwithstanding the designation
of an Option as an Incentive Stock Option, to the extent that the aggregate
Fair Market Value of the shares of Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Subsidiary) exceeds
$100,000.00, such Options shall be treated as Non-Qualified Stock Options.
For purposes of this Section 7.2(d), Incentive Stock Options shall be taken
into account in the order in which they were granted. The Fair Market Value
of the shares of Stock shall be determined as of the time the Option with
respect to such shares of Stock is granted.
(e) Ten Percent Owners. An Incentive Stock Option shall not be granted
to any individual who, at the date of grant, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
Stock of the Company.
(f) Expiration of Incentive Stock Options. No Award of an Incentive
Stock Option may be made pursuant to this Plan after April 23, 2007.
(g) Right to exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Administrator is authorized to grant SARs to
Participants on the following terms and conditions:
(a) Right to Payment. Upon the exercise of a Stock Appreciation Right,
the Participant to whom it is granted has the right to receive the excess,
if any, of:
19
<PAGE>
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Administrator, which shall not be less than the Fair Market
Value of one share of Stock on the date of grant in the case of any
SAR related to any Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Administrator at the time of the grant of the Award and shall be
reflected in the Award Agreement.
ARTICLE 9 PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Administrator is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Administrator. The Administrator shall have the complete
discretion to determine the number of Performance Shares granted to each
Participant. All Awards of Performance Shares shall be evidenced by an Award
Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant
rights, valued as determined by the Administrator, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Administrator shall establish at grant or thereafter.
The Administrator shall set performance goals and other terms or conditions to
payment of the Performance Shares in its discretion which, depending on the
extent to which they are met, will determine the number and value of Performance
Shares that will be paid to the Participant.
9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Administrator and reflected in the Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Administrator is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Administrator. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Administrator may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Administrator
determines at the time of the grant of the Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Administrator at
the time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction
20
<PAGE>
period, Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company, provided, however, that the
Administrator may provide in any Award Agreement that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part in
the event of terminations resulting from specified causes, and the Administrator
may in other cases waive in whole or in part restrictions or forfeiture
conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Administrator shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
ARTICLE 11 DIVIDEND EQUIVALENTS
11.1. GRANT OF DIVIDEND EQUIVALENTS. The Administrator is authorized to
grant Dividend Equivalents to Participants subject to such terms and conditions
as may be selected by the Administrator. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Administrator. The Administrator may provide that
Dividend Equivalents be paid or distributed when accrued or be deemed to have
been reinvested in additional shares of Stock, or otherwise reinvested.
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ARTICLE 12 OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Administrator is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Administrator
to be consistent with the purposes of the Plan, including without limitation
shares of Stock awarded purely as a "bonus" and not subject to any restrictions
or conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Administrator shall determine the
terms and conditions of such Awards.
ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the
Plan may, in the discretion of the Administrator, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Administrator may require the surrender of such other Award in consideration of
the grant of the new Award. Awards granted in addition to or in tandem with
other Awards may be granted either at the same time as or at a different time
from the grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Administrator may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 13.1), based on the terms and conditions
the Administrator determines and communicates to the Participant at the time the
offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Administrator, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten (10) years from the date of its
grant.
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Administrator determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Administrator. The Administrator may also
authorize payment in the exercise of an Option by net issuance or other cashless
exercise methods.
13.5 LIMITS ON TRANSFER. No right or interest of a Participant in any Award
may be pledged, encumbered, or hypothecated to or in favor of any party other
than the Company or a Subsidiary, or shall be subject to any lien, obligation,
or liability of such Participant to any other party other than the Company or a
Subsidiary. Except as otherwise provided below, no Award shall be assignable or
transferable by a Participant other than by will or the laws of descent and
distribution. In the Award Agreement for any Award other than an Award that
includes an Incentive Stock Option, the
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Administrator may allow a Participant to assign or otherwise transfer all or a
portion of the rights represented by the Award to specified individuals or
classes of individuals, or to a trust benefiting such individuals, subject to
such restrictions, limitations, or conditions as the Administrator deems to be
appropriate.
13.6. BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Administrator, designate a beneficiary to exercise
the rights of the Participant and to receive any distribution with respect to
any Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Administrator. If the Participant is married and resides in a jurisdiction
in which community property laws apply, a designation of a person other than the
Participant's spouse as his beneficiary with respect to more than fifty percent
(50%) of the Participant's interest in the Award shall not be effective without
the written consent of the Participant's spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Administrator.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the
Administrator deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national securities
exchange or automated quotation system on which the Stock is listed, quoted, or
traded. The Administrator may place legends on any Stock certificate to
reference restrictions applicable to the Stock.
13.8. TENDER OFFERS. In the event of a public tender for all or any portion
of the Stock, or in the event that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for shareholder approval,
the Administrator may in its sole discretion declare previously granted Options
to be immediately exercisable. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
13.9 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability, all outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall become fully exercisable and all restrictions on outstanding
Awards shall lapse. Any Option or Stock Appreciation Rights Awards shall then
lapse in accordance with the other provisions of this Plan and the Award
Agreement.
13.10 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control occurs,
all outstanding Options, Stock Appreciation Rights, and other Awards in the
nature of rights that may be exercised shall become fully vested, exercisable
and all restrictions on outstanding Awards shall lapse; provided, however, that
with respect to any Change of Control in which the outstanding Options, Stock
Appreciation Rights, and other Awards in the nature of rights that may be
exercised shall terminate upon the occurrence of the Change of Control, each
Participant shall fully vest and have exercisable such Awards prior to the
occurrence of such Change of Control.
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ARTICLE 14 CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the Stock,
the shares of Stock then subject to each Award (and the number of shares subject
thereto) shall be increased proportionately without any change in the aggregate
purchase price therefor. In the event the Stock shall be changed into or
exchanged for a different number or class of shares of Stock or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, there shall be substituted for
each such share of Stock then subject to each Award (and for each share of Stock
then subject thereto) the number and class of shares of Stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award.
ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Administrator may terminate, amend
or modify the Plan. However, without approval of the shareholders of the Company
(as may be required by the Code, a national securities exchange or quotation
system on which the stock can be listed or reported or any other applicable law
or regulation), no such termination, amendment, or modification may:
(a) Materially increase the total number of shares of Stock that may
be issued under the Plan, except as provided in Section 14.1;
(b) Materially modify the eligibility requirements for participation
in the Plan; or
15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant.
ARTICLE 16 GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee shall have any claim
to be granted any Award under the Plan, and neither the Company nor the
Administrator is obligated to treat Participants and employees uniformly.
16.2. NO STOCKHOLDERS RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Subsidiary shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy United States Federal, state, and local
taxes (including the Participant's FICA obligation and any withholding
obligation imposed by any country other than the United States in which the
Participant resides) required by law to be withheld with respect to any taxable
event arising as a result of this Plan. With respect to withholding required
upon any taxable event under the Plan, the Administrator may, in its sole and
absolute discretion, permit a Participant to satisfy the withholding
requirement, in whole or in part, by having the Company or any Subsidiary
withhold shares of Stock having a Fair Market Value
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on the date of withholding equal to the amount to be withheld for tax purposes
in accordance with such procedures as the Administrator establishes. The
Administrator may, at the time any Award is granted, require that any and all
applicable tax withholding requirements be satisfied by the withholding of
shares of Stock as set forth above.
16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
16.6. INDEMNIFICATION. To the extent allowable under applicable law, each
member of the Administrator or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
16.8. EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
16.9. TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
16.10. FRACTIONAL SHARES. No fractional shares of stock shall be issued and
the Administrator shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. SECURITIES LAW COMPLIANCE. With respect to any person who is, on the
relevant date, obligated to file reports under Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Administrator fails to so comply, it
shall be void to the extent permitted by law and voidable as deemed advisable by
the Administrator.
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16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by government agencies as
may be required. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended (the "1933 Act"), any of the shares of Stock
paid under the Plan. If the shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
16.13. GOVERNING LAW. The Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Arizona.
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INTER-TEL, INCORPORATED ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, MAY 3, 2000, 10:00 A.M.
7300 W. BOSTON, CHANDLER, AZ 85226
INTER-TEL, INCORPORATED
120 N. 44TH STREET, SUITE 200
PHOENIX, AZ 85034 PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 3, 2000.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify on the reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint Kurt R. Kneip, N.
Thomas Peiffer, Jr. and Norman Stout, 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.
THERE ARE TWO WAYS TO VOTE YOUR PROXY. YOUR TELEPHONE VOTE AUTHORIZES THE NAMED
PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND
RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. on May 2, 2000.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
* Follow the simple instructions the Voice provides you.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Inter-Tel, Incorporated, c/o Shareowner
Services, P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors:
01 Steven G. Mihaylo [ ] Vote FOR all nominees (except as market)
02 J. Robert Anderson
03 Jerry W. Chapman
04 Gary D. Edens [ ] Vote WITHHELD from all nominees
05 C. Roland Haden
(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 amend the Inter-Tel, Incorporated 1997 [ ]For [ ]Against [ ]Abstain
Long-Term Incentive Plan to increase the shares
reserved by 1,250,000 shares and to amend the
plan to prohibit the repricing of options under
the Plan.
3. To transact such other business as may properly [ ]For [ ]Against [ ]Abstain
come before the meeting or any adjournment
thereof.
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 Indicate changes below:
Date: _____________________________
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.
