----------------------------------
OMB APPROVAL
----------------------------------
OMB Number: 3235-0059
Expires: February 28, 2006
Estimated average burden
hours to perform............ 14.73
----------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A
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 ss.240.14a-11(c) or ss.240.14a-12
INTER-TEL, INCORPORATED
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
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):
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------------
[ ] 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:
------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------
3) Filing Party:
----------------------------------------------------
4) Date Filed:
------------------------------------------------------
INTER-TEL, INCORPORATED
----------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 2003
----------------------------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Inter-Tel, Incorporated (the "Company"), an Arizona corporation, will be held on
April 21, 2003, at 10:00 a.m., local time, at the Company's office located at
1615 S. 52nd Street, Tempe, Arizona 85281, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified;
2. To consider and ratify the appointment of Ernst & Young LLP as the
Company's independent auditors;
3. To amend the Company's 1997 Long-Term Incentive Plan to remove the
500,000 share lifetime individual grant limitation and to create an
annual individual grant limit per individual of 1% or less of the
total outstanding shares for any one year period. If approved by the
shareholders, the new annual limit will first be determined as of
April 21, 2003 and, beginning in 2004, on January 1 of each year
thereafter; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Each of the foregoing items of business is more fully described in the
Proxy Statement accompanying this Notice and will be discussed at the Annual
Meeting with adequate time allotted for shareholder questions.
Only shareholders of record at the close of business on March 7, 2003 (the
"Record Date") are entitled to notice of and to vote at the meeting. A copy of
the Company's 2002 Annual Report to Shareholders, which includes certified
financial statements, was mailed with this Notice and Proxy Statement on or
about March 21, 2003 to all shareholders of record on the Record Date.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose, or to vote by telephone
according to the instructions provided on the proxy card. Any shareholder
attending the meeting may vote in person even if he or she has previously
returned a proxy.
Sincerely,
KURT R. KNEIP,
Secretary
Phoenix, Arizona
March 19, 2003
INTER-TEL, INCORPORATED
1615 S. 52ND STREET
TEMPE, ARIZONA 85281
--------------------------------------------------------------------------------
PROXY STATEMENT
--------------------------------------------------------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished by Inter-Tel, Incorporated ("Inter-Tel"
or the "Company"), for use at the Annual Meeting of Shareholders to be held
April 21, 2003 at 10:00 a.m., local time or at any postponement or continuation
of the meeting, as applicable, or at any adjournment thereof (as applicable, the
"Annual Meeting"), for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's principal office building located at 1615 S. 52nd Street, Tempe,
Arizona 85281. These proxy solicitation materials were mailed on or about March
21, 2003 to all shareholders entitled to vote at the Annual Meeting.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on the Record Date, or
March 7, 2003, are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 24,925,633 shares of the Company's Common Stock were issued
and outstanding.
REVOCABILITY OF PROXIES
The enclosed proxy is being solicited by the Board of Directors of the
Company. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
VOTING AND SOLICITATION
Every shareholder voting at the Annual Meeting for the election of
directors may either (i) cumulate such shareholder's votes and give one nominee
for director a number of votes equal to (a) the number of directors to be
elected, multiplied by (b) the number of shares of the Company's Common Stock
held by such shareholder; or (ii) distribute such shareholder's votes on the
same principle among as many nominees for director as the shareholder thinks
fit, provided that votes cannot be cast for more than five nominees. However, no
shareholder will be entitled to cumulate votes for any nominee unless such
nominee's name has been placed in nomination prior to the voting and such
shareholder, or another shareholder, has given notice at the Annual Meeting
prior to the voting for directors of the intention of such shareholder to
cumulate such shareholder's votes. On all other matters, one vote may be cast
for each share of the Company's Common Stock held by a shareholder.
A quorum will be present if a majority of the votes entitled to be cast are
present in person or by valid proxy. All matters to be considered and acted upon
by the shareholders at the Annual Meeting must be approved by a majority of the
shares represented at the Annual Meeting and entitled to vote. Consequently,
abstentions will have the same legal effect as votes against a proposal. In
contrast, broker "non-votes" resulting from a broker's inability to vote a
client's shares on non-discretionary matters will have no effect on the approval
of such matters.
If the enclosed proxy is properly executed and returned to the Company in
time to be voted at the Annual Meeting, it will be voted as specified on the
proxy, unless it is properly revoked prior thereto.
1
Telephone voting will also be allowed according to the instructions provided on
the proxy card submitted with this proxy.
The cost of this proxy solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares of the Company's Common Stock for
expenses incurred in forwarding solicitation material to such beneficial owners.
Proxies also may be solicited by certain of the Company's directors, officers
and regular employees, personally or by telephone or facsimile, without
additional compensation.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of security holders of the Company that are intended to be
presented by such shareholders at the annual meeting of the Company for the
fiscal year ending December 31, 2003 must be received by the Company no later
than November 19, 2003, in order to be included in the proxy statement and form
of proxy relating to such meeting.
SEC rules also establish a different deadline for submission of shareholder
proposals that are not intended to be included in the Company's proxy statement
with respect to discretionary voting. The discretionary vote deadline for the
year 2003 Annual Meeting is February 4, 2004, 45 calendar days prior to the
anniversary of the mailing date of this proxy statement. If a shareholder gives
notice of such a proposal after the discretionary vote deadline, the Company's
proxy holders will be allowed to use their discretionary voting authority to
vote against the shareholder proposal when and if the proposal is raised at the
Company's year 2004 Annual Meeting.
INDEPENDENT AUDITORS
The independent auditors of the Company for the fiscal year ended December
31, 2002 were Ernst & Young LLP. A representative of Ernst & Young LLP will
attend the annual meeting for purposes of responding to appropriate questions.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
NOMINEES. Five (5) directors are to be elected at the Annual Meeting. Each
nominee named below is currently a director of the Company. In the event that
any nominee of the Company becomes unavailable for any reason or if a vacancy
should occur before election (which events are not currently anticipated by the
Company), the shares represented by the enclosed proxy may be voted for such
other person as may be determined by the holders of such proxy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them cumulatively, in their
discretion, in such a manner as to ensure the election of as many of the
nominees listed below as possible. In such event, the specific nominees to be
voted for will be determined by the proxy holders in their discretion. The term
of office of each person elected as a director will continue until the next
annual meeting and until his successor has been duly elected and qualified.
The names of the nominees and certain biographical information relating
to the nominees are set forth below.
Director
Name of Nominees Age Current Position(s) Since
---------------- --- ------------------- -----
Steven G. Mihaylo 59 Chairman and Chief 1969
Executive Officer
J. Robert Anderson 66 Director 1997
Jerry W. Chapman 62 Director 1999
Gary D. Edens 61 Director 1994
C. Roland Haden 62 Director 1983
2
MR. MIHAYLO, the founder of Inter-Tel, has served as Chairman of the Board of
Directors of Inter-Tel since September 1983, as President since May 1998 and as
Chief Executive Officer since Inter-Tel's formation in July 1969. Mr. Mihaylo
served as President of Inter-Tel from 1969 to 1983 and from 1984 to December
1994, and as Chairman of the Board of Directors from July 1969 to October 1982
and from September 1983 to the present.
MR. ANDERSON has served as one of our directors since February 1997. Mr.
Anderson held various positions at Ford Motor Company from 1963 to 1983, serving
as President of the Ford Motor Land Development Corporation from 1978 to 1983.
He served as Senior Vice President, Chief Financial Officer and as a member of
the Board of Directors of The Firestone Tire and Rubber Company from 1983 to
1989, and as Vice Chairman of Bridgestone/Firestone, Inc. from 1989 through
1991. He most recently served as Vice Chairman, Chief Financial Officer and as a
member of the Board of Directors of the Grumman Corporation from 1991 to 1994.
He currently serves on the boards of GenCorp, Inc. and B-G Corp. Mr. Anderson is
currently semi-retired, and he is an active leader in various business, civic
and philanthropic organizations.
MR. CHAPMAN was elected as one of our directors in December 1999 and previously
served as one of our directors from 1989 to 1992. A CPA, he served with a local
firm from 1963 through 1969, at which time he joined Ernst & Ernst, a
predecessor entity of Ernst & Young LLP. He became a partner of Ernst & Young in
1977 and, until retiring from the firm in 1989, served as engagement partner on
a wide variety of audit, assurance and consulting engagements. Additionally, he
managed Ernst & Young's practices in Arizona as well as various offices in the
adjoining southwest states from 1980 through 1989. He then operated his own
consulting firm through 1992 and joined Arthur Andersen in 1993 as a partner
specializing in providing business consulting services. He retired from Arthur
Andersen in 1999 and currently provides services for a small number of clients
requiring strategic and market-driven services.
MR. EDENS has served as one of our directors since October 1994. He was a
broadcasting media executive from 1970 to 1994, serving as Chairman and Chief
Executive Officer of Edens Broadcasting, Inc. from 1984 to 1994, when that
corporation's nine radio stations were sold. He is currently President of The
Hanover Companies, Inc., an investment firm. He is an active leader in various
business, civic and philanthropic organizations.
DR. HADEN has served as one of our directors since 1983. Dr. Haden was Vice
Chancellor and Dean of Engineering of Texas A&M University from 1993 until his
retirement on August 31, 2002. Previously, he was Vice Chancellor of Louisiana
State University, Dean of the College of Engineering and Applied Sciences at
Arizona State University, and Vice President for Academic Affairs at Arizona
State University. He earlier served as department head at the University of
Oklahoma. Dr. Haden has served on a number of corporate boards, such as Square D
Company and E-Systems, Inc., both then Fortune 500 companies. He currently
serves on the board of Crosstex Energy, GP, LLC of Dallas. Dr. Haden holds a
Ph.D. in Electrical Engineering from the University of Texas.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH
NOMINEE LISTED ABOVE.
3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
Subject to ratification by the shareholders at the Annual Meeting, the
Audit Committee has recommended to the Board of Directors of the Company that
Ernst & Young LLP be reappointed, and the Board of Directors has reappointed
Ernst & Young LLP, as independent auditors to audit the consolidated financial
statements of the Company and its subsidiaries for the year ending December 31,
2003. Ernst & Young LLP has issued its report, included in the Company's Form
10-K, on the consolidated financial statements of the Company for the year
ending December 31, 2002. Ernst & Young LLP has served as the Company's
independent auditors in every year in which the Company's stock has been
publicly traded.
FEES BILLED BY ERNST & YOUNG LLP DURING FISCAL 2002 and 2001. The following
table sets forth the approximate aggregate fees billed by Ernst & Young LLP to
Inter-Tel during fiscal 2002 and 2001:
2002 2001
--------- ---------
Audit Fees $ 240,000 $ 211,000
Financial Information Systems Design and
Implementation Fees N/A N/A
All Other Fees:
Audit-Related Fees 38,000 51,000
Tax-Related Services 36,000 112,000
--------- ---------
Total Fees $ 314,000 $ 374,000
========= =========
The Company did not engage Ernst & Young LLP to provide any separate
information technology services during the fiscal years ended December 31, 2002
or 2001. Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast on this proposal shall
constitute ratification of the appointment of Ernst & Young LLP.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR FISCAL YEAR 2003.
TO AMEND THE 1997 LONG-TERM INCENTIVE PLAN TO CHANGE INDIVIDUAL GRANT LIMITS
(PROPOSAL NO. 3)
The 1997 Long-Term Incentive Plan (the "Plan") currently includes a
lifetime limit of 500,000 shares that may be awarded over the term of the Plan.
This proposal would remove the 500,000 share lifetime limitation in favor of an
annual limit per individual of 1% or less of the outstanding shares of the
Company's Common Stock for any one year period. Accordingly, if this proposal is
approved and adopted, commencing in 2003 individuals previously capped at the
lifetime limit would no longer be restricted from receiving additional annual
awards not to exceed the new annual individual limit.
The determination of the 1% limit for 2003 would be made as of April 21, 2003.
In future applicable years, the annual determination would be made as of January
1. The proposed changes to the Plan language are noted below as marked:
4
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.5. LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
with respect to one or more Awards that may be granted *in any one year period*
to any one Participant *after April 21, 2003* [over the term of the Plan] shall
[be five hundred thousand (500,000)] *not exceed 1% of the total outstanding
shares of the Company's Common Stock as measured on an annual basis. The annual
limit for the 2003 year shall be 1% or less of the outstanding shares of the
Company's Common stock as of April 21, 2003. The annual limit in each subsequent
year thereafter shall be 1% or less of the outstanding shares of the Company's
Common Stock as of January 1.*
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE 1997 LONG-TERM INCENTIVE PLAN TO CHANGE THE INDIVIDUAL
GRANT LIMITS FROM 500,000 LIFETIME SHARES TO ANNUAL INDIVIDUAL LIMITS NOT TO
EXCEED 1% OF THE TOTAL OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK.
MATERIAL FEATURES OF 1997 LONG-TERM INCENTIVE PLAN APPROVED BY SHAREHOLDERS
The following paragraphs provide a summary of the principal features of the 1997
Long-Term Incentive Plan (the "Plan" or "Stock Plan") and its operation. The
following summary is qualified in its entirety by reference to the Plan, as
amended, set forth in Exhibit 4.1 of Inter-Tel's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on March 28, 2002 (File
No. 333-85098).
GENERAL. The Stock Plan provides for the grant of (i) stock options, (ii) stock
appreciation rights, (iii) restricted stock awards, (iii) performance share
awards, (iv) dividend equivalent awards, and (v) other stock awards as
determined by the administrator (in each case, an "Award"). Options granted
under the Stock Plan may either be "incentive stock options" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options, as determined by the Board of Directors or a
committee designated by the Board.
PURPOSE. The general purposes of the Stock Plan are to promote the success and
enhance the value of the Company by linking the personal interests of its key
employees with an incentive for outstanding performance. It is further intended
to attract, motivate and retain the services of the best available officers and
key employees.
ADMINISTRATION. The Stock Plan is administered by the Board of Directors
("Board") or a committee designated by the Board ("Committee"). To the extent
the Board determines it desirable to comply with the rules governing plans
intended to qualify as discretionary grant plans under Rule 16b-3 the members of
the Committee shall qualify as "non-employee directors" under Rule 16b-3. To the
extent the Board determines it desirable to qualify stock options as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the plan shall be administered by two or more "outside directors" within
the meaning of Section 162(m) of the Code.
Subject to the terms of the Stock Plan, the Board or the Committee has the sole
discretion to select the employees who will receive Awards, determine the terms
and conditions of Awards (for example, the exercise price and vesting schedule),
and interpret the provisions of the Stock Plan and outstanding Awards.
ELIGIBILITY. The Stock Plan provides that Awards may be granted to key employees
(including officers) of the Company who are responsible for the continued growth
and development and the financial success of the Company. The Board or the
Committee shall determine which eligible persons shall be granted Awards,
provided, however, no person who, at the date of the grant, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock in the Company shall be granted incentive stock options.
5
Note: Text appearing in [brackets] is deleted text.
Text appearing between *asterisks* is added text.
EVERGREEN PROVISION. The Stock Plan provides for an automatic increase in the
number of shares of Common Stock reserved thereunder on the first day of each
fiscal year equal to the lesser of (a) 2.5% of the outstanding shares on that
date, (b) 750,000 shares (subject to appropriate adjustment for all stock
splits, dividends, subdivisions, combinations, recapitalizations and like
transactions or (c) a lesser amount as determined by the Board.
STOCK OPTIONS
A stock option is the right to acquire shares of the Company's common stock at a
fixed exercise price for a fixed period of time. Incentive stock options granted
under the Stock Plan are non-transferable by the optionee other than by will or
laws of descent and distribution, and may be exercised during an optionee's
lifetime only by the optionee.
GRANT LIMITATION. No incentive stock option may be granted under the Plan on or
after April 23, 2007. The Stock Plan also provides that no employee may be
granted, during the term of the Plan, options to purchase more than 500,000
shares of Common Stock. The Board has approved and is recommending that the
Company's shareholders approve an amendment to the Plan that would remove this
500,000 share lifetime limitation in favor of an annual limit of 1% or less of
the outstanding shares of the Company's common stock.
EXERCISE PRICE. The exercise price of options granted under the Stock Plan is
determined by the Board or the Committee and must not be less than 100% of the
fair market value of the Company's Common Stock at the time of grant for shares
covered by incentive stock options or nonqualified options intended to qualify
as "performance based" under Code Section 162(m), unless nonqualified options
are otherwise so qualified.
EXERCISE OF OPTIONS. Options become exercisable at such times as are determined
by the Board or the Committee and are set forth in the individual option
agreements. Generally, options granted to employees vest as to 20% per year over
a five (5) year period. An option is exercised by giving written notice to the
Company specifying the number of full shares of Common Stock to be purchased and
tendering payment of the purchase price. The method of payment of the exercise
price for the shares purchased upon exercise of an option shall be determined by
the Board or the Committee. In addition, the aggregate fair market value of the
shares of Common Stock (determined on the grant date) covered by incentive stock
options which first become exercisable by any participant during any calendar
year also may not exceed $100,000.
TERMINATION. The Stock Plan gives the Board or the Committee the authority to
vary the terms of the individual option agreements. However, generally, if the
optionee ceases to be an employee or consultant for any reason other than death
or disability, then the optionee, at the discretion of the Board, may have the
right to exercise an existing unexercised incentive stock option up to ninety
(90) days after the date of termination, but only to the extent that the
optionee was entitled to exercise such option at the date of such termination,
and the stock option agreement does not further limit the exercise period. If
such termination is due to disability within the meaning of Section 422(c) of
the Code, the optionee shall have the right to exercise an existing unexercised
incentive stock option at any time within twelve (12) months of the termination
date. If such termination is due to death, the optionee's legal representative
may exercise any vested incentive stock options before the earlier of (i) the
date the option would have lapsed had the optionee not died, or (ii) fifteen
(15) months after the optionee's death.
TERMINATION OF OPTIONS. Options granted under the Stock Plan expire as
determined by the Board or Committee, but in no event later than ten (10) years
from date of grant. No option may be exercised by any person after its
expiration.
6
STOCK APPRECIATION RIGHTS
The Committee determines the terms of stock appreciation rights, except that the
exercise price of a stock appreciation right granted in connection with an
incentive stock option may not be less than 100% of the fair market value of the
Shares on the date of grant.
A stock appreciation right will entitle the participant, upon exercise, to
receive from the Company an amount equal to the excess of the fair market value
of the shares of Common Stock on the date of exercise over the fair market value
of the shares covered by the exercised portion of the stock appreciation right
on the date of grant.
Generally, stock appreciation rights may be granted in connection with an
option, in which case the participant is entitled to exercise the stock
appreciation right by surrendering to the Company a portion of the unexercised
related option. The participant will receive in exchange from the Company an
amount equal to the excess of the fair market value of the shares of Common
Stock on the date of exercise of the stock appreciation right covered by the
surrendered portion of the related option over the exercise price of the shares
covered by the surrendered portion of the related option.
PERFORMANCE SHARES
Performance shares are Awards that will result in a payment to a participant
only if performance goals established by the Committee are achieved or the
Awards otherwise vest. The Committee determines the terms of performance share
Awards. The applicable performance goals will be determined by the Committee in
light of the participant's specific responsibilities. Performance shares are
payable in cash, stock or other property at the discretion of the Committee.
RESTRICTED STOCK AWARDS
Awards of restricted stock are shares of Common Stock that vest in accordance
with the terms and conditions established by the Committee. In determining
whether an Award of restricted stock should be made, and/or the vesting schedule
for any such Award, the Committee may impose whatever conditions to vesting as
it determines to be appropriate. Unless determined otherwise by the Committee at
the time of grant or thereafter, restricted stock Awards subject to restrictions
shall be forfeited and reacquired by the Company upon a participant's
termination of service with the Company.
DIVIDEND EQUIVALENTS
The Committee may grant dividend equivalents subject to such terms and
conditions as it may select. Dividend equivalents entitle a participant to
receive payments equal to dividends with respect to all or a portion of shares
of Common Stock subject to an Award of stock options or stock appreciation
rights.
ADJUSTMENTS UPON CHANGE IN CAPITALIZATION OR CHANGE IN CONTROL
The number of shares covered by each outstanding Award shall be proportionately
adjusted for any increase or decrease in the number of issued shares resulting
from a change in the Company's capitalization, such as a stock split, reverse
stock split, stock dividend, recapitalization or other change in the capital
structure of the Company.
In the event that the Company is a participant in any merger, consolidation,
acquisition of assets or like occurrence involving the Company, each outstanding
Award in the nature of rights that may be exercised shall become fully vested
and exercisable and all restrictions on outstanding Awards shall lapse.
7
ADJUSTMENTS UPON A PARTICIPANT'S DEATH OR DISABILITY
In the event of a participant's death or disability, all outstanding options,
stock appreciation rights and other Awards in the nature of rights that may be
exercised shall become fully vested, exercisable and all restrictions on
outstanding Awards shall lapse.
AMENDMENT OR TERMINATION OF THE STOCK PLAN
The Board may amend, alter, suspend or terminate the Stock Plan or any part
thereof from time to time, with respect to any shares at such time not subject
to options or stock purchase rights; provided, however, that without the
approval of a majority of the Company's shareholders, no amendment may (a)
materially increase the number of shares reserved for issuance under the Stock
Plan, (b) materially change the designation of the class of persons eligible to
participate in the Stock Plan, or (c) reprice options outstanding under the
Stock Plan.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock option
does not generally recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. The Company is entitled to a deduction in the same amount as
the ordinary income recognized by the optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable income at
the time he or she is granted a nonstatutory stock option. Upon exercise, the
optionee recognizes taxable income generally by the excess of the then fair
market value of the shares over the exercise price. Any taxable income
recognized in connection with an option exercise by an employee of the Company
is subject to tax withholding by the Company. The Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Upon a disposition of such shares by the optionee, any difference between the
sale price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term capital
gain or loss, depending on the holding period.
STOCK APPRECIATION RIGHTS. No taxable income is reportable when a stock
appreciation right is granted to a participant. Upon exercise, the participant
will recognize ordinary income in an amount equal to the amount of cash received
and the fair market value of any Shares received. Any additional gain or loss
recognized upon any later disposition of the Shares would be capital gain or
loss.
DIVIDEND EQUIVALENTS. No taxable income is reportable when a dividend equivalent
is granted to a participant. The dividend equivalents will be taxable as
ordinary income to participants when paid. The Company is entitled to a
deduction in the same amount as the ordinary income recognized by the
participant.
RESTRICTED STOCK, PERFORMANCE SHARES. A participant recognizes ordinary income
equal to the difference between the purchase price, if any, and the fair market
value of the shares (the "spread") as any right of the Company to repurchase the
shares at the original purchase price lapses (that is, as the stock "vests").
Under current federal tax law, the participant may elect to include the spread
in ordinary income at the time of grant. Any subsequent gain or loss upon resale
of the shares by the purchaser is treated as long or short-term capital gain or
loss, depending on how long the shares are held. The Company is entitled to
8
a federal tax deduction in the same amount and at the same time as the purchaser
realizes ordinary income.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
THE EMPLOYEE OR CONSULTANT AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE
STOCK PLAN AND DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO
THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE. IN ADDITION, THIS
SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN OPTIONEE'S OR PURCHASER'S
DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR
FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
PARTICIPATION IN THE STOCK PLAN
The grant of options under the Stock Plan to directors and executive officers,
including the officers named in the Summary Compensation Table below, is subject
to the discretion of the administrator or the Stock Plan. As of the date of this
Proxy Statement, there has been no determination by the administrator with
respect to future awards under the 1997 Stock Plan. Accordingly, future awards
are not determinable.
In fiscal 2002, from the 1997 Stock Plan, options to purchase 495,500 shares of
Common Stock were granted to all employees (excluding executive officers) and no
options to purchase shares of Common Stock were granted to the Named Executive
Officers (defined below). In fiscal 2003, through March 7, 2003 options to
purchase 20,000 shares of Common Stock were granted to all employees (including
executive officers) from the 1997 Stock Plan, none of which were granted to the
Named Executive Officers. See "Option Grants in the Last Fiscal Year."
MATERIAL FEATURES OF COMPENSATION PLAN NOT APPROVED BY SHAREHOLDERS
INTER-TEL ACQUISITION STOCK OPTION PLAN
The Acquisition Stock Option Plan (the "Acquisition Plan") was adopted by
the Board of Directors in 1998 and has not been approved by our shareholders.
The Acquisition Plan provides for the granting of nonstatutory stock options,
stock appreciation rights, performance shares, restricted stock awards and
dividend equivalents (in each case, an "Award").
Awards may be granted under the Acquisition Plan to individuals who are
employees or consultants of Inter-Tel or its subsidiaries, provided that
officers and directors of Inter-Tel may not receive Awards under the Acquisition
Plan. The Acquisition Plan is administered by a committee of the board of
directors, which in its discretion determines the exercise price of the stock
options and other Awards granted under the Acquisition Plan and the term of all
such Awards. Stock options granted under the Acquisition Plan generally vest
over a five (5) year period. In the event of a Change of Control, all
outstanding Awards in the nature of rights that may be exercised shall become
fully vested and exercisable and all restrictions on outstanding Awards shall
lapse.
As of December 31, 2002, options covering 551,471 shares of Inter-Tel
common stock were outstanding under the Acquisition Plan, 98,014 shares remained
available for future option grants, and options covering 58,924 shares had been
exercised during the fiscal year ending December 31, 2002. No stock appreciation
rights, performance shares, dividend equivalents or restricted stock awards have
been issued under the Acquisition Plan.
The Acquisition Plan is included as Exhibit 10.1 of Inter-Tel's
Registration Statement on Form S-8, filed with the Securities and Exchange
Commission on November 13, 1998 (File No. 333-67261).
9
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes our equity compensation plan information as of
December 31, 2002. Information is included for both equity compensation plans
approved by Inter-Tel shareholders and equity compensation plans not approved by
Inter-Tel shareholders.
COMMON SHARES TO BE
ISSUED UPON WEIGHTED-AVERAGE COMMON SHARES AVAILABLE
EXERCISE OF EXERCISE PRICE OF FOR FUTURE ISSUANCE UNDER
OUTSTANDING OUTSTANDING EQUITY COMPENSATION PLANS
OPTIONS, WARRANTS OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (A))
(a) (b) (c)
Equity compensation
plans approved by
Inter-Tel shareholders 3,637,170(1) $ 12.93 1,103,221 (2)
Equity compensation
plans not approved by
Inter-Tel shareholders 551,471(3) $ 16.46 98,014
Totals: 4,188,641 $ 13.40 1,201,235
(1) Includes options to purchase shares outstanding under the plans approved by
Inter-Tel shareholders. Of these shares, options to purchase 442,450 shares
were outstanding from the Inter-Tel 1994 Long-Term Incentive Plan, options
to purchase 3,109,720 shares were outstanding from the Inter-Tel 1997
Long-Term Incentive Plan and options to purchase 85,000 shares were
outstanding from the 1990 Inter-Tel Director Option Plan.
(2) Includes shares available for future issuance under the Inter-Tel 1994
Long-Term Incentive Plan, the Inter-Tel 1997 Long-Term Incentive Plan, the
1990 Inter-Tel Director Option Plan and the Inter-Tel 1997 Employee Stock
Purchase Plan; excludes securities reflected in column (a). Of these
shares, 16,826 shares were available under the 1994 Long-Term Incentive
Plan, 356,811 shares were available under the Inter-Tel 1997 Long-Term
Incentive Plan, 155,000 shares were available under the 1990 Inter-Tel
Director Option Plan and 574,584 shares were available under the Inter-Tel
1997 Employee Stock Purchase Plan. Under the Inter-Tel 1997 Long-Term
Incentive Plan, the amount of shares authorized for issuance increases
annually by the lesser of (a) 2.5% of the outstanding shares on that date,
(b) 750,000 shares (subject to appropriate adjustments for stock splits,
dividends, subdivisions, combinations, recapitalizations and like
transactions) or (c) a lesser amount as determined by the Inter-Tel Board
of Directors.
(3) As of December 31, 2002, individual options to purchase a total of 551,471
shares had been assumed or issued in connection with acquisition
transactions by Inter-Tel, at a weighted average exercise price of $16.46
per share. These options were issued under the Inter-Tel Acquisition Stock
Option Plan, which has not been approved by Inter-Tel shareholders.
10
SECURITY OWNERSHIP OF MANAGEMENT
The following table and footnotes thereto set forth the beneficial
ownership of Common Stock of the Company as of the Record Date, by (a) each
director and nominee for director of the Company who owned shares as of such
date, (b) each of the Named Executive Officers (defined below), (c) all
directors and executive officers of the Company as a group and (d) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock:
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
NUMBER RIGHT TO PERCENT
NAME OF SHARES (1) ACQUIRE (2) OF TOTAL
-------- ------------- ----------- --------
Steven G. Mihaylo
1615 S. 52nd Street, Tempe, Arizona, 85281 5,448,498 -- 21.1
J. Robert Anderson 32,500 27,500 *
Jerry W. Chapman 25,069 22,500 *
Gary D. Edens 37,713 27,500 *
C. Roland Haden 26,753 7,500 *
Norman Stout 325,661(3) 276,800 1.3
Craig W. Rauchle 425,684 398,800 1.6
Jeffrey T. Ford 153,672(4) 125,000 *
Kurt R. Kneip 90,588(5) 63,000 *
All directors and executive officers as a group (9 persons) 6,566,138 948,600 25.4
Other Beneficial Owners:
Entities Affiliated with Barclays Global (6)
45 Fremont Street
San Francisco, CA 94105 1,277,214(6) -- 5.0
* Less than 1%.
(1) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the Record Date upon the exercise of options. Each beneficial
owner's percentage ownership is determined by assuming that all options
held by such person (but not those held by any other person) that are
exercisable within 60 days from the Record Date have been exercised. All
persons named in the table have sole voting and investment power with
respect to all shares issuable pursuant to stock options. Unless otherwise
noted in subsequent footnotes to this table, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Shares that can be acquired through stock options vested through March 7,
2003, or within 60 days of that date.
(3) With respect to 20,000 of these shares, Mr. Stout shares voting and
investment power with his spouse.
(4) With respect to 27,417 of these shares, Mr. Ford shares voting and
investment power with his spouse.
(5) With respect to 16,000 of these shares, Mr. Kneip shares voting and
investment power with his spouse.
(6) Based solely upon information contained in a Schedule 13G filed February
10, 2003. Of the total shares owned, 965,063 were reported by Barclays
Global Investors, NA and 312,151 were reported by Barclays Global Fund
Advisors.
11
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four (4) regularly
scheduled meetings during the fiscal year ended December 31, 2002.
The Audit Committee of the Board of Directors consisted of directors
Chapman, Anderson and Haden, through February 11, 2002. Effective February 12,
2002, director Edens was elected as a member of the Audit Committee. The Audit
Committee amended its charter on February 17, 2003 and a copy of the amended
charter is attached as Exhibit A to this Proxy Statement. Pursuant to the Audit
Committee charter, the Audit Committee reviews, acts and reports to the Board of
Directors of the Company on various auditing and accounting matters, including
the appointment of the Company's independent accountants, the scope of the
Company's annual audits, fees to be paid to the Company's independent
accountants, the performance of the Company's independent accountants, the
sufficiency of the Company's internal controls and the Company's accounting and
financial management practices. The Audit Committee met five (5) times during
the last fiscal year. All of the members of the Audit Committee are
"independent" members as defined under Rule 4200(a)(15) of the National
Association of Securities Dealers. A report of the Audit Committee is set forth
below.
The Compensation Committee consisted of directors Anderson and Edens
through December 31, 2002. The Compensation Committee reviews employee
compensation and makes recommendations thereon to the Board of Directors and
administers the Company's Stock Incentive Plans. The Compensation Committee also
determines, upon review of relevant information, the employees to whom options
shall be granted. The Compensation Committee met two (2) times during the last
fiscal year. A report of the Compensation Committee is set forth below.
During the fiscal year ended December 31, 2002, each director attended all
of the Board meetings. Each member of the Board who served on one or more of the
above-listed committees attended all of the committee(s) on which such director
served, in person or by consent.
AUDIT COMMITTEE REPORT FOR THE YEAR ENDED DECEMBER 31, 2002
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed the audited financial statements in the Annual Report with
management including a discussion of the quality, not just the acceptability, of
the accounting principles, the reasonableness of significant accounting
judgments and the clarity of the Company's disclosures in the financial
statements.
In addition, the Audit Committee reviewed with the independent auditors,
who are responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States, their judgments as to the quality, not just the acceptability, of the
Company's accounting principles and such other matters as are required to be
discussed with the Audit Committee under generally accepted auditing standards,
and in particular, SAS 61. Furthermore, the Audit Committee discussed with the
independent auditors the auditors' independence from management and the Company
including the matters in the written disclosures required by the Independence
Standards Board Standard No. 1, and considered the compatibility of non-audit
services with the auditors' independence.
The Audit Committee also discussed with the Company's internal and
independent auditors the overall scope and plans for their respective audits.
The Audit Committee meets with the internal and independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluations of the Company's internal control, and the overall quality of the
Company's financial reporting. The Audit Committee held five (5) meetings during
the fiscal year ended December 31, 2002.
12
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board approved, that
the audited financial statements be included in the Annual Report on Form 10-K
for the year ended December 31, 2002 for filing with the Securities and Exchange
Commission. The Audit Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors. The
Audit Committee amended its charter on February 17, 2003 and a copy of the
amended charter is attached as Exhibit A to this Proxy Statement.
AUDIT COMMITTEE: Jerry W. Chapman (Chairman), J. Robert Anderson, Dr. C. Roland
Haden and Gary Edens.
February 17, 2003
DIRECTOR COMPENSATION
We do not pay directors who are also officers of the Company additional
compensation for their service as directors. During 2002, compensation for each
non-employee director included the following:
DESCRIPTION THROUGH 2-11-02 AFTER 2-11-02
----------- --------------- -------------
Each regularly scheduled Board of Directors meeting attended $ 1,500 $ 1,500
Quarterly stipend for non-chairman committee members $ 5,000 $ 5,000
Quarterly stipend for compensation committee chairman $ 5,500 $ 5,500
Quarterly stipends for audit committee chairman $ 6,000 $ 7,000
Each regularly scheduled compensation committee meeting attended $ 1,000 $ 1,000
Each regularly scheduled audit committee meeting attended $ 1,500 $ 2,000
Each special meeting of the Board or committee of the Board $ 1,000 $ 1,000
Expenses of attending Board and Committee meetings As incurred As incurred
The Company also allows each director to elect to participate in
the health benefit plans each year. Directors are offered Participation Participation
participation in the same plans offered to employees, offered in offered in
subject to payment by each electing director of one-half of Company plans Company plans
the related premiums paid by Cobra participants, plus all
applicable co-pays and/or deductibles.
Annual stock option grants to purchase shares of Common Stock, 5,000 7,500
pursuant to the Company's Director Stock Option Plan (as
amended), at the market price five (5) business days after
the date of the annual Board meeting
13
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
for services rendered to the Company during the fiscal years 2002, 2001 and 2000
by the Chief Executive Officer and the four other most highly compensated
executive officers of the Company who were serving as executive officers of the
Company at the end of 2002 and whose aggregate salary and bonus in fiscal 2002
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------ All
Securities Other
Salary Bonus Underlying Compensation
Name and Position Year ($) ($) (1) Options (#) ($) (2)
----------------- ---- --- ------- ----------- -------
(a) (b) (c) (d) (g) (i)
Steven G. Mihaylo 2002 300,000 240,000 0 256,500
Chairman and Chief 2001 300,000 0 0 6,000
Executive Officer 2000 300,000 0 0 6,000
Norman Stout 2002 300,000 300,000 0 244,328
Exec. Vice President and 2001 300,000 0 372,000 16,466
Chief Administrative Officer 2000 298,462 0 0 47,012
Craig W. Rauchle 2002 300,000 300,000 0 282,287
Exec. Vice President and 2001 300,000 0 372,000 15,796
Chief Operating Officer 2000 298,462 0 0 14,996
Jeffrey T. Ford 2002 250,000 168,942 0 45,500
Sr. Vice President and 2001 221,157 0 40,000 5,100
Chief Technology Officer 2000 190,316 0 15,000 4,841
Kurt R. Kneip 2002 174,038 70,000 0 5,221
Sr. Vice President and 2001 150,000 0 20,000 4,500
Chief Financial Officer 2000 149,615 0 5,000 5,013
(1) The Compensation Committee set earnings per share performance levels for
the consolidated Company, upon which incentives were placed for each of the
executives. Cash bonus awards, based upon meeting or exceeding such
performance levels and limited to a percentage of base salary, were set for
each executive officer. With the exception of Mr. Ford, Named Executive
Officer bonuses were based entirely on Inter-Tel earnings per share
targets. Seventy-five percent of the performance award opportunity for Mr.
Ford was based on earnings and other specific measurements within his
operating segment of the Company, and 25% was based on Inter-Tel earnings
per share targets. Maximum bonus awards, ranging from 60% to 100% of annual
base compensation were set for the Named Executive Officers. Column (d)
reflects net bonuses achieved for these performance targets.
(2) In February 2002, Inter-Tel received a gross cash award of $20 million as a
result of an arbitration settlement in connection with a lawsuit filed by
Inter-Tel in 1996. As a result of this settlement and in recognition of
such executives' efforts in connection with the lawsuit, the Board of
Directors approved one-time payments of $250,000, $225,000, $225,000 and
$40,000 to Steven G. Mihaylo, Norman Stout, Craig Rauchle and Jeff Ford,
respectively. During 2002, Mr. Rauchle also received $40,000 in other
compensation related to reimbursement of health and welfare benefits for a
family member. The Company contribution under its 401(k) Retirement Plan
for 2002 is estimated to be $5,500 each for Messrs. Stout and Ford; $5,263
for Mr. Rauchle and $5,221 for Mr. Kneip. Messrs. Mihaylo, Stout and
Rauchle received auto allowances of $6,500, $6,000 and $6,000 respectively
during 2002. In addition, Messrs. Stout and Rauchle received reimbursements
of $7,828
14
and $6,024, respectively, for club dues and expenses. No compensation is
present under omitted columns (e), (f) and (h).
The following table below sets forth information concerning stock options
held or acquired by each of the Named Executive Officers during the year ended
December 31, 2002:
AGGREGATED OPTION EXERCISES IN 2002 AND DECEMBER 31, 2002 OPTION VALUES
Number of
Unexercised Value of in-the-money
Options options
Shares At December 31, At December 31,
Acquired 2002 (#) 2002 ($) (2)
on Value --------------- ---------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) (1) Unexercisable Unexercisable
(a) (b) (c) (d) (i)
Steven G. Mihaylo 144,000 1,243,080 -- / -- -- / --
Norman Stout 5,000 5,775 202,400 / 329,600 1,235,143 / 3,483,772
Craig W. Rauchle -- -- 324,400 / 297,600 4,356,976 / 3,386,652
Jeffrey T. Ford -- -- 113,000 / 45,000 1,410,835 / 438,695
Kurt R. Kneip 10,000 220,592 59,000 / 19,000 860,190 / 214,165
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
(2) Based upon the market price of $20.91 per share, which was the closing
selling price per share of Common Stock on the Nasdaq National Market on
the last day of the Company's 2002 fiscal year, less the option exercise
price payable per share.
OPTION GRANTS IN LAST FISCAL YEAR
The Company granted no stock options to Named Executive Officers during the year
ended December 31, 2002.
COMPENSATION COMMITTEE REPORT FOR THE YEAR ENDED DECEMBER 31, 2002
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Compensation Committee's responsibilities include determining
the cash and non-cash compensation of executive officers. The Compensation
Committee's policy regarding compensation of the Company's executive officers is
to provide generally competitive salary levels and compensation incentives in
order to attract and retain individuals of outstanding ability; to recognize and
reward individual performance and the performance of the Company; and to support
the Company's primary goal of increasing shareholder value. Through 2002,
non-cash compensation had been limited to stock option grants to purchase Common
Stock at fair market value at the grant date. All executive officers and certain
employees of the Company participate in such stock incentive plans. All options
to purchase Common Stock were granted with exercise prices equal to the fair
market value of the Common Stock on the date of grant. These plans are designed
to attract and retain qualified personnel and to tie their performance to the
enhancement of shareholder value. Stock options vest at the end of either four
or five years from the date of grant.
Executive officers, together with other permanent Inter-Tel employees, may
also participate in the Company's 401(k) Thrift Savings Plan. Each executive
officer participated in the Inter-Tel Employee Stock Ownership Plan through July
1997, the date the plan assets were frozen, except for Mr. Stout, who was not
allocated shares before the date the plan was frozen. All executive officers may
also participate
15
in the Inter-Tel Employee Stock Purchase Plan except for Mr. Mihaylo, who is not
eligible to participate because he owns greater than 5% of the company's Common
Stock.
In February 2002, Inter-Tel received a gross cash award of $20 million as a
result of an arbitration settlement in connection with a lawsuit filed by
Inter-Tel in 1996. As a result of this settlement, the board of directors
approved payments of $250,000, $225,000, $225,000 and $40,000 to Steven G.
Mihaylo, Norman Stout, Craig Rauchle and Jeff Ford, respectively. These one-time
special payments were approved by the Compensation Committee after the
settlement was awarded, based in part on the significant amounts of time and
energy expended over several years by these executives related to the lawsuit.
During 1999, each of the Named Executive Officers and other officers and
selected employees of the Company were offered loans to acquire the Company's
Common Stock. Promissory Notes were established to cover the cost of exercise of
stock options, including applicable taxes, or the cost of the Company's Common
Stock purchased in the open market during May and June of 1999. The loans are
interest-only notes with balloon payments due or before March 15, 2004. The
loans bear interest at the mid-term applicable federal interest rate, compounded
annually. Interest payments are due on or before March 15 of each anniversary
beginning on March 15, 2000. The notes are full recourse loans and the Company
retains the Common Stock certificates as collateral. Messrs. Mihaylo and Kneip
each paid off their respective loans in full during 1999 and Mr. Ford paid off
his loan in full in 2002. On March 3, 2003, Mr. Stout paid $26,026 for principal
and $10,214 for accrued interest on his loan. Mr. Rauchle continues to
participate in the loan program. The following table sets forth the details at
December 31, 2002 of the remaining stock option loans for each of the Named
Executive Officers that had activity during 2002.
Life-to-date Principal and Loan
Original Stock Accrued Interest Payments Balance at
Name Loan Balance ($) Interest (a) Through 12-31-02(b) 12-31-02 (c)
---- ---------------- ------------ ------------------- ------------
Norman Stout 266,026 49,766 41,107 274,685
Craig W. Rauchle 106,816 18,865 51,103 74,578
Jeffrey T. Ford 110,024 17,852 127,876 --
(a) Accrued interest is the lesser of the amount accrued through December 31,
2002 or date of loan payoff.
(b) Mr. Ford paid all outstanding principal and interest amounts due under his
loan on May 15, 2002. Not included in the table above is a payment on March
3, 2003 made by Mr. Stout of $26,026 for principal and $10,214 for accrued
interest on his loan. Mr. Rauchle paid interest on his loan on the annual
March 15 due date.
(c) Loan balance includes accrued interest through December 31, 2002. On March
3, 2003, Mr. Stout paid $26,026 for principal and $10,214 for accrued
interest on his loan; accordingly, Mr. Stout's loan balance was reduced to
$240,000 as of March 3, 2003.
Two of the Company's executive officers received loans from Inter-Tel
during 1999 to acquire common stock in Cirilium, a company formed during 1999
that was jointly owned by Inter-Tel and Hypercom Corporation. Norman Stout and
Craig Rauchle received loans on December 29, 1999 of $250,000 and $200,000,
respectively, to acquire 375,000 and 300,000 shares, respectively, of voting
common stock of Cirilium. The Promissory Notes are interest-only notes with
balloon payments due on or before March 15, 2004. The loans bear interest at the
mid-term applicable federal interest rate, compounded annually. Interest
payments are due on or before March 15 of each anniversary beginning on March
15, 2000. The notes are full recourse loans. Mr. Stout paid off his Cirilium
stock loan in full on March 3, 2003. The following table sets forth the details
of the Cirilium loans through December 31, 2002.
16
Life-to-date Principal and Loan
Original Stock Accrued Interest Payments Balance at
Name Loan Balance ($) Interest Through 12-31-02 12-31-02 (c)
---- ---------------- -------- ---------------- ------------
Norman Stout (a) 250,000 34,323 156,313 128,010
Craig W. Rauchle (b) 200,000 28,455 100,445 128,010
(a) Not included in the table above is the payment by Mr. Stout of the entire
outstanding principal and interest on his loan then remaining on March 3,
2003.
(b) Not included in the table above is a payment by Mr. Rauchle for interest
accrued on his loan required to be paid by the annual March 15 due date.
(c) Loan balance includes accrued interest through December 31, 2002. Mr. Stout
paid off the entire principal and interest on his loan balance on March 3,
2003.
The Compensation Committee intends to continue to consider expansion of
executive compensation to include deferred cash and equity-based compensation
integrated with the attainment of specific long-term performance goals and
shareholder value enhancement.
EXECUTIVE COMPENSATION PROGRAM FOR KEY EXECUTIVES
The total compensation program for executives includes both cash and
equity-based compensation. The Compensation Committee determines the level of
salary for executive officers and determines the salary or salary ranges based
upon periodic reviews of base salary levels for comparable officer positions in
similar companies of comparable size and capitalization. Salary changes are
based upon the Compensation Committee's assessment of the executive's
performance and the scope and complexity of the position held.
At the beginning of 2002, the Compensation Committee considered the
Company's target earnings per share goals and the business plans of the Company.
Consideration included past and anticipated performance, new product and market
expectations, assets employed and similar factors. The Compensation Committee
set earnings per share performance levels for the consolidated Company, upon
which incentives were placed for each of the executives. Cash bonus awards,
based upon meeting or exceeding such performance levels and limited to a
percentage of base salary, were set for each executive officer. With the
exception of Mr. Ford, Named Executive Officer bonuses were based entirely on
Inter-Tel earnings per share targets. Seventy-five percent of the performance
award opportunity for Mr. Ford was based on earnings and other specific
measurements within his operating segment of the Company, and 25% was based on
Inter-Tel earnings per share targets. Maximum bonus awards, ranging from 60% to
100% of annual base compensation were set for the Named Executive Officers.
As indicated above, annual cash bonus awards are integrated with
performance against specific earnings per share and operating segment
measurement goals set forth in the Company's business plan. Performance
benchmarks are tied to the specific earnings per share and operating segment
performance of the Company. The cash bonuses in the Summary Compensation Table
reflect the performance of the Named Executive Officers against the targets
established at the beginning of each year. The performance levels were not
achieved during 2001 or 2000 for any of the Named Executive Officers;
accordingly, no bonuses were paid for 2001 or 2000 for any of these executives.
17
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's salary for 2002 was determined based upon
periodic reviews of the salaries of Chief Executive Officers of similar
companies of comparable size and capitalization and upon a review of the Chief
Executive Officer's performance against the Company's 2001 performance. The
Compensation Committee determined the CEO's 2002 bonus opportunity based on
similar Company consolidated earnings performance criteria used to determine
bonuses for the other executive officers. No stock options were granted to Mr.
Mihaylo to purchase Inter-Tel stock during 2002.
COMPENSATION COMMITTEE: J. Robert Anderson (Chairman) and Gary D. Edens
18
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The following graph compares the cumulative total return of the Company's
Common Stock with the Nasdaq Composite Index and a self-determined peer group
index from December 1997 to December 2002. The Common Stocks of the peer group
companies have been included on a weighted basis to reflect the relative market
capitalization at the end of each period shown. Inter-Tel selected Avaya, Inc.
(Avaya) as a member of our self-determined peer group, using measurements from
the date of Avaya's inception (September 18, 2000). Comdial Corp. (Comdial) was
delisted from the Nasdaq stock market effective November 25, 2002; therefore,
the graph below depicts the peer group data available only through that date.
The graph below presents data for the self-determined peer group for the final
time through 2002. Inter-Tel selected the Nasdaq telecom index for comparisons
in the second graph and for future comparative periods. In this year of change,
both graphs are presented for comparison purposes.
[LINE GRAPH]
Legend
Description 12/31/97 12/31/98 12/29/99 12/31/00 12/31/01 12/31/02
----------- -------- -------- -------- -------- -------- --------
INTER-TEL, INCORPORATED 100.0 120.9 129.6 40.0 100.4 109.7
Nasdaq Composite Index 100.0 141.0 261.5 157.4 124.9 86.3
Self-Determined Peer Group (1) 100.0 80.1 46.6 9.4 11.1 2.4
(1) Companies in the Self-Determined Peer Group: COMDIAL CORP, AVAYA INC. and
NORSTAN INC.
Notes: A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends. B. The indexes are reweighted daily, using
the market capitalization on the previous trading day. C. If the monthly
interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used. D. The index level for all series was set to $100.0 on
12/31/97.
19
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The following graph compares the cumulative total return of the Company's
Common Stock with the Nasdaq Composite Index and the Nasdaq Telecommunications
Stocks index from December 1997 to December 2002. Inter-Tel selected the Nasdaq
Telecommunications Stock index for comparisons in this second graph and for
future comparative periods.
[LINE GRAPH]
Legend
Description 12/31/97 12/31/98 12/29/99 12/31/00 12/31/01 12/31/02
----------- -------- -------- -------- -------- -------- --------
INTER-TEL, INCORPORATED 100.0 120.9 129.6 40.0 100.4 109.7
Nasdaq Composite Index 100.0 141.0 261.5 157.4 124.9 86.3
Nasdaq Telecommunications Stocks 100.0 165.0 295.0 125.7 84.2 38.8
SIC 4800-4899 US & Foreign
Notes: A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends. B. The indexes are reweighted daily, using
the market capitalization on the previous trading day. C. If the monthly
interval, based on the fiscal year-end, is not a trading day, the preceding
trading day is used. D. The index level for all series was set to $100.0 on
12/31/97.
20
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Please refer to "Executive Compensation Principles" above for information
regarding loans offered to Named Executive Officers to acquire the Company's
Common Stock.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the year ended December 31, 2002, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent shareholders
were complied with. However, on December 31, 2002, the Company reallocated
forfeited shares from its ESOP plan to all eligible employees. Messrs. Mihaylo,
Rauchle, Ford and Kneip received 14, 14, 12 and 10 reallocated shares,
respectively on that date, but did not file Form 4's within two days, or January
3, 2003. Each of the four individuals filed Form 4's on January 17, 2002, one
day after receiving notice of the reallocation.
OTHER MATTERS
The Board of Directors is not aware of any matters that will be presented
for consideration at the Annual Meeting other than those described in this Proxy
Statement. If any other matters properly come before the Annual Meeting, the
persons named on the accompanying Proxy will have the authority to vote on those
matters in accordance with their own judgment.
By Order of the Board of Directors
Kurt R. Kneip, Secretary
March 19, 2003
21
EXHIBIT A
INTER-TEL, INCORPORATED
AUDIT COMMITTEE CHARTER, AS AMENDED
FEBRUARY 17, 2003
ORGANIZATION
This Audit Committee Charter (the "Charter") governs the operations of the Audit
Committee (the "Committee") of Inter-Tel, Incorporated ("Inter-Tel" or the
"Corporation"). The charter will be reviewed and reassessed by the Committee
annually, and proposed changes, if any, will be recommended to the Board for
approval. The Committee shall be appointed by the Board and shall comprise at
least three directors, each of whom shall be qualified to serve on the Committee
pursuant to the following requirements (as well as any additional criteria
required by the Securities and Exchange Commission (the "SEC") or NASDAQ:
* Each member will be an independent director, as defined in (i) NASDAQ
Rules and (ii) the rules of the SEC.
* Each member will be able to read and understand fundamental financial
statements, in accordance with the NASDAQ National Market Audit
Committee requirements; and
* At least one member of the Committee will qualify as a "financial
expert," in accordance with the rules of the SEC.
The Chairman of the Committee (the "Chairman") shall be designated by the Board,
provided, however, that if the Board does not so designate a Chairman, the
members of the Committee, by majority vote, may designate the Chairman.
STATEMENT OF PURPOSE
The Committee's purpose is to:
* To take such actions as are necessary to monitor: (i) the integrity of
the Corporation's financial reporting, (ii) the Corporation's
compliance with legal and regulatory requirements, (iii) the internal
and independent auditor's qualifications, independence and
performance, and (iv) the Corporation's internal accounting and
financial controls;
* Outline to the Board improvements made, or to be made, in internal
accounting controls;
* Appoint, determine funding for, and oversee the independent auditors;
* Prepare the report that the rules of the SEC require be included in
the Corporation's annual proxy statement;
* Provide the Corporation's Board with the results of its monitoring and
recommendations derived therefrom; and
* Provide to the Board such additional information and materials as it
may deem necessary to make the Board aware of significant financial
matters that require the attention of the Board.
It is the responsibility of the Committee to maintain free and open
communication between the Committee, independent auditors, the internal
auditors, Board of Directors and Corporation Management. In discharging its
oversight role, the Committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities and personnel
of the Corporation and, further, it has the power to retain outside counsel, or
other experts, for this purpose.
22
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Corporation's
financial reporting process on behalf of the Board and report the results of its
activities to the Board. Management is responsible for preparing the
Corporation's financial statements. The Committee, in carrying out its
responsibilities, believes its policies and procedures should remain flexible in
order to best react to changing conditions and circumstances.
The Committee shall have the following authority and responsibilities. Such
authority and responsibilities are set forth as a guide with the understanding
that the Committee or the Board may amend or supplement them from time to time
as appropriate.
* Review and approve the Corporation's independent auditors' annual
engagement letter, including the proposed fees contained therein;
* Pre-approve audit and non-audit services provided to the Corporation
by the independent auditors (or subsequently approving non-audit
services in those circumstances where a subsequent approval is
necessary and permissible). In this regard, (x) the Committee shall
have the sole authority to approve the hiring and firing of the
independent auditors, all audit engagement fees and terms and all
non-audit engagements, as may be permissible, with the independent
auditors and (y) the Committee may elect to form and delegate
authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant pre-approvals of audit
and permitted non-audit services, provided that decisions of such
subcommittee to grant pre-approvals shall be presented to the full
Committee at its next scheduled meeting;
* Review the performance of the Corporation's independent auditors and
make recommendations to the Board regarding the replacement or
termination of the independent auditors when circumstances warrant;
* Oversee the independence of the Corporation's independent auditors by,
among other things:
o requiring the independent auditors to deliver to the Committee on
a periodic basis a formal written statement delineating all
relationships between the independent auditors and the
Corporation consistent with Independent Standards Board Standard
No. 1;
o actively engaging in a dialogue with the independent auditors
with respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent
auditors and recommending that the Board take appropriate action
in to satisfy itself of the auditors' independence; and
o Reviewing reports submitted to the audit committee by the
independent auditors in accordance with the applicable SEC
requirements.
* Instruct the Corporation's independent auditors that they are
ultimately accountable to the Committee and the Board, and that the
Committee and the Board are responsible for the selection, evaluation
and termination of the Corporation's independent auditors (including
resolution of disagreements between management and the auditor
regarding financial reporting);
* Discuss with the Corporation's independent auditors the financial
statements and audit findings, including any significant adjustments,
management judgments and accounting estimates, significant new
accounting policies and disagreements with management and any other
matters described in SAS No. 61, as may be modified or supplemented;
* Review and discuss the results of the year-end audit of the
Corporation, including any comments or recommendations of the
Corporation's independent auditors, and the audited financial
statements and related MD&A to be included in the Corporation's Annual
Report on Form 10-K;
23
* Review with management and the independent auditors the Corporation's
interim financial statements and the related MD&A included in
Quarterly Reports on Form 10-Q, including the results of the
independent auditor's reviews of the quarterly financial statements;
* Direct the Corporation's independent auditors to review before filing
with the SEC the Corporation's interim financial statements included
in Quarterly Reports on Form 10-Q, using professional standards and
procedures for conducting such reviews;
* Review with management and the independent auditors weaknesses in
internal controls and any significant suggestions for improvements
provided to management by the independent auditors;
* Review before release the unaudited quarterly operating results in the
Corporation's quarterly earnings release, including the use of
"pro-forma" or "adjusting" non-GAAP information, as well as financial
information and earnings guidance provided to analysts, rating
agencies or similar external audiences;
* Meet at least quarterly with the senior internal auditing executive
and the independent auditor in separate executive sessions;
* Request from the Corporation that appropriate funding be provided, as
determined by the Committee, for payment of compensation to the
independent auditor for the purpose of rendering or issuing an audit
report and to any advisor employed by the Committee;
* Provide a report in the Corporation's proxy statement;
* Unless submitted to another comparable independent body of the Board,
as and to the extent required under applicable federal securities laws
and related rules and regulations, and/or the NASDAQ Marketplace
Rules, related party transactions shall be submitted to the Committee
for review and the Committee shall approve or disapprove such related
party transactions;
* Obtain from the Corporation's independent auditors any information
pursuant to Section 10A of the Securities Exchange Act of 1934;
* Establish procedures for receiving, retaining and treating complaints
received by the Corporation regarding accounting, internal accounting
controls or auditing matters and procedures for the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters;
* Report regularly to the Board on its activities, as appropriate.
The Committee, as necessary or appropriate, shall also:
IN REGARDS TO FINANCIAL STATEMENT AND DISCLOSURE MATTERS:
* Review with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Corporation's financial statements;
* Receive periodic reports from the Corporation's independent auditors
and management of the Corporation regarding the review, selection,
application and disclosure of Corporation's significant accounting
policies;
* Review with management and the Corporation's independent auditors such
accounting policies (and changes therein) of the Corporation,
including any financial reporting issues which could have a material
impact on the Corporation's financial statements, as are deemed
appropriate for review by the Committee prior to any interim or
year-end filings with the SEC or other regulatory body;
* Review the adequacy and effectiveness of the Corporation's accounting,
disclosure and internal control policies and procedures through
inquiry, discussion and periodic meetings with the Corporation's
independent auditors and management of the Corporation and to review
before release the disclosure regarding such system of internal
controls required under SEC rules to be contained in the Corporation's
periodic filings and the attestations or reports of the independent
auditors relating to such disclosure;
24
* Review with management the Corporation's administrative, operational
and accounting internal controls, and advise the Board as to any
concerns regarding whether the Corporation is operating in accordance
with its prescribed policies, procedures and codes of conduct;
IN REGARDS TO OVERSIGHT OF THE COMPANY'S RELATIONSHIP WITH THE INDEPENDENT
AUDITOR:
* Review the independent auditors' most recent internal and external
quality control review (if applicable);
* Review and accept, if appropriate, the annual audit plan of the
Corporation's independent auditors, including the scope of audit
activities, and monitor such plan's progress and results during the
year;
* Review the experience and qualifications of the senior members of the
independent auditor team and the quality control procedures of the
independent auditor;
* Review with management the guidelines/practices for the Corporation's
hiring of employees of the independent auditor who were engaged on the
Corporation's account;
IN REGARDS TO COMPLIANCE OVERSIGHT RESPONSIBILITIES:
* Oversee compliance with the requirements of the SEC for disclosure of
auditor's services and audit committee members, member qualifications
and activities;
* Review with management and the independent auditor any correspondence
with regulators or governmental agencies or published reports which
raise material issues regarding the Corporation's financial statements
or accounting policies;
* Meet with the general counsel and outside counsel when appropriate, to
review legal and regulatory matters, including any matters that may
have a material impact on the financial statements of the Corporation;
* Review the Corporation's program to monitor compliance with the
Corporation's Code of Conduct or similar ethics code (including
policies related to conflicts of interest), and meet periodically with
the Corporation's Compliance Officer to discuss compliance with the
Code of Conduct, including the review of reports and disclosures of
insider and affiliated party transactions;
* Review, in conjunction with counsel, any legal matters that could have
a significant impact on the Corporation's financial statements;
* Provide oversight and review at least annually of the Corporation's
risk management policies, including its investment policies; and
AND, IN GENERAL:
* Perform such additional activities, and consider such other matters,
within the scope of its responsibilities, as the Committee or the
Board deems necessary or appropriate.
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. Similarly, it is not the responsibility of the Committee to ensure
that the Corporation complies with all laws and regulations and its Code of
Conduct.
Members of the Committee shall receive such fees, if any, for their service as
Committee members as may be determined by the Board in its sole discretion. Such
fees may include retainers or per meeting fees. Fees may be paid in such form of
consideration as is determined by the Board. Members of the Committee may not
receive any compensation from the Corporation except the fees that they receive
for service as a member of the Board or any committee thereof.
25
MEETINGS
The Committee will meet as often as it determines, but not less frequently than
once quarterly. The Committee, in its discretion, will ask members of management
or others to attend its meetings (or portions thereof) and to provide pertinent
information as necessary. The Committee will meet separately with the Chief
Executive Officer and separately with the Chief Financial Officer of the
Corporation at such times as it deems appropriate in order to review the
financial affairs of the Corporation. The Committee will meet periodically in
separate executive session with the independent auditors as well as any internal
auditors of the Corporation at such times as it deems appropriate in order to
review the financial controls of the Corporation and to otherwise fulfill the
responsibilities of the Committee under this charter. The Committee may also
meet with the Corporation's investment bankers or financial analysts who follow
the Corporation.
MINUTES
The Committee will maintain written minutes of its meetings, which minutes will
be filed with the minutes of the meetings of the Board.
/s/ Jerry Chapman , Audit Committee Chair
--------------------------------------------
Jerry Chapman
/s/ J. Robert Anderson , Audit Committee Member
--------------------------------------------
J. Robert Anderson
/s/ Gary D. Edens , Audit Committee Member
--------------------------------------------
Gary D. Edens
/s/ Dr. C. Roland Haden , Audit Committee Member
--------------------------------------------
Dr. C. Roland Haden
February 17, 2003
26
INTER-TEL, INCORPORATED ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 21, 2003, 10:00 A.M.
1615 S. 52nd Street, Tempe, Arizona 85281
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON APRIL 21, 2003.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify on the reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint Kurt R. Kneip,
Jeffrey T. Ford and Norman Stout, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
THERE ARE THREE WAYS TO VOTE YOUR PROXY. YOUR INTERNET OR TELEPHONE VOTES
AUTHORIZE THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU
MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
1. VOTE BY INTERNET-- www.eproxy.com/intl/-- QUICK ooo EASY ooo IMMEDIATE
* Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on April 18, 2003.
* 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.
2. VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326-- QUICK ooo EASY ooo IMMEDIATE
* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 a.m. (CT) on April 18, 2003.
* 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.
3. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to Inter-Tel, Incorporated, c/o
Shareowner Services, P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY INTERNET OR BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors:
01 Steven G. Mihaylo 04 Gary D. Edens
02 J. Robert Anderson 05 C. Roland Haden
03 Jerry W. Chapman
[ ] Vote FOR all nominees (except as marked) [ ] Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDICATED NOMINEE, WRITE THE NUMBER(S)
OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)__________________________________
2. To consider and ratify the appointment of Ernst & Young LLP as the Company's [ ] For [ ] Against [ ] Abstain
independent auditors.
3. To amend the Company's 1997 Long-Term Incentive Plan to remove the 500,000 [ ] For [ ] Against [ ] Abstain
share lifetime individual grant limitation and to create an annual
individual grant limit per individual of 1% or less of the total
outstanding shares for any one year period. If approved by the
shareholders, the new annual limit will first be determined as of April 21,
2003 and, beginning in 2004, on January 1 of each year thereafter.
4. To transact such other business as may properly come before the meeting or [ ] For [ ] Against [ ] Abstain
any adjournment thereof. For Against Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] 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.