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 Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
INTERACTIVE INTELLIGENCE, INC.
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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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(4) Date Filed:
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[LOGO]
April 10, 2000
To Our Shareholders:
The Board of Directors joins me in extending to you a cordial invitation to
attend the 2000 Annual Meeting of Shareholders of Interactive
Intelligence, Inc. The meeting will be held at the Sheraton Indianapolis Hotel,
8787 Keystone Crossing, Indianapolis, Indiana, at 4:00 p.m. local time on
Tuesday, May 16, 2000.
In addition to voting on the matters described in this Proxy Statement, we
will review the Corporation's 1999 business results and discuss our plans for
2000 and beyond. There will be an opportunity to discuss matters of interest to
you as a shareholder. We will also have a technology demonstration during a
reception immediately following the meeting.
We hope many Interactive Intelligence shareholders will find it convenient
to be present at the meeting, and we look forward to greeting those personally
able to attend. It is important that your shares be represented and voted
whether or not you plan to be present. THEREFORE, REGARDLESS OF THE NUMBER OF
SHARES YOU OWN, PLEASE COMPLETE, SIGN, AND PROMPTLY RETURN THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED. No postage is necessary if the envelope is
mailed in the United States. The prompt return of your proxy will save the
expense involved in further communications. Any shareholder attending the
meeting may vote in person even if a proxy has been returned.
We hope that you will be able to attend the meeting, and we look forward to
seeing you.
Sincerely,
/s/ Donald E. Brown
Donald E. Brown, M.D.
Chairman of the Board
INTERACTIVE INTELLIGENCE, INC.
8909 PURDUE ROAD, SUITE 300
INDIANAPOLIS, INDIANA 46268
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2000
---------------------
TO THE SHAREHOLDERS OF
INTERACTIVE INTELLIGENCE, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
Interactive Intelligence, Inc., an Indiana corporation (hereinafter the
"Corporation"), will be held at the Sheraton Indianapolis Hotel, 8787 Keystone
Crossing, Indianapolis, Indiana, at 4:00 p.m. local time on Tuesday, May 16,
2000 for the following purposes:
(1) To elect one (1) Director to hold office for a term of three years or
until his successor is elected and has qualified.
(2) To approve the adoption of the Corporation's Employee Stock Purchase
Plan.
(3) To approve the Corporation's 1999 Stock Option and Incentive Plan.
(4) To transact any other business which may be properly brought before the
meeting or any adjournment or postponement thereof.
The above items of business are more fully described in the Proxy Statement
accompanying this Notice. Please read the Proxy Statement carefully.
Only shareholders of record at the close of business on March 31, 2000 are
entitled to notice of, and to vote at, the Annual Meeting or at any adjournments
or postponements of the meeting. A list of the shareholders entitled to vote at
the meeting will be available for inspection by any shareholder during usual
business hours ten days prior to the meeting date at the principal offices of
the Corporation located at 8909 Purdue Road, Suite 300, Indianapolis, Indiana
46268.
By order of the Board of Directors,
Interactive Intelligence, Inc.
/s/ Michael J. Tavlin
Michael J. Tavlin
CORPORATE SECRETARY
Indianapolis, Indiana
April 10, 2000
Your vote is important. Whether or not you expect to attend the meeting,
please complete, sign, date, and return the enclosed proxy card in the enclosed
postage-prepaid envelope in order to ensure your representation at the meeting.
You may revoke your proxy at any time prior to the Annual Meeting. If you decide
to attend the Annual Meeting and wish to change your proxy vote, you may do so
automatically by voting in person at the meeting.
INTERACTIVE INTELLIGENCE, INC.
8909 PURDUE ROAD, SUITE 300
INDIANAPOLIS, INDIANA
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PROXY STATEMENT
SOLICITATION OF PROXIES
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of the Corporation for use at the
Annual Meeting of Shareholders to be held on May 16, 2000 for the purposes set
forth in the foregoing Notice. This statement and the form of proxy are being
first sent to security holders on or about April 10, 2000.
The accompanying form of proxy, in ballot form, has been prepared at the
direction of the Board of Directors and is sent to you at its request. The
proxies named therein have been designated by the Board of Directors.
Shareholders who execute proxies retain the right to revoke them at any time
before they are voted by attending the Annual Meeting and voting in person or by
notifying the Secretary of the Corporation at 8909 Purdue Road, Suite 300,
Indianapolis, Indiana, 46268, in writing of such revocation prior to the
meeting. A proxy, when properly executed, duly returned and not so revoked, will
be voted and, if it contains any specification, will be voted in accordance
therewith; provided the proxy is not mutilated or otherwise received in such
form or at such time as to render it unvotable. If no choice is specified, the
proxy will be voted in accordance with the recommendations of the Board of
Directors, as stated on the proxy form and in this Proxy Statement.
The solicitation will be conducted by mail, except that in a limited number
of instances proxies may be solicited by officers, Directors and regular
employees of the Corporation personally, by telephone or by facsimile. The
Corporation does not presently anticipate payment of any compensation or fees of
any nature to anyone for the solicitation of these proxies, except that the
Corporation may pay persons holding shares in their name, or of their nominees,
for the expense of sending proxies and proxy material to principals. The entire
cost of solicitation will be borne by the Corporation.
OUTSTANDING SHARES AND VOTING RIGHTS
The voting securities of the Corporation consist of 14,040,555 shares of
Common Stock issued and outstanding as of March 31, 2000, the record date for
the meeting, each of which is entitled to one vote. Only holders of Common Stock
of record at the close of business on March 31, 2000 are entitled to notice of
and to vote with respect to this solicitation.
The holders of a majority of the shares of Common Stock issued and
outstanding, present in person, or represented by proxy, shall constitute a
quorum at the Annual Meeting for the transaction of business. The election of
the Director nominee will be determined by the vote of the holders of a
plurality of the shares voting on such election. Approval of Proposals 2 and 3
will be subject to the vote of the holders of a greater number of shares
favoring approval than those opposing it. A proxy may indicate that all or a
portion of the shares represented by such proxy are not being voted with respect
to a specific proposal. This could occur, for example, when a broker is not
permitted to vote shares held in street name on certain proposals in the absence
of instructions from the beneficial owner. Shares that are not voted with
respect to a specific proposal will be considered as not present and entitled to
vote on such proposal, even though such shares will be considered present for
purposes of
1
determining a quorum and voting on other proposals. Abstentions on a specific
proposal will be considered as present, but not as voting in favor of such
proposal. As a result, with respect to all of the proposals, neither broker
non-votes nor abstentions will affect the determination of whether such
proposals will be approved.
At the Annual Meeting, votes will be counted by a representative of Norwest
Bank Minnesota, N.A., the Corporation's independent transfer agent and
registrar. Such representative will process the votes cast by the shareholders,
will make a report of inspection and count of the votes cast by the shareholders
and will certify as to the number of votes cast on each proposal.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership of
the Corporation's Common Stock as of February 29, 2000, by each person known by
the Corporation to be the beneficial owner of more than five percent of the
outstanding shares of the Corporation's Common Stock. Except as otherwise
indicated below, the person owns such Common Stock directly with sole investment
and sole voting power.
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------ ------------------ --------
Donald E. Brown, M.D. ........................... 8,675,079(1) 61.8%
8909 Purdue Road, Suite 300
Indianapolis, Indiana 46268
John R. Gibbs ................................... 887,396(2) 6.4%
8909 Purdue Road, Suite 300
Indianapolis, Indiana 46268
- ------------------------
(1) Includes 67,500 shares subject to stock options exercisable within 60 days
after February 29, 2000.
(2) Includes 1,500 shares subject to stock options exercisable within 60 days
after February 29, 2000.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors of the Corporation consists of five Directors divided
into three classes, and the term of one class of Directors expires each year.
Generally, each Director serves until the annual meeting of shareholders held in
the year that is three years after such Director's election and until such
Director's successor is elected and has qualified.
One (1) Director is to be elected at the Annual Meeting for a term of three
years to expire at the Corporation's Annual Meeting in the year 2003 or until
his successor is elected and has qualified.
The persons named in the accompanying form of proxy will vote the shares
represented by all executed proxies which are received for the election of the
nominee hereinafter named, unless the authority to do so is withheld on the
proxy. The nominee is presently serving as a Director of the Corporation.
Management has no reason to believe that the nominee will refuse to act or
be unable to accept election; however, in such event and if any other unforeseen
contingency should arise, it is the intention of the persons named in the
accompanying form of proxy to vote for another nominee selected by the Board of
Directors in accordance with their best judgment.
The following descriptions set forth certain information, as of
February 29, 2000, about each Director, including each person's business
experience for the past five years, and presents certain
2
information for all present executive officers and Directors as a group. There
is no family relationship between any of the Directors or executive officers of
the Corporation.
NOMINEE FOR TERM TO EXPIRE IN 2003
JON ANTON, D.Sc.; Director since 1999; Age 60; West Lafayette, Indiana.
Dr. Anton is a researcher in the Purdue Call Center for Customer-Driven Quality
in the Department of Consumer Sciences at Purdue University and has held such
position since 1993. Dr. Anton specializes in enhancing customer service
strategy through inbound call centers and teleweb centers using the latest in
telecommunications (voice) and computer (digital) technology, as well as the
Internet, for external customer access, along with the Intranet and middleware.
Dr. Anton is the principal investigator of the annual Purdue University Call
Center Benchmark Research Report and authors "The Purdue Page" in CALL CENTER
MAGAZINE.
PRESENT TERM EXPIRES IN 2001
MICHAEL P. CULLINANE; Director since 1999; Age 50; Lisle, Illinois.
Mr. Cullinane is a Director, Executive Vice President and Chief Financial
Officer of Divine Interventures, Inc., a business-to-business e-commerce
company. From 1988 to 1999, Mr. Cullinane was Executive Vice President and Chief
Financial Officer of PLATINUM TECHNOLOGY, INC. (a software company). He joined
PLATINUM in 1988 as its Chief Financial Officer. Mr. Cullinane is also a
Director of Platinum Entertainment, Inc. (a recorded music producer and
licensing company), Vasco Data Security International, Inc. (a security hardware
and software company), and Made2Manage Systems, Inc. (an enterprise software
company).
JOHN R. GIBBS; Director since 1995; Age 49; Indianapolis, Indiana.
Mr. Gibbs is Executive Vice President of Administration and Corporate
Development and Treasurer of the Corporation and has held both positions since
1995. Mr. Gibbs co-founded the Corporation in 1994. From 1992 until 1994,
Mr. Gibbs was an independent management consultant, serving mostly
entrepreneurial and emerging growth companies.
PRESENT TERM EXPIRES IN 2002
DONALD E. BROWN, M.D.; Director since 1994; Age 44; Indianapolis, Indiana.
Dr. Brown is Chairman of the Board, President and Chief Executive Officer of the
Corporation and has held such positions since 1994 in the case of President,
since 1995 in the case of Chief Executive Officer and since 1998 in the case of
Chairman of the Board. Dr. Brown co-founded the Corporation in 1994. Dr. Brown
served as Chief Executive Officer and Director of Software Artistry, Inc. (a
developer of customer support software) from 1988 until 1994.
ROBERT A. COMPTON; Director since 1995; Age 44; Memphis, Tennessee.
Mr. Compton is self-employed and is involved with private equity investments in
entrepreneurial ventures, related primarily to software, telecommunications and
education. From 1999 until January 2000, Mr. Compton was President, Neurological
Technologies Division of Medtronic, Inc., a manufacturer of image guided surgery
systems and medical devices. From 1997 until 1999, Mr. Compton was President and
Chief Operating Officer of Sofamor Danek Group, Inc., a medical device
manufacturer. From 1988 until 1997, Mr. Compton served as a general partner of
CID Equity Partners, a venture capital firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE LISTED ABOVE.
3
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
During 1999, four meetings of the Board of Directors were held. For the
year, each of the Directors during the term of their tenure attended or
participated in at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees of the Board of Directors on which each such Director served. The
Corporation has no standing executive or nominating committee, but does have the
following two standing committees:
AUDIT COMMITTEE
The Audit Committee recommends the appointment of independent auditors for
the Corporation to the full Board of Directors, reviews the scope and results of
the audit engagement, approves the fees for the auditors, establishes and
monitors the financial policies and control procedures of the Corporation,
monitors the provision of non-audit services by the auditors and reviews all
potential conflict of interest situations. See "Certain Transactions." The Audit
Committee held one meeting during 1999. The members of the Audit Committee are:
Jon Anton, D.Sc., Robert A. Compton and Michael P. Cullinane.
COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Compensation Committee")
reviews, determines and establishes the salaries, bonuses and other compensation
of the Corporation's executive officers and administers the Corporation's stock
option plans in which executive officers and other key employees participate.
The Compensation Committee held one meeting during 1999. The members of the
Compensation Committee are: Jon Anton, D.Sc., Robert A. Compton and Michael P.
Cullinane.
4
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is a tabulation indicating as of February 29, 2000, the
shares of the Corporation's Common Stock beneficially owned by each Director and
nominee, each of the Named Executive Officers, and the Directors and executive
officers of the Corporation as a group. Except as otherwise indicated below,
each individual owns such Common Stock directly with sole investment and sole
voting power.
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER PRINCIPAL POSITION BENEFICIALLY OWNED(1) OF CLASS
- ------------------------ ------------------------------- --------------------- --------
Donald E. Brown, M.D........... Chairman of the Board, 8,675,079(2) 61.8%
President and Chief Executive
Officer
John R. Gibbs.................. Executive Vice President of 887,396(3) 6.4%
Administration and Corporate
Development, Treasurer and
Director
Jeremiah J. Fleming............ Vice President of Sales, The 79,375(4) *
Americas
Michael E. Ford................ Vice President of Operations, 20,000(5) *
Europe, Middle East and
Africa
Douglas T. Shinsato............ Vice President of Operations, 15,200(6) *
Asia/Pacific
Jon Anton, D.Sc................ Director -- *
Robert A. Compton.............. Director 26,500 *
Michael P. Cullinane........... Director 500 *
All Directors and Executive
Officers as a Group
(10 persons)................. 9,733,650(7) 69.1%
- ------------------------
* Less than one percent.
(1) Number of shares of Common Stock owned, directly or indirectly, as of
February 29, 2000. This information has been furnished by each Director or
officer. Also includes all stock options which are exercisable within
60 days of February 29, 2000.
(2) Includes 67,500 shares subject to stock options exercisable within 60 days
after February 29, 2000.
(3) Includes 1,500 shares subject to stock options exercisable within 60 days
after February 29, 2000.
(4) Includes 29,250 shares subject to stock options exercisable within 60 days
after February 29, 2000.
(5) Includes 18,000 shares subject to stock options exercisable within 60 days
after February 29, 2000.
(6) Includes 15,000 shares subject to stock options exercisable within 60 days
after February 29, 2000. Includes 200 shares owned by children. Excludes
2,500 shares held by Mr. Shinsato's spouse; Mr. Shinsato disclaims
beneficial ownership of such shares.
(7) Includes 132,750 shares subject to stock options exercisable within 60 days
after February 29, 2000.
5
EXECUTIVE COMPENSATION
The Summary Compensation Table appearing below shows the compensation for
the past two years to the Corporation's Chief Executive Officer and to each of
the Corporation's four other most highly compensated executive officers, based
on salary and bonus earned during 1999 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
--------------
AWARDS
ANNUAL COMPENSATION --------------
------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) OPTIONS (#)(2)
- --------------------------- -------- ---------- ------------ ---------------- --------------
Donald E. Brown, M.D. .......... 1999 150,000 -- -- --
Chairman, President and Chief 1998 100,000(3) -- -- 67,500
Executive Officer
John R. Gibbs .................. 1999 100,000 -- -- 7,500
Executive Vice President of 1998 80,000 -- 5,535(4) --
Administration and Corporate
Development and Treasurer
Jeremiah J. Fleming ............ 1999 175,000 158,568 -- --
Vice President of Sales, The 1998 154,808 106,327 -- 11,250
Americas
Michael E. Ford ................ 1999 110,000 166,596 32,057(5) --
Vice President of Operations, 1998 91,032 57,026 73,359(5) 30,000
Europe, Middle East and Africa
Douglas T. Shinsato ............ 1999 150,000 75,876 84,000(6) --
Vice President of Operations, 1998 100,000 66,666 55,077(6) 75,000
Asia/Pacific
- ------------------------
(1) Reflects bonus earned during the specified year, which bonuses at times have
been paid in the following year.
(2) Consists of options to acquire shares of the Corporation's Common Stock. The
Corporation has never granted stock appreciation rights or restricted stock.
(3) Reflects salary earned during 1998, but deferred, without interest, at the
election of Dr. Brown. This amount was paid on September 29, 1999 out of
proceeds from the Corporation's initial public offering.
(4) Reflects medical premiums paid by the Corporation while the Corporation was
an S-corporation, which are considered taxable income, and related tax
gross-up payments.
(5) Reflects relocation expenses.
(6) Reflects housing allowance.
6
STOCK OPTION PLANS
On August 14, 1995, the Board of Directors and the then sole shareholder
adopted, and on November 11, 1997 and July 12, 1999, the Board of Directors
amended, the Corporation's 1995 Incentive Stock Option Plan. Under the 1995
Incentive Stock Option Plan, the Corporation had authority to award incentive
stock options for up to 3,750,000 shares of the Corporation's Common Stock to
the Corporation's employees, including officers. Upon shareholder approval of
the Corporation's 1999 Stock Option and Incentive Plan on April 16, 1999, the
Board of Directors determined that no new options would be granted under the
1995 Incentive Stock Option Plan.
On August 14, 1995, the Board of Directors and the then sole shareholder
adopted the Corporation's 1995 Nonstatuory Stock Option Incentive Plan (the
"1995 Nonstatutory Plan"). Under the 1995 Nonstatutory Plan, the Corporation had
authority to award stock options for up to 375,000 shares of the Corporation's
Common Stock to the Corporation's employees, Directors and consultants. Upon
shareholder approval of the Corporation's 1999 Stock Option and Incentive Plan
and the Outside Directors Stock Option Plan on April 16, 1999, the Board of
Directors determined not to issue any further options under the 1995
Nonstatutory Plan.
On April 14, 1999, the Board of Directors adopted, and on April 16, 1999,
the shareholders approved, the 1999 Stock Option and Incentive Plan (the "1999
Stock Option Plan"). Under the 1999 Stock Option Plan, the Corporation may award
stock options and shares of restricted stock to the Corporation's officers, key
employees, consultants and other individuals as may be determined by the
Compensation Committee. The aggregate number of shares of Common Stock that may
be awarded under the 1999 Stock Option Plan is 3,750,000, subject to adjustment
in specified events. No individual participant may receive awards for more than
250,000 shares in any calendar year. Stock options granted under the 1999 Stock
Option Plan may be either options intended to qualify for federal income tax
purposes as "incentive stock options" or options not qualifying for favorable
tax treatment ("nonqualified stock options"). On February 22, 2000, the Board of
Directors adopted amendments to the 1999 Stock Option Plan.
The 1999 Stock Option Plan, as amended, is being submitted to the
Corporation's shareholders for approval at the Annual Meeting for regulatory and
tax purposes, including in order to qualify the 1999 Stock Option Plan under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
(which section limits the deductibility of certain employee compensation). For a
more detailed description of the 1999 Stock Option Plan, see "Approval of the
Corporation's 1999 Stock Option and Incentive Plan."
For a description of the Outside Directors Stock Option Plan, see
"Compensation of Directors."
OPTION GRANTS IN FISCAL 1999
The following table sets forth further information regarding individual
grants of options for the Corporation's Common Stock during 1999 to each of the
Named Executive Officers. This presentation is intended to disclose the
potential value that would accrue to the optionee if the option were exercised
the day before it would otherwise expire and if the per share value had
appreciated at the compounded annual rate indicated in each column. The assumed
rates of appreciation of 5% and 10% are prescribed by the rules of the
Securities and Exchange Commission regarding disclosure of executive
compensation. The assumed annual rates of appreciation are not intended to
forecast possible future appreciation, if any, with respect to the price of the
Corporation's Common Stock. Actual gains, if any, on option exercises are
dependent on the future performance of the Corporation's Common
7
Stock and overall market conditions. There can be no assurance that the
potential realizable values shown in this table will be achieved.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (PER SHARE)($) DATE 5% 10%
- ---- ----------- ------------ -------------- ---------- -------- --------
Donald E. Brown, M.D.... -- -- -- -- -- --
John R. Gibbs........... 7,500(1) 1.3% 8.33 2/26/09 96,317(2) 190,390(2)
Jeremiah J. Fleming..... -- -- -- -- -- --
Michael E. Ford......... -- -- -- -- -- --
Douglas T. Shinsato..... -- -- -- -- -- --
- ------------------------
(1) Incentive stock options to purchase the Corporation's Common Stock, granted
at 100% of the deemed fair market value of the Common Stock on the date of
grant, based upon a determination by the Board of Directors. The option is
exercisable at the rate of 20% per year, beginning February 26, 2000.
(2) Because this option was granted prior to the establishment of a public
trading market for the Common Stock, the potential realizable value
calculation is based on the initial public offering price of $13.00 per
share.
OPTION EXERCISES IN FISCAL 1999
AND FISCAL 1999 YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of stock
options by each of the Named Executive Officers during the 1999 fiscal year, the
number of unexercised options existing at the end of the year 1999 for each of
the Named Executive Officers and the 1999 year-end value of unexercised options.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Donald E. Brown, M.D..... -- -- 67,500 -- 1,594,688 --
John R. Gibbs............ -- -- -- 7,500 -- 137,188
Jeremiah J. Fleming...... 22,500 273,000(2) 6,750 83,250 169,069 2,125,181
Michael E. Ford.......... -- -- 18,000 42,000 450,850 1,030,650
Douglas T. Shinsato...... -- -- 15,000 60,000 359,375 1,437,500
- ------------------------
(1) The closing price for the Corporation's Common Stock as reported by The
Nasdaq Stock Market on December 31, 1999 was $26.625. The value is
calculated on the basis of the difference between the option exercise price
and $26.625, multiplied by the number of "In-the-Money" shares of Common
Stock underlying the option.
(2) The value is calculated based on the difference between the initial public
offering price of $13.00 per share and the option exercise price, multiplied
by the number of shares to which the exercise relates.
8
COMPENSATION OF DIRECTORS
Full-time officers of the Corporation or its subsidiaries do not receive
additional compensation for serving as members of the Boards of Directors of the
Corporation or its subsidiaries. No additional compensation is paid if a
full-time officer serves on any committee of such Boards of Directors.
Except for grants of stock options, non-employees serving as members of the
Corporation's Board of Directors do not receive cash payments in connection with
membership on the Board of Directors or in connection with the attendance at any
Board or Board Committee meeting. Directors are entitled to reimbursement of
expenses incurred in connection with attendance at such meetings. Non-employees
serving as members of the Corporation's Board of Directors are eligible to
receive automatic stock option grants under the Corporation's Outside Directors
Stock Option Plan (the "Directors Option Plan"), which was adopted by the Board
of Directors on April 14, 1999 and by the shareholders on April 16, 1999. As of
March 31, 2000, there were three non-employee Board members eligible to
participate in the Directors Option Plan: Jon Anton, D.Sc., Robert A. Compton
and Michael P. Cullinane. Under the Directors Option Plan, options may be
granted to the non-employee members of the Board to purchase up to 150,000
shares of Common Stock, subject to adjustment in certain events. Pursuant to the
Directors Option Plan, each non-employee Director will be automatically granted
an option to purchase 5,000 shares of Common Stock on June 1 of each year
beginning June 1, 2000. The option exercise price per share will be the fair
market value of one share of Common Stock on the date of the grant. Each option
becomes exercisable six months following the date of grant and expires ten years
following the date of grant. Subject to some exceptions, options granted under
the Directors Option Plan may be exercised by the holder only if the holder has
been in continuous service on the Board of Directors at all times since the date
of the grant of the option.
On May 26, 1999, the Board of Directors granted an option to purchase 15,000
shares of Common Stock to each of Jon Anton, D.Sc. and Michael P. Cullinane,
outside of the Directors Option Plan, in consideration of their agreeing to
become Directors. The exercise price for these options was equal to the deemed
fair market value of the Common Stock on the date of grant ($9.33 per share),
based upon a determination by the Board of Directors. Options for one-half of
the shares become exercisable one year after the date of grant and the other
half becomes exercisable two years after the date of grant.
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
On January 2, 1995, the Corporation entered into a Consulting and Employment
Agreement with John R. Gibbs, which was amended on May 14, 1999. The agreement
provides that Mr. Gibbs will receive an annual salary of $60,000, which the
Corporation may increase at its discretion. Mr. Gibbs' annual salary has since
been increased; see "Summary Compensation Table." The agreement also contains
non-competition, non-solicitation and non-disclosure provisions, which are in
effect during the term of the agreement. The non-disclosure provisions in
Mr. Gibbs' agreement continue indefinitely after his termination of employment.
The non-compete provisions continue for a period of 12 months after his
termination of employment for any reason, as do the non-solicitation provisions,
unless he is terminated by the Corporation without cause. If his employment is
terminated by the Corporation without cause, or in specified circumstances
following a change of control, Mr. Gibbs will receive severance pay equal to
12 months' salary.
On March 1, 1997, the Corporation entered into an Employment Agreement with
Jeremiah J. Fleming, which was amended on May 14, 1999. The agreement provides
that Mr. Fleming will receive an annual salary of $125,000, which the
Corporation may increase or decrease at its discretion with notice.
Mr. Fleming's annual salary has since been increased; see "Summary Compensation
Table." The agreement also contains non-competition, non-solicitation and
non-disclosure provisions, which are in effect during the term of the agreement.
The non-disclosure provisions in Mr. Fleming's agreement
9
continue indefinitely after termination of his employment. The non-compete
provisions continue for a period of 12 months after termination, as do the
non-solicitation provisions, unless he is terminated by the Corporation without
cause. If his employment is terminated by the Corporation without cause, or in
specified circumstances following a change of control, Mr. Fleming will receive
severance pay equal to one year's total compensation.
On June 30, 1997, the Corporation entered into an Employment Agreement with
Michael E. Ford. The agreement provides that Mr. Ford will receive an annual
salary of $85,000, which the Corporation may increase or decrease at its
discretion with notice. Mr. Ford's annual salary has since been increased; see
"Summary Compensation Table." The agreement also contains non-competition and
non-solicitation provisions, which are in effect during the term of the
agreement and for a period of 18 months following his termination for any
reason, and non-disclosure provisions. If his employment is terminated by the
Corporation for any reason other than for cause, Mr. Ford will receive severance
pay equal to one month's salary.
On May 1, 1998, the Corporation entered into an Employment Agreement with
Douglas T. Shinsato. The agreement provides that Mr. Shinsato will receive an
annual salary of $150,000, which the Corporation may increase or decrease at its
discretion with notice. See "Summary Compensation Table." The agreement also
contains non-competition and non-solicitation provisions, which are in effect
during the term of the agreement and for a period of 18 months following his
termination for any reason, and non-disclosure provisions. If his employment is
terminated by the Corporation for any reason other than for cause, Mr. Shinsato
will receive severance pay equal to one month's salary.
On March 15, 2000, each of the Employment Agreements described above was
amended to provide that any severance payments to the employee will be grossed
up in an amount sufficient to cover any excise tax imposed upon such payment
pursuant to Section 4999 of the Code.
The Corporation does not have employment or non-competition agreements with
any other Named Executive Officers.
The 1995 Incentive Stock Option Plan, the 1995 Nonstatutory Plan and the
1999 Stock Option Plan provide for the vesting of outstanding awards in the
event of specified changes in control of the Corporation.
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE. Prior to April 14, 1999 (the date
that the Compensation Committee was established), the Administrative Committee
of the Board of Directors administered the Corporation's stock option plans and
the Board of Directors had all other responsibilities to review, determine and
establish the salaries, bonuses and other compensation of the Corporation's
executive officers. The salaries for the executive officers for 1999 were
approved by the Board of Directors, and any stock option grants prior to
April 14, 1999 were approved by the Administrative Committee. The following is
the Report of the Compensation Committee of the Board of Directors, along with
the Board of Directors and Administrative Committee, describing the compensation
policies and rationale applicable to the Corporation's executive officers with
respect to compensation paid to such executive officers for the year ended
December 31, 1999.
PURPOSE OF THE COMPENSATION COMMITTEE. The Compensation Committee of the
Board of Directors has the exclusive authority to establish the level of base
salary payable to the Chief Executive Officer and other executive officers of
the Corporation and to administer the Corporation's 1995 Incentive Stock Option
Plan, the 1995 Nonstatutory Plan and the 1999 Stock Option Plan under which
grants have been and may be made to such officers and other key employees. In
addition, the Compensation Committee has the responsibility for approving the
individual bonus programs to be in effect for the
10
Chief Executive Officer and other executive officers and certain key employees
each fiscal year. The Compensation Committee is comprised entirely of
non-employee Directors who have never served as officers or employees of the
Corporation.
For the 1999 fiscal year, the process utilized in determining executive
officer compensation levels was based on the Board of Directors, the
Administrative Committee of the Board of Directors, or the Compensation
Committee's subjective judgment. Among the factors considered were the
recommendations of the Chief Executive Officer with respect to the compensation
of the Corporation's executive officers. However, the Board of Directors, the
Administrative Committee of the Board of Directors, or the Compensation
Committee made the final compensation decisions concerning such officers.
GENERAL COMPENSATION POLICY. The Corporation's fundamental policy is to
compensate executive officers in a manner that will attract and retain the
services of an outstanding management team and provide meaningful incentives to
motivate superior performance by key employees based on increasing shareholder
value and individual performance against defined objectives. It is the
Corporation's objective to have compensation be highly competitive with
comparable talent at comparable public software companies. Compensation should
include a meaningful equity participation in the Corporation, which strengthens
the mutuality of interests between the executive officers and shareholders. Each
executive officer's compensation package will generally be comprised of three
elements: (i) base salary, (ii) annual incentive compensation, and (iii) long
term stock-based incentive compensation.
BASE SALARY. The base salary for each executive officer is set on the basis
of personal performance and a review of comparable positions at comparable
public software companies.
ANNUAL INCENTIVE COMPENSATION. Each year the Compensation Committee will
establish a set of objectives for each executive officer, some based on
Corporation performance and some based on achievement of individual objectives.
At the end of the fiscal year, the Compensation Committee will evaluate the
objectives to determine whether the specified objectives were met and determine
whether any extraordinary accomplishments should be considered in determining a
bonus award.
LONG TERM INCENTIVE COMPENSATION. During fiscal 1999, the Administrative
Committee of the Board of Directors, in its discretion, made option grants to
two executive officers under the 1995 Incentive Stock Option Plan. The
Compensation Committee, in its discretion, made option grants to two executive
officers under the 1999 Stock Option Plan. The size of each grant was set at a
level that the Administrative Committee or the Compensation Committee deemed
appropriate to create a meaningful opportunity for stock ownership based on the
individual's potential for increasing long-term shareholder value, the
individual's current position with the Corporation, option grants awarded to
individuals in comparable positions in comparable public software companies, and
the number of unvested options held by the individual at the time of the new
grant. The relative weight given to each of these factors varied from individual
to individual at the discretion of the Administrative Committee or the
Compensation Committee.
The stock option grants are designed and intended to align the interests of
the executive officer with those of the shareholders and provide each individual
with a significant incentive to manage the Corporation from the perspective of
an owner with an equity stake in the business. Each grant allows the executive
officer to acquire shares of the Corporation's Common Stock at a fixed price per
share (the market value on the grant date) over a specified period of time. The
option generally vests in periodic installments over a four year period,
contingent on the executive officer's continued employment with the Corporation.
Accordingly, the option will provide the opportunity for a return to the
executive officer only if he or she remains in the Corporation's employ, and
then only if the market price of the Corporation's Common Stock appreciates over
the option term.
11
CHIEF EXECUTIVE OFFICER COMPENSATION. The compensation for Donald E. Brown,
M.D., President and Chief Executive Officer, reported for 1999 reflects the
application of the policies described above. Dr. Brown also participated in
other employee benefit plans available to other executive officers during 1999,
which the Compensation Committee believes are competitive, including the 401(k)
Savings Plan and life and health insurance programs.
INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the Code
eliminates, subject to certain exceptions, the deductibility of executive
compensation to the extent that any executive's compensation for any year
exceeds $1 million. Exceptions to amounts included in executive compensation for
purposes of Section 162(m) involve various types of performance-based
compensation. As noted above, it is the Compensation Committee's policy to base
a substantial amount of executive compensation on the Corporation's performance.
Currently, the cash compensation levels for the Corporation's executive officers
fall significantly below $1 million. In the event that in the future the annual
remuneration of any executive of the Corporation approaches $1 million, the
Compensation Committee will consider the various alternatives to preserving the
deductibility of compensation payments to the extent reasonably practicable and
consistent with its compensation objectives.
Members of the Compensation and Stock Option Committee for 1999 were:
Jon Anton, D.Sc.
Robert A. Compton
Michael P. Cullinane
Members of the Board of Directors prior to the establishment of the
Compensation and Stock Option Committee were:
Donald E. Brown, M.D.
Robert A. Compton
John R. Gibbs
Robert A. Greising
Members of the Administrative Committee were:
Donald E. Brown, M.D.
John R. Gibbs
COMPENSATION AND STOCK OPTION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 14, 1999 (the date that the Compensation Committee was
established), the Administrative Committee of the Board of Directors, which
consisted of Donald E. Brown, M.D. and John R. Gibbs, administered the
Corporation's stock option plans and the Board of Directors had all other
responsibilities to review, determine and establish the salaries, bonuses and
other compensation of the Corporation's executive officers. The Corporation's
Board of Directors consisted of Donald E. Brown, M.D., Robert A. Compton, John
R. Gibbs and Robert A. Greising prior to the establishment of the Compensation
Committee. Dr. Brown and Mr. Gibbs continue to serve as Directors and officers
of the Corporation. Mr. Greising was not an employee, but served as Secretary of
the Corporation until November 30, 1999. Except for Dr. Brown, none of the
members of the Administrative Committee or the Board of Directors during 1999
were involved in a relationship requiring disclosure as an interlocking
executive officer or Director or under Item 404 of Regulation S-K. Dr. Brown is
a Director and 25% shareholder of Intelligent Response, Inc., a company that
provides the Corporation with telemarketing and fulfillment services. Dr. Brown
is also a Director, President and a significant shareholder of Interactive
Portal, Inc., a company with which the Corporation has certain transactions.
Dr. Brown had also loaned funds to the Corporation from time to time prior to
the Corporation's initial public offering, had elected to defer the payment of
his salary and had advanced other
12
non-interest bearing accounts payable to the Corporation. In addition, he has
guaranteed the Corporation's commercial lines of credit, equipment leases and
two of the Corporation's office leases. See "Certain Transactions."
The Compensation Committee of the Corporation's Board of Directors was
formed in 1999, and the members of the Compensation Committee are Jon Anton,
D.Sc., Robert A. Compton and Michael P. Cullinane. None of the members of the
Compensation Committee were at any time during 1999 or at any other time an
officer or employee of the Corporation. In addition, none of the members of the
Compensation Committee are involved in a relationship requiring disclosure as an
interlocking executive officer or Director or under Item 404 of Regulation S-K.
No executive officer of the Corporation serves as a member of the Compensation
Committee.
PERFORMANCE GRAPH
The following graph compares the cumulative total return to shareholders of
the Corporation's Common Stock for the period from September 23, 1999, the date
of the Corporation's initial public offering, through December 31, 1999, with
the cumulative total return over such period of (i) the Standard & Poor's 500
Stock Index (the "S&P 500 Index") and (ii) the Hambrecht & Quist Computer
Software Index. The graph assumes an investment of $100 on September 23, 1999 in
each of the Corporation's Common Stock (at the initial public offering price),
the S&P 500 Index and the Hambrecht & Quist Computer Software Index (and the
reinvestment of all dividends). The performance shown is not necessarily
indicative of future performance.
13
The comparisons shown in the graph below are based on historical data and
the Corporation cautions that the stock price performance shown in the graph
below is not indicative of, and is not intended to forecast, the potential
future performance of the Corporation's Common Stock. Information used in the
graph was obtained from Research Data Group, a source believed to be reliable,
but the Corporation is not responsible for any errors or omissions in such
information.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG INTERACTIVE INTELLIGENCE, INC., THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST COMPUTER SOFTWARE INDEX
CUMULATIVE TOTAL RETURN
----------------------------------------------------
9/23/99 9/30/99 10/31/99 11/30/99 12/31/99
-------- -------- -------- -------- --------
INTERACTIVE INTELLIGENCE, INC. ..................... 100.00 176.92 209.62 215.38 204.81
S & P 500........................................... 100.00 97.26 103.41 105.52 111.73
HAMBRECHT & QUIST COMPUTER SOFTWARE................. 100.00 110.88 123.78 148.61 199.09
- ------------------------
* Total Return based on $100 initial investment and reinvestment of dividends.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that might incorporate this Proxy Statement or future filings made by the
Corporation under those statutes, the Compensation Committee Report and Stock
Performance Graph are not deemed filed with the Securities and Exchange
Commission and shall not be deemed incorporated by reference into any of those
prior filings or into any future filings made by the Corporation under those
statutes.
14
CERTAIN TRANSACTIONS
RELATIONSHIP WITH DIALOGIC
Prior to the Corporation's initial public offering on September 23, 1999,
Dialogic Investment Corporation was a greater than 5% holder of the shares of
the Corporation's Common Stock. Dialogic Investment Corporation has merged into
Dialogic Corporation, with whom the Corporation has entered into agreements. In
the summer of 1999, Dialogic Corporation became a subsidiary of Intel
Corporation. Under a Strategic Relationship Agreement between the Corporation
and Dialogic Corporation, which commenced on March 1, 1999, Dialogic Corporation
has agreed to provide the Corporation with voice processing boards for the
Corporation's use related to the Corporation's interaction management software
products. Dialogic Corporation has also agreed to provide the Corporation with
rebate incentives and marketing, sales and technical support. This agreement is
non-exclusive, and Dialogic Corporation is free to market any of the voice
processing boards to other customers, including companies that may compete with
the Corporation. In addition, while the Corporation has agreed to provide
Dialogic Corporation notice and a reasonable opportunity to meet the
Corporation's current and future product needs, the Corporation is also free to
purchase competitive products if required for the Corporation's business
purposes.
The Strategic Relationship Agreement also provides that, at no cost to the
Corporation, Dialogic Corporation will provide the Corporation with an inventory
of voice processing boards valued in an amount up to $100,000, to be used
exclusively for the Corporation's internal developmental and testing purposes.
The Corporation may not resell this inventory without written permission from
Dialogic Corporation until after the end of the three-year term of this
arrangement. The Corporation has already received all of the voice processing
boards that Dialogic Corporation is obligated to deliver. The Corporation
believes that the Strategic Relationship Agreement is on terms at least as
favorable as it could obtain from an unrelated third party.
The Corporation is also a party to a Support Services Agreement with
Dialogic Corporation relating to technical and professional support services to
be provided by Dialogic Corporation to the Corporation arising from the
installation, configuration, programming and maintenance of specified Dialogic
Corporation products. The annual fee is $50,000, which was waived for one year
beginning March 1, 1999, plus reasonable travel and out-of-pocket expenses. The
Corporation also incurs additional per hour fees for specified services such as
standby coverage, service calls within the standby period, on-site technical
support and consulting services. The Support Services Agreement also provides
that the Corporation will not solicit for employment any Dialogic Corporation
personnel performing services under the agreement. The Corporation believes that
the Support Services Agreement is on terms at least as favorable as it could
obtain from an unrelated third party.
The Corporation paid Dialogic Corporation $761,148 in 1999 for voice
processing boards and related technology and services. The Corporation believes
that these amounts were no greater than amounts which it would have paid to
unrelated third parties for similar products and services.
TELEMARKETING SERVICES
Dr. Brown is a Director and 25% stockholder of Intelligent Response, Inc., a
telemarketing company, and Dr. Brown's brother is the president of that company.
In 1999, Intelligent Response provided the Corporation with telemarketing and
fulfillment services in support of the Corporation's marketing efforts. The
Corporation paid Intelligent Response $263,669 in 1999 for these services. The
Corporation believes that the amounts paid to Intelligent Response were no
greater than amounts that it would have paid to unrelated third parties for
similar services. The Corporation intends to continue to use Intelligent
Response to provide telemarketing and fulfillment services.
15
INSIDER ADVANCES
From time to time before the Corporation's initial public offering,
Dr. Brown loaned funds to the Corporation. These loans had an interest rate of
10% and were due on December 31, 2001. On September 29, 1999, the Corporation
repaid all amounts outstanding under these loans, which aggregated $7,519,959
(including accrued interest), with a portion of the net proceeds from the
initial public offering. The Corporation incurred $523,882 in interest expense
on these loans in 1999. In addition to these loans, Dr. Brown also elected to
defer, without interest, the payment of all of his salary from July 1, 1996
through June 30, 1999. On September 29, 1999, the Corporation paid Dr. Brown in
full $214,308 in deferred compensation and $335,329 in other non-interest
bearing accounts payable. As of December 31, 1999, the Corporation was not
indebted to Dr. Brown.
GUARANTEES OF THE CORPORATION'S OBLIGATIONS
From time to time before the Corporation's initial public offering,
Dr. Brown guaranteed the Corporation's commercial lines of credit and equipment
leases. In consideration for a portion of these guarantees, the Corporation
granted an option to purchase 67,500 shares of Common Stock to Dr. Brown on
September 22, 1998. The stock option has an exercise price of $3.00 per share,
which was the deemed fair market value of the Common Stock on the date of grant,
based upon a determination by the Board of Directors, and the option was
immediately exercisable in full as of the date of grant. On October 31, 1999,
the Corporation renewed its existing credit facilities, which Dr. Brown has
personally guaranteed. Dr. Brown has also personally guaranteed two of the
Corporation's office leases, and his guarantee of the Corporation's equipment
leases is ongoing.
RELATIONSHIP WITH INTERACTIVE PORTAL
The Corporation has invested in, and has entered into a Subscription
Agreement with, Interactive Portal, Inc. ("Interactive Portal"), an application
service provider which plans to offer a wide variety of subscription based,
enhanced communications and application services. Pursuant to the Subscription
Agreement, the Corporation's investment in Interactive Portal will total
$475,000, for a 19% equity ownership. The other percentage ownerships of
Interactive Portal will be Dr. Brown--71% and Mr. Compton--10%. Dr. Brown and
Mr. Compton are also Directors and Dr. Brown is the President of Interactive
Portal. In addition, Dr. Brown's sister is an officer of Interactive Portal.
Interactive Portal is a strategic customer and currently plans to license the
Corporation's Enterprise Interaction Center within 30 to 60 days of the date of
this Proxy Statement as one of the application services to be provided to its
customers. Interactive Portal intends to license Enterprise Interaction Center
from the Corporation at the market rate in the same manner as any unrelated
third party. In 1999, Interactive Portal only had one employee and has been in
the process of implementing its infrastructure by adding additional employees
and leasing office space. The Corporation has aided in the establishment of this
infrastructure by allowing Interactive Portal to lease a small amount of space
in the corporate headquarters until its facilities were available to be occupied
during March 2000. In addition, the Corporation has provided minor and
intermittent administrative guidance and services during Interactive Portal's
development stage. Interactive Portal reimburses the Corporation at market rates
for any services provided. The administrative guidance and services provided by
the Corporation have been, and are expected to be, minimal.
APPROVAL OF THE CORPORATION'S EMPLOYEE STOCK PURCHASE PLAN
(ITEM 2 ON PROXY CARD)
On February 22, 2000, the Corporation's Board of Directors adopted the
Employee Stock Purchase Plan (the "Purchase Plan"), and directed that the
Purchase Plan be submitted to the shareholders for consideration at the Annual
Meeting. The following is a summary of the principal features of the Purchase
Plan and is qualified in its entirety by reference to the complete text of the
Purchase Plan as
16
set forth as Appendix A to this Proxy Statement. Shareholders are urged to read
the actual text of the Purchase Plan as set forth in Appendix A.
PURPOSE
The purpose of the Purchase Plan is to facilitate employee ownership of the
Corporation's Common Stock, thereby providing a broad-based incentive for
employees to enhance the Corporation's performance through their services.
ADMINISTRATION
The Purchase Plan is administered by a committee appointed by the Board of
Directors of the Corporation (the "Plan Committee"). The Plan Committee has
primary responsibility for administering and interpreting the Purchase Plan,
assisted by the Corporation's payroll department and Norwest Bank Minnesota,
N.A., the Plan Agent.
SHARES
Under the Purchase Plan, 500,000 shares of Common Stock are available for
issuance and purchase. The source for the Common Stock purchased under the
Purchase Plan may be newly issued shares, treasury shares or shares purchased on
the open market or in private transactions. Shares of Common Stock to be issued
under the Purchase Plan are covered by a Registration Statement on Form S-8
filed by the Corporation with the Securities and Exchange Commission.
ELIGIBILITY AND PARTICIPATION
Regular employees of the Corporation and any designated subsidiary who have
been employed for at least 30 days are eligible to participate in the Purchase
Plan, on a voluntary basis, if they meet certain conditions. To be eligible, an
employee's customary employment must be greater than both 20 hours per week and
five months in any calendar year.
Eligible employees become participants in the Purchase Plan by filing with
the Plan Committee an enrollment form authorizing payroll deductions and
electing a payroll deduction amount. If the enrollment form is filed within the
time period prescribed by the Purchase Plan, the employee will become a
participant in the Purchase Plan on the first day of the next calendar quarter
(each such date, an "Entry Date").
Because participation in the Purchase Plan is voluntary and is dependent on
each eligible employee's election to participate and his or her determination as
to the level of payroll deductions, future purchases under the Purchase Plan are
not determinable. Nonemployee directors are not eligible to participate in the
Purchase Plan.
PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the duration of each calendar quarter. The deducted amounts are credited to an
account in the employee's name. The deductions may not exceed 20% of a
participant's compensation, and the maximum deduction that may be made during
each payroll period is $1,000. Payroll deductions commence on the first payday
following an Entry Date and will continue at the same rate until terminated or
changed as provided in the Purchase Plan.
PURCHASE OF STOCK; PURCHASE PRICE
Unless the participant discontinues payroll deductions, on the first
business day of each calendar quarter, each participant will be deemed, without
further action, to have purchased shares of Common
17
Stock with the entire balance in his payroll deduction account. The price at
which shares are sold to participating employees is equal to 85% of the lower of
the fair market value of the Common Stock on (i) the first business day of the
immediately preceding calendar quarter or (ii) the last business day of the
immediately preceding calendar quarter. For purposes of the Purchase Plan, fair
market value is defined as the closing price of the Corporation's Common Stock
as reported on The Nasdaq Stock Market on the relevant date. Once purchased, the
Plan Agent credits the shares to the participant's investment account, where it
is held until the employee withdraws the stock or leaves the Corporation.
LIMITATION ON PURCHASES
Notwithstanding the foregoing, participant purchases under the Purchase Plan
are subject to certain limitations. During any one calendar year, a participant
may not purchase, under the Purchase Plan or under any other plan qualified
under Section 423 of the Code, shares of Common Stock having a fair market value
(determined by reference to the fair market value on each date of purchase) in
excess of $25,000. In addition, during any one calendar year, all participants
who are corporate officers of the Corporation may not purchase, in the
aggregate, more than half of the Common Stock purchased under the Purchase Plan
during that calendar year. A participant's payroll deduction account may not be
used to purchase Common Stock to the extent that, after a purchase under the
Purchase Plan, the participant would, in the aggregate, own or hold outstanding
options to purchase stock possessing 5% or more of the total combined voting
power of the Corporation. Furthermore, if the number of shares which would
otherwise be purchased exceeds the number of shares then available under the
Purchase Plan, a pro rata allocation of the shares remaining will be made in as
equitable a manner as is practicable.
WITHDRAWAL
A participant may discontinue payroll deductions at any time during the
first 2 1/2 months of a calendar quarter and receive a refund of the balance in
his payroll deduction account accumulated during that calendar quarter. A
participant may also elect to withdraw the shares held in his investment account
as of the first business day of any calendar quarter. In either event, the
employee may not resume participation in the Purchase Plan until the second
Entry Date following his election to discontinue or following the withdrawal.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, cancels his participation in the Purchase Plan immediately.
In such event, the payroll deductions credited to the participant's payroll
deduction account and the shares in the participant's investment account will be
returned to the participant, or, in the case of death, to the person or persons
entitled thereto as specified by the employee.
CAPITAL CHANGES
In the event of any changes in the capitalization of the Corporation, such
as a stock split, stock dividend, recapitalization or merger in which the
Corporation is the surviving company, appropriate adjustments will be made by
the Plan Committee in the number and kind of shares subject to purchase, in the
maximum number of shares which may be purchased under the Purchase Plan and in
the purchase price of the shares.
MERGER, ASSET OR STOCK SALE
If the Corporation is a party to a consolidation or merger in which it is
not the surviving corporation, a transaction that results in the acquisition of
substantially all of the Corporation's
18
outstanding stock by a single person or entity or a sale or transfer of
substantially all of the Corporation's assets, the Plan Committee may take such
actions with respect to the Purchase Plan as it deems appropriate.
NONTRANSFERABILITY
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned, transferred or otherwise disposed of in
any way by the participant.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time and for any reason amend or terminate
the Purchase Plan. However, no amendment may be made to the Purchase Plan
without approval by the shareholders of the Corporation if such amendment would
increase the number of shares of Common Stock that may be issued under the
Purchase Plan (other than an increase merely reflecting a change in the
capitalization of the Corporation) or would change the designation of any
corporation (other than a subsidiary of the Corporation) whose employees become
eligible to participate in the Purchase Plan.
USE OF FUNDS
All payroll deduction amounts held by the Corporation under the Purchase
Plan are general assets of the Corporation, free of any trust or other
restriction. No interest will accrue on the payroll deductions of a participant
in the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. No income will be taxable to a participant until the shares purchased
under the Purchase Plan are sold or otherwise disposed of. Upon sale or other
disposition of the shares, the participant will generally be subject to tax, and
the amount of the tax will depend upon the holding period. If the shares are
sold or otherwise disposed of more than two years from the first day of the
offering period (the "Statutory Holding Period"), then the participant will
recognize ordinary income measured as the lesser of (i) the excess of the fair
market value of the shares at the time of such sale or disposition over the
purchase price, or (ii) an amount equal to 15% of the fair market value of the
shares as of the first day of the offering period. Any additional gain will be
treated as long-term capital gain. If the shares are sold or otherwise disposed
of before the expiration of the Statutory Holding Period, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on the holding periods. The
Corporation is not entitled to a deduction for amounts taxed as ordinary income
or capital gain to a participant except to the extent that ordinary income is
recognized by participants upon a sale or disposition of shares prior to the
expiration of the Statutory Holding Period described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Corporation with respect to the shares purchased
under the Purchase Plan. Reference should be made to the applicable provisions
of the Code. In addition, the summary does not purport to be complete, and does
not discuss the tax consequences of the employee's death or the provisions of
the income tax laws of any municipality, state or foreign country in which the
employee may reside.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE EMPLOYEE STOCK
PURCHASE PLAN.
19
APPROVAL OF THE CORPORATION'S 1999 STOCK OPTION AND INCENTIVE PLAN
(ITEM 3 ON PROXY CARD)
On April 14, 1999, the Corporation's Board of Directors adopted the 1999
Stock Option Plan. The shareholders of the Corporation adopted the 1999 Stock
Option Plan on April 16, 1999. On February 22, 2000, the Board of Directors
adopted certain amendments to the 1999 Stock Option Plan. The 1999 Stock Option
Plan, as amended, is being submitted to the Corporation's shareholders for
approval at the Annual Meeting for regulatory and tax purposes, including in
order to qualify the 1999 Stock Option Plan under Section 162(m) of the Code
(which section limits the deductibility of certain employee compensation).
The following is a summary of the principal features of the 1999 Stock
Option Plan, as amended. The summary is qualified in its entirety by reference
to the complete text of the 1999 Stock Option Plan, as amended, as set forth as
Appendix B to this Proxy Statement. Shareholders are urged to read the actual
text of the 1999 Stock Option Plan as set forth in Appendix B.
PURPOSE
The purpose of the 1999 Stock Option Plan is to promote the long-term
interests of the Corporation and its shareholders by providing a means of
attracting and retaining officers, key employees and consultants of the
Corporation. The Corporation believes that employees who own shares of the
Corporation's Common Stock will have a closer identification with the
Corporation and greater motivation to work for the Corporation's success by
reason of their ability as shareholders to participate in the Corporation's
growth and earnings.
ELIGIBLE PERSONS
Recipients of incentive awards under the 1999 Stock Option Plan must be, or
have been at the time of grant, officers, key employees, consultants or other
individuals as determined by the Compensation Committee. The Corporation
presently has approximately 215 officers and employees who may be considered for
incentive awards under the 1999 Stock Option Plan. No awards may be granted to
Directors who are not also employees of the Corporation or one of its
subsidiaries.
SHARES SUBJECT TO THE 1999 STOCK OPTION PLAN
The 1999 Stock Option Plan reserves for issuance 3,750,000 shares of the
Corporation's Common Stock, subject to adjustment in certain events. No
individual participant may receive awards for more than 250,000 shares in any
calendar year.
The number of shares covered by an award under the 1999 Stock Option Plan
reduces the number of shares available for future awards under the 1999 Stock
Option Plan; however, any shares of restricted stock that ultimately are
forfeited to the Corporation by the grantee will become available for further
incentive awards under the 1999 Stock Option Plan. Similarly, if any stock
option granted under the 1999 Stock Option Plan terminates or is surrendered or
canceled without having been exercised in full, the number of shares then
subject thereto is added back to the number of remaining available shares under
the 1999 Stock Option Plan.
As of February 29, 2000 options to purchase 508,300 shares of Common Stock
were outstanding under the 1999 Stock Option Plan.
The closing sale price of the Corporation's Common Stock on March 31, 2000,
as quoted on The Nasdaq Stock Market and reported in The Wall Street Journal,
was $43.00 per share.
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ADMINISTRATION OF THE PLAN
The 1999 Stock Option Plan is administered by the Compensation Committee,
which is presently composed of three Directors, each of whom is a "non-employee
Director" as provided under Rule 16b-3 of the Exchange Act, and an "outside
Director" as provided in Section 162(m) of the Code. Subject to the terms of the
1999 Stock Option Plan, the Committee has sole authority to determine and
designate those officers, key employees, consultants and other individuals who
are to be granted incentive awards under the 1999 Stock Option Plan and the
nature and terms of the incentive awards to be granted, including the number of
shares to be subject to such awards. If the Compensation Committee does not
exist, or for any other reason determined by the Board of Directors, the Board
of Directors may take any action under the 1999 Stock Option Plan which would
otherwise be the responsibility of the Compensation Committee.
GRANT OF STOCK OPTIONS
With respect to the grant of stock options under the 1999 Stock Option Plan
that are intended to qualify as incentive stock options under Section 422 of the
Code, the option price must be at least 100% (or 110% in the case of any holder
of more than 10% of the voting power of the Corporation) of the fair market
value of the Corporation's Common Stock on the date of the grant of the stock
option. The aggregate fair market value (determined on the date of grant) of the
shares of stock subject to incentive stock options that become exercisable for
the first time by a grantee in any calendar year may not exceed $100,000. The
Compensation Committee establishes the exercise price of nonqualified stock
options at the time the options are granted.
The number and class of shares subject to an option will be adjusted by the
Compensation Committee in the event of stock splits, stock dividends,
recapitalizations and certain other events involving a change in the
Corporation's capital.
During the time that the 1999 Stock Option Plan has been in effect, the
Named Executive Officers have received options to purchase the indicated numbers
of shares of Common Stock as follows: Dr. Brown, Chairman, President and Chief
Executive Officer--none; Mr. Gibbs, Executive Vice President of Administration
and Corporate Development and Treasurer--none; Mr. Fleming, Vice President of
Sales, The Americas--7,500; Mr. Ford, Vice President of Operations, Europe,
Middle East and Africa--5,000; Mr. Shinsato, Vice President of Operations,
Asia/Pacific--none. All current executive officers as a group have been granted
options under the 1999 Stock Option Plan to purchase 106,250 shares of Common
Stock. Additionally, options totaling 393,300 shares have been received by all
employees of the Corporation as a group, other than executive officers, pursuant
to the 1999 Stock Option Plan. The preceding numbers represent all option grants
pursuant to the 1999 Stock Option Plan up to February 29, 2000, including
options which have been forfeited or canceled. None of the current Directors who
are not executive officers or the nominee for Director has been granted any
options to purchase shares of Common Stock under the 1999 Stock Option Plan.
EXERCISE OF STOCK OPTIONS
No incentive stock option granted under the 1999 Stock Option Plan may be
exercised more than ten years, or five years in the case of any holder of more
than 10% of the voting power of the Corporation, (or such shorter period as the
Compensation Committee may determine) from the date it is granted or unless some
types of employment terminations require a shorter period. Nonqualified stock
options may be exercised during such period as the Compensation Committee
determines at the time of grant.
Except as otherwise determined by the Compensation Committee, stock options
granted under the 1999 Stock Option Plan become exercisable in 25% increments
annually, beginning on the first anniversary of the date of grant.
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Unless otherwise determined by the Compensation Committee, generally if a
grantee's employment with the Corporation or a subsidiary is terminated for
cause, such grantee's options expire at the date of termination. Generally, if a
grantee's employment is terminated voluntarily by the grantee for any reason
other than death or disability, or by reason of retirement, the grantee may
exercise any vested options within the one-month period immediately following
the date of termination. With respect to any option that is not exercisable on
the date a grantee's employment with the Corporation or a subsidiary is
terminated, that option shall terminate and be forfeited effective on such date.
RESTRICTED STOCK
Incentive awards may be made in the form of restricted stock, in which case
the participant would be granted shares of the Corporation's Common Stock, which
shares would be subject to such forfeiture provisions and transfer restrictions
as the Compensation Committee determined at the time of grant. Pending the lapse
of such forfeiture provisions and transfer restrictions, certificates
representing restricted stock would be held by the Corporation, but the grantee
generally would have all of the rights of a shareholder, including the right to
vote the shares and the right to receive all dividends thereon.
While restricted stock would be subject to forfeiture provisions and
transfer restrictions for a period or periods of time, the 1999 Stock Option
Plan does not set forth any minimum or maximum duration for such provisions and
restrictions. It is expected that the terms of restricted stock awards
ordinarily will provide that the restricted stock will be forfeited to the
Corporation if the grantee ceases to be employed by the Corporation prior to the
lapse of the forfeiture provisions and transfer restrictions, subject to
exceptions for death, disability or retirement while employed by the
Corporation. The Compensation Committee has the discretion to determine whether
an award of restricted stock will vest upon the lapse of certain time period(s)
or upon the achievement of specified performance goals (if intended to qualify
as "performance-based compensation" under Section 162(m) of the Code). The
business criteria for performance goals may be one or more of the return on
equity, total revenues, net earnings or earnings per share of the Corporation
for a calendar year as selected by the Compensation Committee.
As of the date of this Proxy Statement, the Corporation has not made any
awards of restricted stock.
PAYMENT FOR SHARES; LOANS BY THE CORPORATION
The Compensation Committee may permit payment of the exercise price of stock
options to be made in cash, by the surrender of Common Stock valued at its then
fair market value, through a cashless exercise or by such other means (including
a combination of stock so valued and cash) as it deems appropriate.
The 1999 Stock Option Plan empowers the Corporation to make loans to
grantees in connection with the exercise of stock options or the ownership of
restricted stock, up to the following amounts:
(1) With respect to the exercise of stock options, the sum of the exercise
price and the amount of income taxes reasonably estimated to be payable
by the grantee in connection with such exercise; or
(2) With respect to restricted stock, the amount of income taxes reasonably
estimated to be payable by the grantee in connection with the ownership
of the restricted stock.
Loans made under the terms of the 1999 Stock Option Plan bear interest at
such rates as the Corporation shall impose from time to time. No loan may have
an initial term exceeding three years, but the loan may be renewed at the
discretion of the Compensation Committee. With the consent of
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the Compensation Committee, loans may be repaid in shares of Common Stock at
their then fair market value. Loans may, but are not required to be, secured by
shares of Common Stock.
MISCELLANEOUS PROVISIONS
Except in the case of grants of restricted stock which are intended to
qualify as "performance-based compensation" under Section 162(m) of the Code,
the Compensation Committee may accelerate the period of exercise or vesting of
any incentive award, either absolutely or contingently, for such reasons as the
Compensation Committee may deem appropriate.
Unless otherwise provided by the Compensation Committee, upon the occurrence
of a change in control of the Corporation, the forfeiture provisions and
transfer restrictions applicable to any shares of restricted stock shall lapse
and all options granted under the 1999 Stock Option Plan shall become
exercisable in full.
AMENDMENT OF THE PLAN
The Board may at any time terminate or amend the 1999 Stock Option Plan. No
amendments to the 1999 Stock Option Plan will require shareholder approval
unless such approval is required by applicable law or the requirements of The
Nasdaq Stock Market, or unless the change involves some types of increases in
the number of shares subject to the 1999 Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1999 Stock Option Plan. The summary is based on
current federal income tax laws and interpretations thereof, all of which are
subject to change at any time, possibly with retroactive effect. The summary is
not intended to be exhaustive.
LIMITATION ON AMOUNT OF DEDUCTION. The Corporation generally will be
entitled to a tax deduction for awards under the 1999 Stock Option Plan only to
the extent that the participants recognize ordinary income from the award.
Section 162(m) of the Code contains special rules regarding the federal income
tax deductibility of compensation paid to the Corporation's Chief Executive
Officer and to each of the other four most highly compensated executive officers
of the Corporation. The general rule is that annual compensation paid to any of
these specified executives will be deductible only to the extent that it does
not exceed $1,000,000 or it qualifies as "performance-based compensation" under
Section 162(m). The 1999 Stock Option Plan has been designed to permit the
Compensation Committee to grant awards which qualify for deductibility under
Section 162(m).
TAXATION OF ORDINARY INCOME AND CAPITAL GAINS. Subject to certain
exceptions, the maximum rate of tax on net capital gains from the sale or
exchange of capital assets is 20%. "Net capital gain" is the excess of net
long-term capital gain over net short-term capital loss. Short-term capital
gains are taxed at the same rates applicable to ordinary income. Gains or losses
from the sale or exchange of capital assets will be "long term" if the capital
asset was held for more than one year and "short term" if the capital asset was
held for one year or less. For taxpayers with certain income levels, the
marginal tax rate applicable to ordinary income can range up to 39.6%. The
classification of income as ordinary income or capital gain is also relevant for
income tax purposes for taxpayers who have capital losses and investment
interest.
NONQUALIFIED STOCK OPTIONS. An employee who is granted a nonqualified
option does not recognize taxable income upon the grant of the option, and the
Corporation is not entitled to a tax deduction. The employee will recognize
ordinary income upon the exercise of the option in an amount equal to the excess
of the fair market value of the option shares on the exercise date over the
option price. Such income will be treated as compensation to the employee
subject to applicable withholding
23
requirements. The Corporation is generally entitled to a tax deduction in an
amount equal to the amount taxable to the employee as ordinary income in the
year the income is taxable to the employee.
The employee may also be required to recognize gain or loss upon the sale of
the option shares. If the selling price of the option shares exceeds the
employee's basis in the shares, the employee will recognize long-term capital
gain if the option shares were held for more than one year, and short-term
capital gain if the shares were held for one year or less. If the selling price
of the option shares is less than the employee's basis in the shares, the
employee will recognize long-term or short-term capital loss depending on how
long the shares were held. The employee's basis in the option shares will equal
the amount of ordinary income recognized by the employee upon exercise of the
option, plus any cash paid to exercise the option.
INCENTIVE STOCK OPTIONS. An employee who receives an incentive stock option
does not recognize taxable income upon the grant or exercise of the option, and
the Corporation is not entitled to a tax deduction. The difference between the
option price and the fair market value of the option shares on the date of
exercise, however, will be treated as a tax preference item for purposes of
determining the alternative minimum tax liability, if any, of the employee in
the year of exercise. The Corporation will not be entitled to a deduction with
respect to any item of tax preference.
An employee will recognize gain or loss upon the disposition of shares
acquired from the exercise of incentive stock options. The nature of the gain or
loss depends on how long the option shares were held. If the option shares are
not disposed of pursuant to a "disqualifying disposition" (I.E., no disposition
occurs within two years from the date the option was granted nor one year from
the date of exercise), the employee will recognize long-term capital gain or
capital loss depending on the selling price of the shares. If option shares are
sold or disposed of as part of a disqualifying disposition, the employee must
recognize ordinary income in an amount equal to the lesser of the amount of gain
recognized on the sale, or the difference between the fair market value of the
option shares on the date of exercise and the option price. Any additional gain
will be taxable to the employee as a long-term or short-term capital gain,
depending on how long the option shares were held. The Corporation is generally
entitled to a deduction in computing its federal income taxes for the year of
disposition in an amount equal to any amount taxable to the employee as ordinary
income.
RESTRICTED STOCK. An employee who receives an award of restricted stock
generally will not recognize taxable income at the time of the award, nor will
the Corporation be entitled to a tax deduction at that time, unless the employee
makes an election under Section 83(b) of the Code to recognize the income upon
the receipt of the restricted stock. If the election is not made, the employee
will recognize ordinary income at such time as the transfer and forfeiture
restrictions applicable to such stock lapse, in an amount equal to the aggregate
fair market value of the shares, as of the date such restrictions lapsed. The
Corporation is generally entitled to a deduction in computing its federal income
taxes in an amount equal to the ordinary income taxable to the employee. Such
deduction would be available in the year in which the income is taxable to the
employee. Upon disposition of the shares, any amount received in excess of the
fair market value of the shares on the date such restrictions lapsed would be
treated as long-term or short-term capital gain, depending upon the employee's
holding period following such lapse. Dividends or other distributions of
property (other than a distribution of Common Stock of the Corporation) with
respect to restricted stock prior to the lapse of the transfer and forfeiture
restrictions related thereto would constitute ordinary income to the employee
and the Corporation would be entitled to a deduction at the same time and in the
same amount.
Pursuant to the provisions of Section 83(b) of the Code, an employee who
receives restricted stock may elect to be taxed at the time of the award. If the
employee so elects, the full value of the shares (without regard to
restrictions) at the time of the grant, less any amount paid by the employee,
will be taxed to the participant as ordinary income and will be deductible by
the Corporation. Dividends paid
24
with respect to the shares during the period of restriction will be taxable as
dividends to the participant and not deductible by the Corporation. If, after
making an election pursuant to Section 83(b), any shares are subsequently
forfeited, the employee will be entitled to a capital loss deduction.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL
OF THE 1999 STOCK OPTION AND INCENTIVE PLAN.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act, the Corporation's executive
officers, Directors and holders of more than ten percent of the Corporation's
outstanding shares ("Insiders") file reports (on prescribed forms) of their
beneficial ownership of the Corporation's stock with the Securities and Exchange
Commission and furnish copies of such forms to the Corporation. Based solely on
a review of the copies of such forms furnished to the Corporation, or written
representations that no Form 5 was required to be filed, the Corporation
believes that, during its fiscal year commencing January 1, 1999, and ending
December 31, 1999, all Forms 3, 4 and 5 required by Section 16(a) to be filed by
Insiders were filed on a timely basis.
RELATIONSHIP WITH INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of the Corporation, on the recommendation of the
Audit Committee, has reappointed Ernst & Young LLP as the Corporation's
independent certified public accountants for the calendar year ending
December 31, 2000. This accounting firm has audited the financial statements of
the Corporation continuously since calendar year 1995. Representatives of
Ernst & Young LLP will be present at the Annual Meeting of Shareholders, will
have the opportunity to make any statements they desire and may respond to
appropriate questions.
OTHER BUSINESS AT THE ANNUAL MEETING OF SHAREHOLDERS
The Board of Directors is not aware of any business which properly may be
presented for action at the meeting other than the matters set forth in the
Notice of Annual Meeting. Should any other matter requiring a vote of the
shareholders properly arise, the enclosed proxy gives discretionary authority to
the persons named in the proxy to vote on such matters in accordance with their
best judgment.
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DATE OF RECEIPT OF SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
All shareholder proposals intended for inclusion in the Corporation's 2001
proxy materials and for presentation at the Corporation's 2001 Annual Meeting of
Shareholders must be received by the Corporation (Attn: Corporate Secretary) at
the principal executive offices of the Corporation not later than December 11,
2000. In addition, the Corporation's By-Laws establish procedures for
shareholder nominations for election of Directors and bringing business before
the Annual Meeting of the Corporation's shareholders. Among other requirements,
to bring business before the 2001 Annual Meeting or to nominate a person for
election as a Director, a shareholder must give written notice to the Secretary
of the Corporation not less than 90 days nor more than 120 days prior to
May 16, 2001. However in the event the 2001 Annual Meeting is advanced by more
than 30 days or delayed by more than 60 days from May 16, 2001, the written
notice must be delivered not earlier than the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. The notice must contain
certain information concerning the proposed business or the nominee and the
shareholder making the proposal. Any shareholder interested in making a
nomination or proposal should request a copy of the applicable By-Law provisions
from the Secretary of the Corporation.
By order of the Board of Directors,
Interactive Intelligence, Inc.
/s/ Michael J. Tavlin
Michael J. Tavlin
CORPORATE SECRETARY
Indianapolis, Indiana
April 10, 2000
26
APPENDIX A
INTERACTIVE INTELLIGENCE, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. DESIGNATION AND PURPOSE OF PLAN. The name of this Plan is the
Interactive Intelligence, Inc. Employee Stock Purchase Plan. The purpose of the
Plan is to provide incentives, through the ownership of Company common stock,
for employees to enhance Company performance through their services. The Plan is
intended to comply, and should be interpreted where possible to comply, with the
terms of Code section 423.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms, when
capitalized, have the following meanings:
(a) "Agent" means Norwest Bank Minnesota, N.A., or any successor agent
selected by the Company.
(b) "Beneficiary" means, with respect to a Participant, the individual
or estate designated, pursuant to Section 11, to receive the Participant's
Payroll Deduction Account balance and Investment Account assets in the event
of the Participant's death.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and its interpretive rules and regulations.
(e) "Committee" means the Employee Stock Purchase Plan Committee
established pursuant to Section 12 to administer the Plan.
(f) "Common Stock" means the Company's common stock, $0.01 par value.
(g) "Company" means Interactive Intelligence, Inc. and any successor by
merger, consolidation or otherwise.
(h) "Compensation" means, with respect to an Eligible Employee for a
calendar year, the Eligible Employee's wages, salary, commissions, bonuses,
and other remuneration for services, including salary reduction
contributions pursuant to elections under a plan subject to Code
sections 125 or 401(k).
(i) "Designated Subsidiary" means any Subsidiary of the Company that is
designated from time to time by the Committee to permit the employees of
that Subsidiary to participate in the Plan.
(j) "Effective Date" means April 1, 2000, subject to approval of the
Plan by the Company's shareholders within 12 months of the Plan's adoption.
(k) "Eligible Employee" means any employee of the Company or any
Designated Subsidiary that meets the eligibility requirements of Section 4.
(l) "Enrollment Form" means the form filed with the Committee
authorizing payroll deductions pursuant to Section 5.
(m) "Entry Date" means the first day of each calendar quarter that
coincides with or follows the Effective Date.
(n) "Fair Market Value" means, with respect to any Investment Date, the
lower closing price, as reported on The Nasdaq Stock Market, on the first or
last business day of the immediately preceding calendar quarter.
(o) "Investment Account" means the account established for each
Participant to hold Common Stock purchased under the Plan pursuant to
Section 6.
(p) "Investment Date" means the first business day of each calendar
quarter after the Effective Date, on which shares of Common Stock are or
could be traded on The Nasdaq Stock Market.
(q) "Participant" means an Eligible Employee who elects to participate
in the Plan by filing an Enrollment Form pursuant to Section 5 and who has
not ceased to participate in the Plan pursuant to Section 10.
(r) "Payroll Deduction Account" means the account established for a
Participant to hold payroll deductions pursuant to Section 5.
(s) "Plan" means this instrument and the employee stock purchase plan
established by this instrument.
(t) "Purchase Price" means the price for each whole and fractional share
of Common Stock, including those purchased by dividend reinvestment, which
shall be 85% of the Fair Market Value of such whole or fractional share as
of the Investment Date.
(u) "Subsidiary" means any corporation which is a "subsidiary
corporation" of the Company as such term is defined in Section 424 of the
Code.
SECTION 3. SHARES RESERVED FOR THE PLAN. The Company shall reserve for
issuance and purchase by employees under the Plan an aggregate of 500,000 shares
of Common Stock, subject to adjustment as provided in Section 14. Shares subject
to the Plan shall be authorized but unissued shares, treasury shares or shares
purchased on the open market or in private transactions. Shares needed to
satisfy the Plan may be acquired from the Company or by purchases at the
Company's expense on the open market or in private transactions.
SECTION 4. ELIGIBLE EMPLOYEES. All employees of the Company or any
Designated Subsidiary are eligible to participate in the Plan, except the
following:
(a) any employee who had not been employed for more than 30 days prior
to the Entry Date;
(b) any employee whose customary employment is 20 hours or less per
week; and
(c) any employee whose customary employment is for not more than
5 months in a calendar year.
SECTION 5. ELECTION TO PARTICIPATE. Each Eligible Employee may become a
Participant on the Entry Date that coincides with or follows the date he first
becomes an Eligible Employee, by complying with this Section.
(a) The Eligible Employee shall file with the Committee an Enrollment
Form authorizing specified regular payroll deductions from his Compensation.
(b) Regular payroll deductions shall be subject to a minimum deduction
of 1% and a maximum deduction of 20% of Compensation for the payroll period
and to a maximum deduction per payroll period of $1000.
(c) The Company shall hold all payroll deduction amounts as part of its
general assets, but shall credit each Participant's payroll deduction
amounts, without interest, to a Payroll Deduction Account in his name.
(d) To begin participation as of an Entry Date, an Eligible Employee
must file his Enrollment Form with the Committee not less than 14 days
before that Entry Date, unless a shorter period of time is prescribed by the
Committee. An Enrollment Form not filed within the prescribed filing period
shall be effective the second Entry Date following the filing of the
Enrollment Form.
A-2
(e) A Participant may increase or decrease his payroll deduction,
effective as of the next Entry Date, by filing a new Enrollment Form.
(f) At any time during the first 2 1/2 months of a calendar quarter, a
Participant may elect to terminate his payroll deductions and receive a
refund of the balance in his Payroll Deduction Account accumulated during
that calendar quarter. In that event, he shall not again become a
Participant until the second Entry Date following his election to terminate.
SECTION 6. PARTICIPANT PURCHASES AND INVESTMENT ACCOUNTS. On each
Investment Date, each Participant shall be deemed, without further action, to
have purchased shares of Common Stock with the entire balance in his Payroll
Deduction Account, and the Agent shall credit the purchased shares to the
Participant's Investment Account.
(a) The Participant shall be credited with the number of whole and
fractional shares (rounded to three decimal places) that his Payroll
Deduction Account balance can purchase at the Purchase Price on that
Investment Date.
(b) All dividends paid with respect to the whole and fractional shares
of the Common Stock and shares so purchased shall be reinvested in Common
Stock and added to the shares held for a Participant in his Investment
Account.
(c) Expenses incurred in the purchase of shares and the expenses of the
Agent shall be paid by the Company.
SECTION 7. LIMITATION ON PURCHASES. Participant purchases are subject to
the following limitations:
(a) During any one calendar year, a Participant may not purchase, under
the Plan or under any other plan qualified under Code section 423, shares of
Common Stock having a Fair Market Value (determined by reference to the Fair
Market Value on each date of purchase) in excess of $25,000.
(b) During any one calendar year, all Participants who are corporate
officers of the Company may not purchase, in the aggregate, more than 50% of
the Common Stock purchased under the Plan during that calendar year.
(c) A Participant's Payroll Deduction Account may not be used to
purchase Common Stock on any Investment Date to the extent that, after such
purchase, the Participant would own (or be considered as owning within the
meaning of Code section 424(d)) stock possessing 5% or more of the total
combined voting power of the Company. For this purpose, stock that the
Participant may purchase under any outstanding option shall be treated as
owned by such Participant. As of the first Investment Date on which this
paragraph limits a Participant's ability to purchase Common Stock, the
Participant's payroll deductions shall terminate, and he shall receive a
refund of the balance in his Payroll Deduction Account.
SECTION 8. STOCK PURCHASES BY AGENT. As of each Investment Date, the Agent
shall acquire, using the accumulated balances of all Participants' Payroll
Deduction Accounts, shares of Common Stock to be credited to those Participants'
Investment Accounts.
(a) The Agent shall acquire shares issued or held as treasury shares by
the Company or, if directed by the Committee, by purchases on the open
market or in private transactions.
(b) If shares are purchased in one or more transactions on the open
market or in private transactions at the direction of the Committee, the
Company will pay the Agent the difference between the Purchase Price and the
price at which such shares are purchased for Participants.
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SECTION 9. INVESTMENT ACCOUNT WITHDRAWALS. Upon 5 business days advance
written notice to the Agent, a Participant may elect as of any Investment Date
to withdraw the assets in his Investment Account.
(a) The Participant may elect to obtain a certificate for the whole
shares of Common Stock credited to his Investment Account. As a condition of
participation in the Plan, each Participant agrees to notify the Company if
he sells or otherwise disposes of any of his shares of Common Stock within
two years of the Entry Date immediately preceding the Investment Date on
which such shares were purchased.
(b) The Participant may elect that all shares in his Investment Account
be sold and that the proceeds, less expenses of sale, be remitted to him.
(c) In either event, the Agent will sell any fractional shares held in
the Investment Account and remit the proceeds of such sale, less selling
expenses, to the Participant.
(d) If a Participant withdraws the assets in his Investment Account, he
shall cease to be a Participant and shall not again become a Participant
until the second Entry Date following the withdrawal.
SECTION 10. CESSATION OF PARTICIPATION. If a Participant dies, terminates
employment, or withdraws assets from his Investment Account, he shall cease to
participate in the Plan, the Company shall refund the balance in his Payroll
Deduction Account, and the Agent shall distribute the assets in his Investment
Account.
(a) In the event of the Participant's death, his Payroll Deduction
Account balance and his Investment Account assets shall be distributed to
his Beneficiary.
(b) If the Participant terminates employment, his Payroll Deduction
Account balance and his Investment Account assets shall be distributed to
him.
(c) Upon distribution, the Participant or, in the event of his death,
his Beneficiary may elect to obtain a certificate for the whole shares of
Common Stock credited to the Participant's Investment Account or may elect
that any whole shares in his Investment Account be sold. In that event, the
Agent will sell such whole shares and any fractional shares held in the
Investment Account and remit the proceeds of such sale, less selling
expenses.
SECTION 11. BENEFICIAL INTERESTS IN PLAN. Each Payroll Deduction Account
and each Investment Account shall be in the name of the Participant. A
Participant may designate a Beneficiary to receive his interests in both
accounts in the event of his death by complying with procedures prescribed by
the Committee. If a Participant dies without having designated a Beneficiary, or
if the Beneficiary does not survive the Participant, the Participant's estate
shall be his Beneficiary.
SECTION 12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Employee Stock Purchase Plan Committee.
(a) The Committee shall consist of not less than three members appointed
by the Board. The Board from time to time may fill vacancies in the
Committee.
(b) Subject to the express provisions of the Plan, the Committee shall
have the authority to take any and all actions (including directing the
Agent as to the acquisition of shares) necessary to implement the Plan and
to interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations necessary or advisable
in administering the Plan. All of such determinations shall be final and
binding upon all persons.
(c) A quorum of the Committee shall consist of a majority of its members
and the Committee may act by vote of a majority of its members at a meeting
at which a quorum is present, or without a meeting by a written consent to
their action taken signed by all members of the Committee.
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(d) The Committee may request advice or assistance or employ such other
persons as are necessary for proper administration of the Plan.
SECTION 13. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not
transferable by a Participant.
SECTION 14. CHANGE IN CAPITAL STRUCTURE. Despite anything in the Plan to
the contrary, the Committee may take the following actions without the consent
of any Participant or Beneficiary, and the Committee's determination shall be
conclusive and binding on all persons for all purposes.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but
not limited to, the creation or issuance to shareholders generally of
rights, options or warrants for the purchase of common stock or preferred
stock of the Company), the number and kind of shares of stock or securities
of the Company to be subject to the Plan, the maximum number of shares or
securities which may be delivered under the Plan, the selling price and
other relevant provisions shall be appropriately adjusted by the Committee,
whose determination shall be binding on all persons.
(b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in
the acquisition of substantially all of the Company's outstanding stock by a
single person or entity, or a sale or transfer of substantially all of the
Company's assets, the Committee may take such actions with respect to the
Plan as the Committee deems appropriate.
SECTION 15. AMENDMENT OF THE PLAN. The Board may at any time, or from time
to time, amend the Plan in any respect. The shareholders of the Company,
however, must approve any amendment that would increase the number of shares of
Common Stock that may be issued under the Plan (other than an increase merely
reflecting a change in capitalization of the Company) or a change in the
designation of any corporations (other than a Subsidiary) whose employees become
Eligible Employees under the Plan.
SECTION 16. TERMINATION OF THE PLAN. The Plan and all rights of employees
and beneficiaries under the Plan shall terminate:
(a) on the Investment Date that Participants become entitled to purchase
a number of shares greater than the number of reserved shares remaining
available for purchase; or
(b) at any date at the discretion of the Board.
In the event that the Plan terminates under circumstances described in
(a) above, reserved shares remaining as of the termination date shall be issued
to Participants on a prorata basis. Upon termination of the Plan, each
Participant shall receive the balance in his Payroll Deduction Account and all
shares in his Investment Account.
SECTION 17. INDEMNIFICATION OF COMMITTEE. Members of the Committee shall
be entitled to indemnification and reimbursement to the same extent applicable
to directors of the Company pursuant to its Articles of Incorporation and
Bylaws.
SECTION 18. GOVERNMENT REGULATIONS. The Plan, the grant and exercise of
the rights to purchase shares under the Plan, and the Company's obligation to
sell and deliver shares upon the exercise of rights to purchase shares, shall be
subject to all applicable federal, state and foreign laws, rules and
regulations, and to such approvals by any regulatory or government agency as
may, in the opinion of counsel for the Company, be required.
INTERACTIVE INTELLIGENCE, INC. has caused this Interactive
Intelligence, Inc. Employee Stock Purchase Plan to be adopted as of April 1,
2000.
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APPENDIX B
INTERACTIVE INTELLIGENCE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
(RESTATED TO REFLECT ALL AMENDMENTS ADOPTED THROUGH FEBRUARY 22, 2000)
1. PLAN PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Company and its shareholders by providing a means for
attracting and retaining officers and key employees of the Company and its
Affiliates.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"Affiliate"--means any "parent corporation" or "subsidiary corporation" of
the Company as such terms are defined in Section 424(e) and (f), respectively,
of the Code and any other corporation or other entity (including partnerships,
limited liability companies, and joint ventures) controlled by or under common
control with the Company.
"Award"--means, individually or collectively, the grant by the Committee of
an Incentive Stock Option, a Non-Qualified Stock Option, or Restricted Stock, or
any combination thereof, as provided in the Plan.
"Board or Board of Directors"--means the Board of Directors of the Company.
"Cashless Exercise"--means, if there is a public market for the Shares, the
payment of the Exercise Price (a) through a "same day sale" commitment from the
Participant and an NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased in order to
pay the Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such stock to forward the Exercise Price directly to the Company, or
(b) through a "margin" commitment from the Participant and an NASD Dealer
whereby the Participant irrevocably elects to exercise the Option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company.
"Cause"--means, for purposes of determining whether and when a Participant
has incurred a Termination of Continuous Service for Cause, any act or failure
to act which permits the Company to terminate the written agreement or
arrangement between the Participant and the Company or an Affiliate for "cause"
as defined in such agreement or arrangement or, in the event there is no such
agreement or arrangement or the agreement or arrangement does not define the
term "cause," then "Cause" for purposes of the Plan shall mean any act or
failure to act deemed to constitute "cause" under the Company's established and
applied practices, policies or guidelines applicable to the Participant.
"Change in Control"--means each of the events specified in the following
clauses (i) through (iii): (i) any third person, including a "group" as defined
in Section 13(d)(3) of the Exchange Act shall, after the date of the adoption of
the Plan by the Board, first become the beneficial owner of Shares of the
Company with respect to which 25% or more of the total number of votes for the
election of the Board of Directors of the Company may be cast, (ii) as a result
of, or in connection with, any cash tender offer, exchange offer, merger or
other business combination, sale of assets or contested election, or combination
of the foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board of Directors of the Company or (iii) the
stockholders of the Company shall approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly owned
entity or for a sale or other disposition of all or substantially all the assets
of the Company.
"Code"--means the Internal Revenue Code of 1986, as amended.
"Committee"--means the Committee referred to in Section 3 hereof.
"Company"--means Interactive Intelligence, Inc., an Indiana corporation.
"Continuous Service"--means the absence of any interruption or termination
of service as an employee of the Company or an Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Company or in the case of any transfer between
the Company and an Affiliate or any successor to the Company.
"Disability"--means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate. Notwithstanding the foregoing, a Disability shall not
qualify under the Plan if it is the result, as determined by the Committee, of
(a) an intentionally self-inflicted injury or an intentionally self-induced
sickness, or (b) an injury or disease contracted, suffered or incurred while
participating in a criminal offense. The determination of a Disability for
purposes of the Plan shall not be construed to be an admission of a disability
for any other purpose.
"Employee"--means any person, including an officer or director, who is
employed by the Company or any Affiliate.
"Exchange Act"--means the Securities Exchange Act of 1934, as amended.
"Exercise Price"--means the price per Share at which the Shares subject to
an Option may be purchased upon exercise of such Option.
"Incentive Stock Option"--means an option to purchase Shares granted by the
Committee pursuant to the terms of the Plan which is intended to qualify under
Section 422 of the Code.
"Market Value"--means the last reported sale price on the date in question
(or, if there is no reported sale on such date, on the last preceding date on
which any reported sale occurred) of one Share on the principal exchange on
which the Shares are listed for trading, or if the Shares are not listed for
trading on any exchange, on the NASDAQ National Market System or any similar
system then in use, or, if the Shares are not listed on the NASDAQ National
Market System, the mean between the closing high bid and low asked quotations of
one Share on the date in question as reported by NASDAQ or any similar system
then in use, or, if no such quotations are available, the fair market value on
such date of one Share as the Committee shall determine.
"NASD Dealer"--means a broker-dealer who is a member of the National
Association of Securities Dealers, Inc.
"Non-Qualified Stock Option"--means an option to purchase Shares granted by
the Committee pursuant to the terms of the Plan, which option is not intended to
qualify under Section 422 of the Code.
"Option"--means an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant"--means any officer, key employee, or consultant of the Company
or any Affiliate or any other individual who is selected by the Committee to
receive an Award.
"Plan"--means the Interactive Intelligence, Inc. 1999 Stock Option and
Incentive Plan, as set forth in this instrument and as hereafter amended from
time to time.
"Reorganization"--means the liquidation or dissolution of the Company or any
merger, consolidation or combination of the Company (other than a merger,
consolidation or combination in which the Company is the continuing entity and
which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property or any combination
thereof).
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"Restricted Period"--means the period of time selected by the Committee for
the purpose of determining when restrictions are in effect under Section 10
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock"--means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in
Section 10 hereof, so long as such restrictions are in effect.
"Retirement"--means the date on which a Participant attains age sixty-five
(65) or such other "normal retirement age" as the Company shall specify in its
written policies.
"Securities Act"--means the Securities Act of 1933, as amended.
"Shares"--means the common stock, $.01 par value, of the Company and shall
include common stock as it may be changed from time to time as described in
Section 11 hereof.
"Termination of Continuous Service"--means the occurrence of any act or
event or any failure to act whether pursuant to an employment agreement or
otherwise that actually or effectively causes or results in a Participant
ceasing, for whatever reason, to be an Employee of the Company or an Affiliate,
including, but not limited to, death, Disability, Retirement, termination by the
Company or an Affiliate of the Participant's employment with the Company or an
Affiliate (whether with or without Cause), and voluntary resignation or
termination by the Participant of his or her employment with the Company or an
Affiliate. A Termination of Continuous Service also shall occur with respect to
an Employee who is employed by an Affiliate if the Affiliate shall cease to be
an Affiliate of the Company and the Participant shall not immediately thereafter
become an Employee of the Company or another Affiliate. For purposes of the
Plan, transfers or changes of employment of a Participant between the Company
and an Affiliate (or between Affiliates) shall not be deemed a Termination of
Continuous Service.
3. ADMINISTRATION. The Plan shall be administered by the Committee, which
shall consist of two or more members of the Board, each of whom shall be a
"non-employee director" as provided under Rule 16b-3 of the Exchange Act, and an
"outside director" as provided under Section 162(m) of the Code. Failure by the
Committee to be so comprised shall not result in the cancellation, termination,
expiration, or lapse of any Award. The members of the Committee shall be
appointed by the Board. If the Committee does not exist, or for any other reason
determined by the Board, the Board may take any action under the Plan that would
otherwise be the responsibility of the Committee. Except as limited by the
express provisions of the Plan, the Committee shall have sole and complete
authority and discretion to (a) select Participants and grant Awards;
(b) determine the number of Shares to be subject to and the types of Awards
generally, as well as to individual Awards granted under the Plan;
(c) determine the terms and conditions upon which Awards shall be granted under
the Plan; (d) prescribe the form and terms of instruments evidencing such
grants; (e) establish procedures and regulations for the administration of the
Plan; (f) construe and interpret the Plan, any Award agreement executed in
connection therewith, and any other agreements or instruments entered into under
the Plan; (g) make all determinations deemed necessary or advisable for the
administration of the Plan; and (h) establish, amend, or waive rules and
regulations for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all members of the Committee without a meeting,
shall be acts of the Committee. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law. Each Award shall be evidenced by a written agreement between the Company
and the Participant and shall contain such terms and conditions established by
the Committee consistent with the provisions of the Plan. Any notice or document
required to be given to or filed with the Committee will be properly given or
filed if hand
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delivered (and a delivery receipt is received) or mailed by certified mail,
return receipt requested, postage paid, to the Committee at 8909 Purdue Road,
Suite 300, Indianapolis, Indiana 46268.
4. PARTICIPANTS. The Committee may select from time to time Participants
from those officers, key employees and consultants of the Company or its
Affiliates and such other individuals who, in the opinion of the Committee, have
the capacity for contributing in a substantial measure to the successful
performance of the Company or its Affiliates. Neither the Plan nor any Award
agreement executed under the Plan shall constitute a contract of employment
between a Participant and the Company or an Affiliate, and participation in the
Plan shall not give a Participant the right to be rehired by or retained in the
employment of the Company or an Affiliate.
5. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation of
Sections 11 and 12 hereof, the maximum number of Shares with respect to which
Awards may be granted under the Plan is Three Million Seven Hundred Fifty
Thousand (3,750,000) Shares. The number of Shares which may be granted under the
Plan to any Participant during any calendar year of the Plan, under all forms of
Awards, shall not exceed Two Hundred Fifty Thousand (250,000) Shares. The Shares
with respect to which Awards may be made under the Plan may either be authorized
and unissued Shares or unissued Shares heretofore or hereafter reacquired and
held as treasury Shares. With respect to any Option which terminates or is
surrendered for cancellation or with respect to Restricted Stock which is
forfeited, new Awards may be granted under the Plan with respect to the number
of Shares as to which such termination or forfeiture has occurred.
Subject to the limitations set forth in the Plan, the Committee shall have
full authority to determine the number of Shares available for Awards, and in
its discretion may include (without limitation) as available for distribution
any Shares that have ceased to be subject to an Award, any Shares subject to an
Award that have been previously forfeited, and any Shares under an Award that
otherwise terminates without the issuance of Shares being made to a Participant.
Shares issued upon exercise of an Award shall be subject to the terms and
conditions specified herein and to such other terms, conditions and restrictions
as the Committee in its discretion may determine or provide in the Award
agreement. The Company shall not be required to issue or deliver any
certificates for Shares or other property prior to (a) the listing of such
Shares on any stock exchange (or other public market) on which the Shares may
then be listed (or regularly traded); and (b) the completion of any registration
or qualification of such Shares under federal, state, local or other law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable. The Company may cause any certificate for any Shares to
be delivered hereunder to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Shares as provided in the Plan or
as the Committee may otherwise require. Participants, or any other persons
entitled to benefits under the Plan, must furnish to the Committee such
documents, evidence, data, or other information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The benefits
under the Plan for each Participant, and each other person who is entitled to
benefits hereunder, are to be provided on the condition that he furnish full,
true, and complete data, evidence, or other information, and that he will
promptly sign any document reasonably related to the administration of the Plan
requested by the Committee. No fractional Shares shall be issued under the Plan;
rather, fractional Shares shall be aggregated and then rounded to the next lower
whole Share.
6. GENERAL TERMS AND CONDITIONS OF OPTIONS. The Committee shall have full
and complete authority and discretion, except as expressly limited by the Plan,
to grant Options and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (a) the type of Option; (b) the
Exercise Price; (c) the number of Shares subject to, and the expiration date of,
any Option; (d) the manner, time and rate (cumulative or otherwise) of exercise
of such Option; (e) the restrictions, if any, to be
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placed upon such Option or upon Shares which may be issued upon exercise of such
Option; and (f) such other terms and conditions consistent with the Plan as the
Committee determines in its discretion. The Committee may, as a condition of
granting any Option, require that a Participant agree to surrender for
cancellation one or more Options previously granted to such Participant.
7. EXERCISE OF OPTIONS.
(a) RESTRICTION ON EXERCISE. Except as provided in Section 14, all Options
granted under the Plan shall be exercisable during the lifetime of the
Participant to whom such Option was granted only by such Participant, and except
as provided in Section 8, no Option may be exercised unless, at the time the
Participant exercises the Option, the Participant has maintained Continuous
Service since the date of the grant of the Option. Except as provided in
Section 13, or as otherwise determined by the Committee, all Options granted
under the Plan shall vest and become exercisable in accordance with the
following schedule:
PERCENTAGE OF OPTION
SHARES VESTED AND
EXERCISABLE
---------------------------
DATE OF VESTING PERCENT VESTED CUMULATIVE
- --------------- -------------- ----------
First anniversary of date of Option grant............ 25% 25%
Second anniversary of date of Option grant........... 25% 50%
Third anniversary of date of Option grant............ 25% 75%
Fourth anniversary of date of Option grant........... 25% 100%
(b) METHOD OF EXERCISE. To exercise an Option under the Plan, the
Participant must give written notice to the Company specifying the number of
Shares with respect to which the Participant elects to exercise the Option
together with full payment of the Exercise Price. The date of exercise shall be
the date on which the notice is received by the Company. Payment may be made
either (i) in cash (including check, bank draft, or money order), (ii) by
tendering Shares already owned by the Participant for more than six months and
having a Market Value on the date of exercise equal to the Exercise Price,
(iii) the delivery of cash by a broker-dealer as a Cashless Exercise, or
(iv) by any other means determined by the Committee in its sole discretion.
(c) RELOAD PROVISION. In the event a Participant exercises an Option and
pays all or a portion of the Exercise Price in Shares, in the manner permitted
by Section 7(b), such Participant may (either pursuant to terms of the Award
agreement or pursuant to the sole discretion of the Committee at the time the
Option is exercised) be issued a new Option to purchase additional Shares equal
to the number of Shares surrendered to the Company in such payment. Such new
Option shall (a) have an Exercise Price equal to the Market Value per Share on
the grant date of the new Option, (b) first be exercisable six (6) months from
such grant date, and (c) expire on the same date as the original Option so
exercised by payment of the Exercise Price in Shares.
8. TERMINATION OF OPTIONS. Unless otherwise specifically provided by the
Committee in the Award agreement between the Participant and the Company, each
Option granted under the Plan shall terminate as provided in this Section 8.
(a) MAXIMUM TERM. Unless sooner terminated under the provisions of this
Section 8, Options shall expire on the earlier of the date specified by the
Committee or the expiration of ten (10) years from the date of grant.
(b) TERMINATION FOR CAUSE. If the Participant incurs a Termination of
Continuous Service for Cause, all rights under any Options granted to the
Participant shall terminate immediately upon the Participant's Termination of
Continuous Service, and the Participant shall (if the Committee in its sole
discretion exercises its rights under this Section 8(b) within ten (10) days of
such Termination of Continuous Service) repay to the Company within ten
(10) days of the Committee's demand therefor
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the amount of any gain realized by the Participant upon any exercise within the
90-day period prior to the Termination of Continuous Service of any Options
granted to such Participant under the Plan.
(c) TERMINATION DUE TO RETIREMENT OR WITHOUT CAUSE OR VOLUNTARY
TERMINATION. If the Continuous Service of a Participant is terminated by reason
of Retirement, terminated by the Company without Cause, or by Voluntary
Termination, the Participant may exercise outstanding Options to the extent that
the Participant was entitled to exercise the Options at the date of Termination
of Continuous Service, but only within the period of one (1) month immediately
succeeding the Participant's Termination of Continuous Service, and in no event
after the applicable expiration dates of the Options. Any Option that is not
exercisable on the date of Termination of Continuous Service shall terminate and
be forfeited effective on such date.
(d) TERMINATION DUE TO DEATH OR DISABILITY. In the event of the
Participant's death or Disability, the Participant or the Participant's
beneficiary, as the case may be, may exercise outstanding Options to the extent
that the Participant was entitled to exercise the Options at the date of
Termination of Continuous Service, but only within the one (1)-year period
immediately succeeding the Participant's Termination of Continuous Service in
the case of Disability, and in no event after the applicable expiration date of
the Options. Any Option that is not exercisable on the date of Termination of
Continuous Service shall terminate and be forfeited effective on such date.
(e) COMMITTEE DISCRETION. Notwithstanding the provisions of the foregoing
paragraphs of this Section 8, the Committee may, in its sole discretion,
establish different terms and conditions pertaining to the effect of the
Termination of Continuous Service, to the extent permitted by applicable federal
and state law.
9. INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only to
Participants who are Employees. Any provisions of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
(10) years from the date the Plan is adopted by the Board of Directors of the
Company and no Incentive Stock Option shall be exercisable more than ten
(10) years from the date such Incentive Stock Option is granted, (ii) the
Exercise Price of any Incentive Stock Option shall not be less than the Market
Value per Share on the date such Incentive Stock Option is granted, (iii) any
Incentive Stock Option shall not be transferable by the Participant to whom such
Incentive Stock Option is granted other than by will or the laws of descent and
distribution and shall be exercisable during such Participant's lifetime only by
such Participant, and (iv) no Incentive Stock Option shall be granted which
would permit a Participant to acquire, through the exercise of Incentive Stock
Options in any calendar year, Shares or Shares of any capital stock of the
Company or any Affiliate thereof having an aggregate Market Value (determined as
of the time any Incentive Stock Option is granted) in excess of One Hundred
Thousand Dollars ($100,000). The foregoing limitation shall be determined by
assuming that the Participant will exercise each Incentive Stock Option on the
date that such Option first becomes exercisable. Notwithstanding the foregoing,
in the case of any Participant who, at the date of grant, owns stock possessing
more than Ten Percent (10%) of the total combined voting power of all classes of
capital stock of the Company or any Affiliate, the Exercise Price of any
Incentive Stock Option shall not be less than One Hundred Ten Percent (110%) of
the Market Value per Share on the date such Incentive Stock Option is granted
and such Incentive Stock Option shall not be exercisable more than five
(5) years from the date such Incentive Stock Option is granted.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (g) of this Section 10, to provide such
other terms and conditions (which need not be identical among Participants) in
respect of such Awards as the Committee shall determine and provide in the
agreement referred to in paragraph (d) of this Section 10.
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(a) RESTRICTED PERIOD. At the time of an Award of Restricted Stock, the
Committee shall establish for each Participant a Restricted Period during which,
or at the expiration of which, the Shares of Restricted Stock shall vest. The
Committee may also restrict or prohibit the sale, assignment, transfer, pledge,
or other encumbrance of the Shares of Restricted Stock by the Participant during
the Restricted Period. Except for such restrictions, and subject to paragraphs
(c), (d) and (e) of this Section 10 and Section 11 hereof, the Participant as
owner of such Shares shall have all the rights of a stockholder, including but
not limited to the right to receive all dividends paid on such Shares and the
right to vote such Shares. Except in the case of grants of Restricted Stock
which are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, the Committee shall have the authority, in its
discretion, to accelerate the time at which any or all of the restrictions shall
lapse with respect to any Shares of Restricted Stock prior to the expiration of
the Restricted Period with respect thereto, or to remove any or all of such
restrictions, whenever it may determine that such action is appropriate by
reason of changes in applicable tax or other laws or other changes in
circumstances occurring after the commencement of such Restricted Period.
(b) LAPSE AND FORFEITURE. Except as provided in Section 13 hereof, if a
Participant incurs a Termination of Continuous Service for any reason (other
than death, Disability or Retirement), unless the Committee shall otherwise
determine, all Shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such Termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 10 shall
upon such Termination of Continuous Service be forfeited and returned to the
Company. If a Participant incurs a Termination of Continuous Service by reason
of death or Disability, then the restrictions with respect to the Ratable
Portion of the Shares of Restricted Stock shall lapse and such Shares shall be
free of restrictions and shall not be forfeited. The Ratable Portion shall be
determined with respect to each separate Award of Restricted Stock issued and
shall be equal to (i) the number of Shares of Restricted Stock awarded to the
Participant multiplied by the portion of the Restricted Period that expired at
the date of the Participant's death or Disability reduced by (ii) the number of
Shares of Restricted Stock awarded with respect to which the restrictions had
lapsed as of the date of the death or Disability of the Participant. Likewise,
on the date set forth in the applicable Award agreement, the Restricted Stock
for which restrictions have not lapsed by the last day of the Restricted Period
shall be forfeited and returned to the Company and thereafter shall be available
for the grant of new Awards under the Plan.
(c) LEGEND ON CERTIFICATES. Each certificate issued in respect of Shares
of Restricted Stock awarded under the Plan shall be registered in the name of
the Participant and deposited by the Participant, together with a stock power
endorsed in blank, with the Company and shall bear the following (or a similar)
legend:
"The sale, pledge or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary or by operation of law is
subject to the terms and conditions (including forfeiture) contained in the
Interactive Intelligence, Inc. 1999 Stock Option and Incentive Plan and an Award
agreement entered into between the registered owner and Interactive
Intelligence, Inc. Copies of such Plan and Award agreement are on file in the
office of the Secretary of Interactive Intelligence, Inc."
(d) AWARD AGREEMENT. At the time of an Award of Shares of Restricted
Stock, the Participant shall enter into an Agreement with the Company in a form
specified by the Committee, agreeing to the terms and conditions of the Award,
and to such other matters as the Committee shall in its sole discretion
determine.
(e) DIVIDEND RIGHTS. At the time of an Award of Shares of Restricted
Stock, the Committee may, in its discretion, determine that the payment to the
Participant of dividends declared or paid on such Shares by the Company or a
specified portion thereof, shall be deferred until the earlier to occur of
(i) the lapsing of the restrictions imposed under paragraph (a) of this
Section 10, or (ii) the
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forfeiture of such Shares under paragraph (b) of this Section 10, and shall be
held by the Company for the account of the Participant until such time. In the
event of such deferral, there shall be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends, together with interest accrued thereon as
aforesaid, shall be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
(f) LAPSE OF RESTRICTIONS. At the expiration of the restrictions imposed
by paragraph (a) of this Section 10, the Company shall redeliver to the
Participant (or where the relevant provision of paragraph (b) of this
Section 10 applies in the case of a deceased Participant, to his legal
representative, beneficiary or heir) the certificate(s) and stock power
deposited with it pursuant to paragraph (c) of this Section 10 and the Shares
represented by such certificate(s) shall be free of the restrictions referred to
in paragraph (a) of this Section 10. Notwithstanding any other provision of this
Section 10 and Section 12 to the contrary, in the case of grants of Restricted
Stock that are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, no Shares of Restricted Stock shall become vested
unless the performance goals with respect to such Restricted Stock shall have
been satisfied. If the vesting of Shares of Restricted Stock is accelerated
after the applicable performance goals have been met, the amount of Restricted
Stock distributed shall be discounted by the Committee to reasonably reflect the
time value of money in connection with such early vesting.
(g) SECTION 162(m) PERFORMANCE RESTRICTIONS. Notwithstanding any other
provision of this Section 10 to the contrary, for purposes of qualifying grants
of Restricted Stock as "performance-based compensation" under Section 162(m) of
the Code, the Committee shall establish restrictions based upon the achievement
of performance goals. The specific targets under the performance goals that must
be satisfied for the Restricted Period to lapse or terminate shall be set by the
Committee on or before the latest date permissible to enable the Restricted
Stock to qualify as "performance-based compensation" under Section 162(m) of the
Code. The business criteria for performance goals under this Section 10 shall be
one or more of the return on equity, total revenues, net earnings, or earnings
per share of the Company as selected by the Committee on, where applicable, a
consolidated basis, for a calendar year calculated in accordance with generally
accepted accounting principles consistently applied. In granting Restricted
Stock that is intended to qualify under Section 162(m), the Committee shall
follow any procedures determined by it in its sole discretion from time to time
to be necessary, advisable or appropriate to ensure qualification of the
Restricted Stock under Section 162(m) of the Code.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change
in the Shares by virtue of any stock dividends, stock splits, recapitalizations,
or reclassifications or any acquisition, merger, consolidation, share exchange,
tender offer, or other combination involving the Company that does not
constitute a Change in Control but that results in the acquisition of a
subsidiary by the Company, or in the event that other stock shall be substituted
for the Shares as the result of any merger, consolidation, share exchange, or
reorganization or any similar transaction which constitutes a Change in Control
of the Company, the Committee shall correspondingly adjust (a) the number, kind,
and class of Shares which may be delivered under the Plan; (b) the number, kind,
class, and price of Shares subject to outstanding Awards (except for mergers or
other combinations in which the Company is the surviving entity); and (c) the
numerical limits of Section 5, all in such manner as the Committee in its sole
discretion shall determine to be advisable or appropriate to prevent the
dilution or diminution of such Awards; provided, however, in no event shall the
One Hundred Thousand Dollar ($100,000) limit on Incentive Stock Options
contained in Section 9 be affected by an adjustment under this Section 11. The
Committee's determination in this respect shall be final and conclusive.
B-8
12. EFFECT OF REORGANIZATION. Awards will be affected by a Reorganization
as follows:
(a) If the Reorganization is a dissolution or liquidation of the Company
then (i) the restrictions of Section 10(a) on Shares of Restricted Stock shall
lapse, and (ii) each outstanding Option shall terminate, but each Participant to
whom the Option was granted shall have the right, immediately prior to such
dissolution or liquidation to exercise his Option in full, notwithstanding the
provisions of Section 9, and the Company shall notify each Participant of such
right within a reasonable period of time prior to any such dissolution or
liquidation.
(b) If the Reorganization is a merger or consolidation, upon the effective
date of such Reorganization (i) each Optionee shall be entitled, upon exercise
of his Option in accordance with all of the terms and conditions of the Plan, to
receive in lieu of Shares, Shares of such stock or other securities or
consideration as the holders of Shares shall be entitled to receive pursuant to
the terms of the Reorganization; and (ii) each holder of Restricted Stock shall
receive Shares of such stock or other securities as the holders of Shares
received which shall be subject to the restrictions set forth in Section 10(a)
unless the Committee accelerates the lapse of such restrictions and the
certificate(s) or other instruments representing or evidencing such Shares or
securities shall be legended and deposited with the Company in the manner
provided in Section 10 hereof.
The adjustments contained in this Section 12 and the manner of application
of such provisions shall be determined solely by the Committee.
13. EFFECT OF CHANGE IN CONTROL. Unless the Committee shall have otherwise
provided in the Award agreement reflecting the applicable Award, upon the
occurrence of a Change in Control (a) any Restricted Period with respect to
Restricted Stock theretofore awarded to a Participant shall lapse and all Shares
awarded as Restricted Stock shall become fully vested in the Participant to whom
such Shares were awarded and (b) all Options theretofore granted and not fully
exercisable shall become exercisable in full and shall remain so exercisable in
accordance with their terms; provided, however, that no Option which has
previously been exercised or otherwise terminated shall become exercisable.
14. ASSIGNMENTS AND TRANSFERS. Except as otherwise determined by the
Committee, no Award nor any right or interest of a Participant under the Plan in
any instrument evidencing any Award under the Plan may be assigned, encumbered,
or transferred except, in the event of the death of a Participant, by will or
the laws of descent and distribution.
15. EMPLOYEE RIGHTS UNDER PLAN. No officer, Employee or other person shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no officer, Employee or other person shall
have any claim or right to be granted an Award under the Plan or under any other
incentive or similar plan of the Company or any Affiliate. Neither the Plan nor
any action taken thereunder shall be construed as giving any Employee any right
to be retained in the employ of the Company or any Affiliate.
16. DELIVERY AND REGISTRATION OF STOCK. Except with respect to Restricted
Stock as provided in Section 10, no person shall have any rights of a
shareholder (including, but not limited to, voting and dividend rights) as to
Shares subject to an Option until, after proper exercise of the Option or other
action as may be required by the Committee in its discretion, such Shares shall
have been recorded on the Company's official shareholder records (or the records
of its transfer agents or registrars) as having been issued and transferred to
the Participant. Upon exercise of the Option or any portion thereof, the Company
will have a reasonable period in which to issue and transfer the Shares to the
Participant, and the Participant will not be treated as a shareholder for any
purpose whatsoever prior to such issuance and transfer. No payment or adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such Shares are recorded as issued and transferred in the
Company's official shareholder records (or the records of its transfer agents or
registrars), except as provided herein or in an Award agreement. The Company's
obligation to deliver Shares with respect to an
B-9
Award shall, if the Committee so determines, be conditioned upon the receipt of
a representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Company shall determine to be
necessary or advisable to comply with the provisions of the Securities Act or
any other applicable federal or state securities legislation. It may be provided
that any representation requirement shall become inoperative upon a registration
of the Shares or other action eliminating the necessity of such representation
under the Securities Act or other securities legislation. The Company shall not
be required to deliver any Shares under the Plan prior to (i) the admission of
such Shares to listing on any stock exchange or system on which Shares may then
be listed, and (ii) the completion of such registration or other qualification
of such Shares under any state or federal law, rule, or regulation, as the
Company shall determine to be necessary or advisable.
17. WITHHOLDING TAX. Upon the termination of the Restricted Period with
respect to any Shares of Restricted Stock or the issuance of Shares pursuant to
the exercise of any Option (or at any such earlier time, if any, that an
election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such Shares in income), the
Company may, in lieu of requiring the Participant or other person receiving such
Shares, to pay the Company the amount of any taxes which the Company is required
to withhold with respect to such Shares, retain a sufficient number of Shares
held by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Shares of Restricted
Stock the amount of any taxes which the Company is required to withhold with
respect to such dividend payments.
Where a Participant or other person is entitled to receive Shares pursuant
to the exercise of an Option pursuant to the Plan, the Company may, in lieu of
requiring the Participant or such other person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
retain a number of such Shares sufficient to cover the amount required to be
withheld.
18. LOANS.
(a) LOANS AUTHORIZED. The Company may make loans to a Participant in
connection with Restricted Stock or the exercise of Options subject to the
following terms and conditions and such other terms and conditions not
inconsistent with the Plan, including the rate of interest, if any, as the
Company shall impose from time to time.
(b) LIMITATIONS ON LOANS. No loan made under the Plan shall exceed
(i) with respect to Options, the sum of (A) the aggregate option price payable
upon exercise of the Option in relation to which the loan is made, plus (B) the
amount of the reasonably estimated income taxes payable by the Participant, and
(ii) with respect to Restricted Stock, the amount of reasonably estimated income
taxes payable by the Participant. In no event may any such loan exceed the
Market Value of the related Shares at the time of the loan.
(c) MINIMUM TERMS. No loan shall have an initial term exceeding three
(3) years; provided, that loans under the Plan shall be renewable at the
discretion of the Committee; and, provided, further, that the indebtedness under
each loan shall become due and payable on a date no later than (i) one year
after Termination of Continuous Service by the Participant due to death,
Disability or Retirement, or (ii) the day of Termination of Continuous Service
by the Participant for any reason other than death, Disability or Retirement.
(d) PAYMENT OF LOANS. Loans under the Plan may be satisfied by the
Participant, as determined by the Committee, in cash or, with the consent of the
Committee, in whole or in part in Shares at Market Value on the date of such
payment.
(e) COLLATERAL. When a loan shall have been made, Shares having an
aggregate Market Value equal to the amount of the loan may, in the discretion of
the Committee, be required to be pledged by the Participant to the Company as
security for payment of the unpaid balance of the loan. Portions of
B-10
such Shares may, in the discretion of the Committee, be released from time to
time as it deems not to be needed as security.
(f) LEGAL REQUIREMENTS. Every loan shall meet all applicable laws,
regulations, and rules of the Federal Reserve Board and any other governmental
agency having jurisdiction.
19. AMENDMENT, SUSPENSION OR TERMINATION. The Board may supplement, amend,
alter, or discontinue the Plan in its sole discretion at any time and from time
to time, but no supplement, amendment, alteration, or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except that any supplement,
amendment, alteration, or discontinuation may be made to (a) avoid a material
charge or expense to the Company or an Affiliate; (b) cause the Plan to comply
with applicable law; or (c) permit the Company or an Affiliate to claim a tax
deduction under applicable law. In addition, subject to the provisions of this
Section 19, the Board, in its sole discretion at any time and from time to time,
may supplement, amend, alter, or discontinue the Plan without the approval of
the Company's shareholders (a) to the extent such approval is not required by
applicable law or the terms of a written agreement; and (b) so long as any such
amendment or alteration does not increase the number of Shares subject to the
Plan (other than pursuant to Section 11) or increase the maximum number of
Options or Shares of Restricted Stock that the Committee may award to an
individual Participant under the Plan. The Committee may supplement, amend,
alter, or discontinue the terms of any Award theretofore granted, prospectively
or retroactively, on the same conditions and limitations (and exceptions to
limitations) as apply to the Board under the foregoing provisions of this
Section 19, and further subject to any approval or limitations the Board may
impose. Notwithstanding any provision of the Plan to the contrary, if any right,
Award or Award agreement under the Plan would cause a transaction of or
acquisition by the Company to be ineligible for pooling of interest accounting
treatment that would, but for such right hereunder, otherwise be eligible for
such accounting treatment, the Committee may amend, modify, or adjust the right,
the Award or the Award agreement of a Participant (without the prior consent,
approval, or authorization of the Participant) so that pooling of interest
accounting treatment shall be available with respect to such transaction or
acquisition even if any such amendment, modification, or adjustment would be
detrimental to or impair the rights of a Participant under the Plan.
20. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
its approval by the holders of at least a majority of the outstanding Shares at
a meeting at which approval of the Plan is considered and shall continue in
effect for a term of ten (10) years from the date of adoption unless sooner
terminated under Section 19 hereof.
21. LEGAL CONSTRUCTION.
(a) GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
(b) SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had never been included herein.
(c) REQUIREMENTS OF LAW. The grant of Awards and the issuance of Shares
under the Plan shall be subject to all applicable statutes, laws, rules, and
regulations and to such approvals and requirements as may be required from time
to time by any governmental authorities or any securities exchange or market on
which the Shares are then listed or traded.
(d) GOVERNING LAW. Except to the extent preempted by the Federal laws of
the United States of America, the Plan and all Award agreements shall be
construed in accordance with and governed by the laws of the State of Indiana
without giving effect to any choice or conflict of law provisions,
B-11
principles or rules (whether of the State of Indiana or any other jurisdiction)
that would cause the application of any laws of any jurisdiction other than the
State of Indiana.
(e) HEADINGS. The descriptive headings, sections, and paragraphs of the
Plan are provided herein for convenience of reference only and shall not serve
as a basis for interpretation or construction of the Plan.
(f) MISTAKE OF FACT. Any mistake of fact or misstatement of facts shall be
corrected when it becomes known by a proper adjustment to an Award or Award
agreement.
(g) EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document, or other information which the person relying
thereon considers pertinent and reliable, and signed, made, or presented by the
proper party or parties.
22. NO EFFECT ON EMPLOYMENT OR SERVICE. Neither the Plan nor the grant of
any Awards or the execution of any Award agreement shall confer upon any
Participant any right to continued employment by the Company or shall interfere
with or limit in any way the right of the Company to terminate any Participant's
employment or service at any time, with or without Cause. Employment with the
Company and its Affiliates is on an at-will basis only, unless otherwise
provided by a written employment or severance agreement, if any, between the
Participant and the Company or an Affiliate, as the case may be. If there is any
conflict between the provisions of the Plan and an employment or severance
agreement between a Participant and the Company, the provisions of such
employment or severance agreement shall control, including, but not limited to,
the vesting and nonforfeiture of any Awards.
23. NO COMPANY OBLIGATION. Unless required by applicable law, the Company,
an Affiliate, the Board of Directors, and the Committee shall not have any duty
or obligation to affirmatively disclose material information to a record or
beneficial holder of Shares or an Award, and such holder shall have no right to
be advised of any material information regarding the Company or any Affiliate at
any time prior to, upon, or in connection with the receipt, exercise, or
distribution of an Award. In addition, the Company, an Affiliate, the Board of
Directors, the Committee, and any attorneys, accountants, advisors, or agents
for any of the foregoing shall not provide any advice, counsel, or
recommendation to any Participant with respect to, without limitation, any
Award, any exercise of an Option, or any tax consequences relating to an Award.
24. PARTICIPATION. No Employee or consultant shall have the right to be
selected to receive an Award under the Plan or, having been selected, to be
selected to receive a future Award. Participation in the Plan will not give any
Participant any right or claim to any benefit under the Plan, unless such right
or claim has specifically accrued under the terms of the Plan.
25. LIABILITY AND INDEMNIFICATION. No member of the Board, the Committee,
or any officer or Employee of the Company or any Affiliate shall be personally
liable for any action, failure to act, decision, or determination made in good
faith in connection with the Plan. By participating in the Plan, each
Participant agrees to release and hold harmless the Company and its Affiliates
(and their respective directors, officers, and employees) and the Committee from
and against any tax liability, including, but not limited to, interest and
penalties, incurred by the Participant in connection with his receipt of Awards
under the Plan and the payment and exercise thereof. Each person who is or shall
have been a member of the Committee, or of the Board, shall be indemnified and
held harmless by the Company against and from (a) any loss, cost, liability, or
expense (including, but not limited to, attorneys' fees) that may be imposed
upon or reasonably incurred by him in connection with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in which he may
be involved by reason of any action taken or failure to act under the Plan or
any Award agreement; and (b) any and all amounts paid by him in settlement
thereof, with the Company's prior written approval, or paid by him in
satisfaction of any judgment in any such claim, action, suit, or proceeding
against
B-12
him; provided, however, that he shall give the Company an opportunity, at the
Company's expense, to handle and defend such claim, action, suit, or proceeding
before he undertakes to handle and defend the same on his 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, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
26. SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether or not the existence of such successor is the result of a
Change in Control. The Company shall not, and shall not permit its Affiliates
to, recommend, facilitate, agree, or consent to a transaction or series of
transactions which would result in a Change in Control of the Company unless and
until the person or persons or entity or entities acquiring control of the
Company as a result of such Change in Control agree(s) to be bound by the terms
of the Plan insofar as it pertains to Awards theretofore granted and agrees to
assume and perform the obligations of the Company and its successor.
27. BENEFICIARY DESIGNATIONS. Any Participant may designate, on such forms
as may be provided by the Committee for such purpose, a beneficiary to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
28. FUNDING. Benefits payable under the Plan to any person will be paid by
the Company from its general assets. Shares to be distributed hereunder shall be
issued directly by the Company from its authorized but unissued Shares or
acquired by the Company on the open market, or a combination thereof. Neither
the Company nor any of its Affiliates shall be required to segregate on their
books or otherwise establish any funding procedure for any amount to be used for
the payment of benefits under the Plan. The Company or any of its Affiliates
may, however, in their sole discretion, set funds aside in investments to meet
any anticipated obligations under the Plan. Any such action or set-aside shall
not be deemed to create a trust of any kind between the Company or any of its
Affiliates and any Participant or other person entitled to benefits under the
Plan or to constitute the funding of any Plan benefits. Consequently, any person
entitled to a payment under the Plan will have no rights greater than the rights
of any other unsecured general creditor of the Company or its Affiliates.
B-13
INTERACTIVE INTELLIGENCE, INC.
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 16, 2000
4:00 P.M. LOCAL TIME
SHERATON INDIANAPOLIS HOTEL
8787 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA
INTERACTIVE INTELLIGENCE, INC.
8909 PURDUE ROAD, SUITE 300, INDIANAPOLIS, IN 46268 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 16, 2000.
The shares of stock you hold in your 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 Donald E. Brown,
M.D. and John R. Gibbs, 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.
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET 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 15, 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 INTERNET -- HTTP://WWW.EPROXY.COM/ININ/ -- QUICK --- EASY --- IMMEDIATE
- - Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00
p.m. on May 15, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
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 Interactive Intelligence, Inc., c/o Shareowner
Services-, P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
COMPANY #
CONTROL #
[GRAPHIC OMITTED]
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of director: 01 Jon Anton, D.Sc. [ ] Vote FOR [ ] Vote
WITHHELD
the nominee from the
nominee
2. To approve the adoption of the Interactive Intelligence, Inc. Employee Stock
Purchase Plan [ ]For [ ] Against [ ] Abstain
3. To approve the Interactive Intelligence, Inc. 1999 Stock Option and
Incentive
Plan [ ]For [ ] Against [ ] Abstain
4. To transact any other business which may be properly brought before the
meeting.
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.
- ------- -------