Exhibit 10.1
SETTLEMENT AGREEMENT
     This Settlement Agreement (this “Agreement”), dated as of May 5, 2006 (the
“Effective Date”), is entered into among Inter-Tel, Incorporated (“Inter-Tel” or
the “Company”), Steven G. Mihaylo (“Mr. Mihaylo”) and Summit Growth Management
LLC, a wholly owned affiliate of Mr. Mihaylo (“Summit”). Each of the Company,
Mr. Mihaylo and Summit are referred to individually as a “Party” and
collectively as the “Parties”.
     WHEREAS, on March 6, 2006, Mr. Mihaylo filed a Schedule 13D with the
Securities and Exchange Commission (the “SEC”), which has been amended twice,
most recently on April 21, 2006 (collectively the “Schedule 13D”). In the
Schedule 13D, Mr. Mihaylo states that he is the beneficial owner of 5,179,498
shares of Company common stock, or approximately 19.6% of the outstanding shares
and that he has been discussing a possible arrangement with Vector Capital
Corporation (“Vector”) to purse an acquisition of the Company.
     WHEREAS, on April 7, 2006, in accordance with the Company’s recently
adopted advance notice bylaw provisions, Mr. Mihaylo notified the Company of his
intent to nominate three persons for election to the Company’s board of
directors (the “Board”) at the Annual Meeting (as defined below) and to make six
proposals for approval at the Annual Meeting (the “Mihaylo Resolutions”).
     WHEREAS, on April 10, 2006, Mr. Mihaylo made a filing with the SEC under
Schedule 14A which (a) contained, among other things, the text of a press
release issued by Mr. Mihaylo announcing that he had requested that the Board
meet with him to discuss a possible all-cash acquisition of the Company led by
Mr. Mihaylo and the text of April 3, 2006 and April 10, 2006 letters from Mr.
Mihaylo to the Board regarding such a possible acquisition and (b) disclosed
that he had delivered to the Board the advance notices of director nominations
and shareholder business.
     WHEREAS, on April 10, 2006, the Company filed a preliminary proxy statement
under Schedule 14A for the annual meeting of stockholders to be held on May 31,
2006 (including any adjournment or postponement thereof, the “Annual Meeting”),
as amended on April 28, 2006, in which the Company proposed the election of
eight nominees as directors, submitted two proposals for shareholder approval
(the “Company Proposals”), and requested that the shareholders ratify the
selection of accountants.
     WHEREAS, on April 21, 2006, Mr. Mihaylo and Summit filed preliminary proxy
materials under Schedule 14A for the Annual Meeting in which they proposed the
election of three nominees for directors, submitted the Mihaylo Resolutions, and
recommended that shareholders vote for the election of the three nominees, for
the Mihaylo Resolutions and the ratification of auditors and against the two
proposals submitted by the Company.

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     WHEREAS, the advisors of the Company and Mr. Mihaylo have met to discuss a
potential resolution of the proxy solicitation.
     WHEREAS, in order to facilitate such discussions and to resolve the proxy
solicitation, the parties have agreed to enter into this Agreement.
     NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
          1. With respect to the election of directors:
               (a) The Board agrees to nominate and recommend the election of
Mr. Mihaylo, Anil K. Puri and Kenneth L. Urish (the “Mihaylo Nominees”) as part
of the Company’s slate of eleven (11) directors to be elected at the Annual
Meeting. The Board’s proxies and Mr. Mihaylo will vote equally all of the shares
they are entitled to vote at the Annual Meeting for Company’s eight nominees and
the Mihaylo Nominees (or their replacements chosen pursuant to Section 1(b)
below). Mr. Mihaylo agrees that he will not give notice of his intention to
cumulate his votes at the Annual Meeting.
               (b) The Board agrees that if a Mihaylo Nominee shall be unable or
unwilling to serve as a nominee or a director for any reason prior to his
election as a director in accordance with this Agreement, then Mr. Mihaylo shall
be entitled to designate another person reasonably acceptable to the Corporate
Governance and Nominating Committee and a majority of the members of the entire
Board, and any such person shall become a “Mihaylo Nominee” for all purposes
under this Agreement, and the Board shall nominate for election or appoint to
the Board such person, as the case shall be.
               (c) The Board will use its reasonable best efforts to cause the
Annual Meeting to be held on May 31, 2006.
               (d) The Board agrees to elect the Mihaylo Nominees to the Board
effective the day after the Effective Date to serve until the Annual Meeting and
until their successors are duly elected and qualified or until their earlier
resignation, death, or removal. For purposes of disclosure only, the Board
hereby notifies Mr. Mihaylo and Summit that, until Mr. Mihaylo files a
Schedule 13D disclosing that he no longer has an intent to increase his
shareholdings or otherwise acquire the Company, the Board presently intends to
exclude, and it is agreed by Mr. Mihaylo and Summit that, subject to such
agreement not causing the Mihaylo Nominees to breach their fiduciary duties as
directors of the Company, the Board may exclude, the Mihaylo Nominees from any
discussions concerning, and from receipt of any materials regarding, the
Company’s value and the strategic plan upon which such value would in part be
based, the Company’s relationship with Mr. Mihaylo, and the consideration of any
proposal to acquire the Company from Mr. Mihaylo or any other person.
          2. With respect to the other business to be considered at the Annual
Meeting:

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               (a) The Company will not make, or otherwise consider for
business, any proposals at the Annual Meeting other than the election of
directors, the Company Proposals, and the ratification of auditors. The Company
agrees that it will not make any references to Mr. Mihaylo or Summit in any of
the Company’s soliciting materials in connection with the Annual Meeting without
Mr. Mihaylo’s prior consent, which consent shall not be unreasonably withheld or
delayed.
               (b) Mr. Mihaylo hereby withdraws and rescinds his request that
the Company shareholders consider and vote upon the Mihaylo Resolutions at the
Annual Meeting. Mr. Mihaylo will terminate his proxy solicitation, and make all
appropriate filings with the SEC with respect thereto. Mr. Mihaylo agrees to
vote all shares he is entitled to vote in favor of the Company Proposals and the
ratification of auditors.
               (c) Upon the execution of this Agreement, the Parties will issue
the press release attached hereto as Exhibit A. The Parties agree that this
press release will be the only press release on the subject matter of this
Agreement and the Parties agree not to grant or participate in media interviews
regarding the subject matter of this Agreement, other than to recite that the
Settlement Agreement has been filed with the SEC.
          3. Prior to December 31, 2006, Mr. Mihaylo and Summit agree that,
other than by evaluating and making a Mihaylo Proposal (as defined below), they
will not acquire, offer or propose to acquire, or agree to acquire (except by
way of stock dividends, stock splits, reverse stock splits or other
distributions or offerings made available to holders of any common stock
generally), directly or indirectly, whether by purchase, tender or exchange
offer, through the acquisition of control of another person, by joining a
partnership, limited partnership, syndicate or other “group” (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or
otherwise, any common stock of the Company, provided, however, that activities
other than share acquisitions in connection with evaluating and making a Mihaylo
Proposal, including, without limitation, discussions and/or arrangements with
equity and debt financing sources (other than the acquisition of beneficial
ownership of shares owned as of such date as a result of formation of a “group”)
in connection therewith, are not subject to this paragraph. Notwithstanding the
forgoing, the Company acknowledges that, Mr. Mihaylo and Summit may form a
partnership, limited partnership, “group”, or other arrangement with Vector in
connection with a Mihaylo Proposal. Prior to the earlier of (a) December 31,
2006, (b) the entry by the Company into a definitive agreement with respect to a
Third Party Proposal (as defined below), (c) the public announcement of an
extraordinary corporate transaction (for example, a material acquisition, a
reorganization, an extraordinary dividend, or a sale of significant number of
shares), and (d) the submission of a Mihaylo Request (as defined below),
Mr. Mihaylo and Summit agree (i) not to publicly make any adverse statement
regarding the Company, its directors, management, or employee personnel, its
business, or the Annual Meeting, (ii) not to visit any Company facility (other
than in connection with Board, committee or shareholder meetings scheduled to be
held at a Company facility), and (iii) to notify the Company at least five
(5) business days in advance of submitting a Mihaylo Proposal of his non-binding
intent to do so and to attempt to coordinate with the Company public disclosure

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thereof and the Company agrees not to publicly make any adverse statement
regarding Mr. Mihaylo and Summit. For these purposes, the statements of
Company’s board of directors and executive officers will be deemed to be
statements of the Company whereas the statements of other persons will not be
considered statements of the Company.
          4. Concurrently with the execution of this Agreement, the Company and
Mr. Mihaylo are entering into the confidentiality agreement in the form attached
hereto as Exhibit B. Upon reasonable notice given to John Gardner, Kurt Kneip,
or Norman Stout, the Company agrees to provide promptly Mr. Mihaylo and his
advisors and financing sources access to the reasonable due diligence
information requested in good faith, in order to facilitate the making of an all
cash acquisition proposal for all outstanding Company shares by Mr. Mihaylo
(other than shares beneficially owned by him) accompanied by commitment letters
(subject only to customary conditions) of financial institutions of national
reputation (including Vector and RBC) demonstrating a reasonable certainty of
his ability to finance the transaction in its entirety (“Mihaylo Proposal”)
prior to June 15, 2006, provided, that the term “Mihaylo Proposal” shall include
acquisition proposals, and any amendments or revisions thereto, made by
Mr. Mihaylo, whether prior to or after June 15, 2006 so long as they continue to
meet the criteria for a Mihaylo Proposal as set forth in this sentence before
this proviso.
          5. If the Board determines that the initially-submitted Mihaylo
Proposal is not in the best interests of the Company’s shareholders (or fails to
make such determination within ten (10) business days of submission of the
Mihaylo Proposal), then, upon the request of Mr. Mihaylo (a) in the event the
Board fails to make such determination within such ten (10) business day period,
made within twenty (20) business days after submission of the Mihaylo Proposal)
or (b) in the event the Board determines that the Mihaylo Proposal is not in the
best interests of the Company’s shareholders, made within ten (10) business days
after receipt by Mr. Mihaylo of written notice of such determination or public
announcement thereof (the “Mihaylo Request”), the Company will promptly call a
special meeting of shareholders (the “Special Meeting”) to vote on the proposals
set forth in the Mihaylo Request, including, without limitation, any proposal
urging the Board to arrange for the prompt sale of the Company to the highest
bidder (the “Sell the Company Request”). The Company will set the record date
for the Special Meeting for a date within ten (10) days of receipt of the
Mihaylo Request and the date of the Special Meeting shall be on a date chosen by
the Company within sixty (60) days after receipt of the Mihaylo Request. The
Company will not contest the calling of the Special Meeting as to the Sell the
Company Request but, notwithstanding any other provision of this Section 5, may
contest the calling of the meeting for other purposes and the submission of
proposals other than the Sell the Company Request at the Special Meeting, and
the Company may oppose the Sell the Company Request and any other proposals that
are included in the Mihaylo Request. Notwithstanding the foregoing, if, prior to
the date of the Special Meeting, the Company enters into a definitive agreement
to be acquired by a third party (a “Third Party Proposal”), then Mr. Mihaylo
will agree to withdraw the Mihaylo Request.

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          6. Nothing in this Agreement shall prevent the Company from having
discussions, or entering into a definitive agreement, with respect to a Third
Party Proposal.
          7. Prior to the earlier of (a) the execution of a definitive
acquisition agreement with respect to the Mihaylo Proposal, (b) the execution of
a definitive agreement with respect to a Third Party Proposal that provides for
per share consideration higher than the consideration provided in the final
Mihaylo Proposal presented to the Company, (c) the Special Meeting, (d)
August 31, 2006, (e) June 15, 2006, if the Mihaylo Proposal has not been made,
or (f) the expiration of the period in which Mr. Mihaylo is entitled to submit a
Mihaylo Request, if Mr. Mihaylo does not submit a Mihaylo Request within such
period, except as required by applicable law, the Company will not adopt a bylaw
or amend its articles or certificate of incorporation to prevent Mr. Mihaylo
from calling a Special Meeting so long as he and Summit have not sold any of
their Company shares of stock such that they then no longer own at least ten
percent (10%) of the Company’s outstanding stock.
          8. If, prior to August 31, 2006, the Board enters into a definitive
acquisition agreement with respect to a Third Party Proposal that provides for
per share cash consideration higher than the cash consideration provided in the
final Mihaylo Proposal presented to the Company and Mr. Mihaylo has determined
not to make a competing proposal, then Mr. Mihaylo agrees to vote (or, if
requested, to execute proxies), or execute a written consent or consents if
shareholders of the Company are requested to vote their shares through the
execution of an action by written consent in lieu of any such annual or special
meeting of shareholders of the Company, in either case with respect to all of
the shares of common stock of the Company beneficially owned by him on the
record date of any such vote or written consent, in favor of approval of such
Third Party Proposal, provided that (a) the Board shall have recommended that
shareholders approve such proposal and not changed such recommendation (or been
precluded by the terms of such proposal from changing such recommendation) or
(b) no third party shall have publicly announced an acquisition proposal that
would provide for per share consideration higher than the consideration provided
in the Third Party Proposal.
          9. Mr. Mihaylo and Summit each represent and warrant to the Company as
follows:
               (a) Each has the power and authority to execute, deliver and
carry out the terms and provisions of this Agreement.
               (b) This Agreement has been duly and validly authorized,
executed, and delivered by each, constitutes a valid and binding obligation and
agreement of each, and is enforceable against each in accordance with its terms.
          10. The Company represents and warrants to each of Mr. Mihaylo and
Summit as follows:

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               (a) The Company has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Agreement.
               (b) This Agreement has been duly and validly authorized, executed
and delivered by the Company, constitutes a valid and binding obligation and
agreement of the Company, and is enforceable against the Company in accordance
with its terms.
          11. The Parties acknowledge that remedies at law may be inadequate to
protect a Party against any actual or threatened breach of this Agreement and,
without prejudice to the rights and remedies otherwise available to the
non-breaching Party, each Party agrees to the granting of injunctive relief in
favor of the non-breaching Party without proof of irreparable harm or damages.
          12. The validity and interpretation of this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to agreements made and to be fully performed
therein (excluding the conflicts of laws rules). The state and federal courts
located within the State of California have exclusive jurisdiction over any
dispute arising out of or relating to this Agreement and the Parties hereby
submit and consent to the exercise of personal jurisdiction over each of them by
these courts. .
          13. The benefits of this Agreement shall inure to the respective
successors and assigns of the Parties, and the obligations and liabilities
assumed in this Agreement by the Parties shall be binding upon their respective
successors and assigns; provided, however, that neither Mr. Mihaylo nor Summit
may assign his or its rights and obligations under this Agreement to any person
other than an affiliate without the prior written consent of the Company.
          14. If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that any term or provision hereof
is invalid or unenforceable, (i) the remaining terms and provisions hereof shall
be unimpaired and shall remain in full force and effect and (ii) the invalid or
unenforceable provision or term shall be replaced by a term or provision that is
valid and enforceable and that comes closest to expressing the intention of such
invalid or unenforceable term or provision.
          15. This Agreement, including the Exhibits hereto, embodies the entire
agreement and understanding of the parties hereto and supersedes any and all
prior agreements, arrangements and understandings relating to the matters
provided for herein. No alteration, waiver, amendment, change or supplement
hereto shall be binding or effective unless the same is set forth in writing,
signed by a duly authorized representative of each Party, and may be modified or
waived only by a separate letter executed by the parties expressly so modifying
or waiving such Agreement.
          16. For the convenience of the Parties, any number of counterparts of
this Agreement may be executed by the parties hereto. Each such counterpart
shall be,

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and shall be deemed to be, an original instrument, but all such counterparts
taken together shall constitute one and the same Agreement.
          17. Each Party shall bear its own expenses in connection with this
Agreement.
          18. Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of any Party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that Party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
          19. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) one (1) business day after
being sent by a nationally recognized overnight carrier to the addresses set
forth below (or to such other mailing addresses as a Party may designate by
notice to the other Parties in accordance with this section) or (b) when
actually delivered if sent by any other method that results in delivery (with
written confirmation of receipt):
          If to the Company:
1615 South 52nd Street
Tempe, Arizona 85281
Attention: Norman Stout, CEO
          with a copy to (which shall not constitute notice):
Pillsbury Winthrop Shaw Pittman LLP
2475 Hanover Street
Palo Alto, California 94304
Attention: Stephen Wurzburg, Esq.
     and
          If to Mr. Mihaylo or Summit:
P.O. Box 19790
Reno, Nevada 89511
          with a copy to (which shall not constitute notice):
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Brian J. McCarthy, Esq.

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or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
          20. Any headings contained in this Agreement are for reference
purposes only and shall not effect in any way the meaning or interpretation of
this Agreement.
          21. In the event a Party shall bring any action to enforce or protect
any of its rights under this Agreement, the prevailing Party shall be entitled
to recover, in addition to its damages, its reasonable attorneys’ fees and
costs.
          22. Upon and subject to the terms of this Agreement, each of the
Parties hereto agrees to use its or his commercially reasonable efforts to cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other party in doing, all things necessary, proper or
advisable to consummate or make effective, in the most expeditious manner
practicable, the matters contemplated by this Agreement.
[signature page follows]

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     IN WITNESS WHEREOF, each of the undersigned parties has executed or caused
this Agreement to be executed on the date first above written.

             
 
                INTER-TEL, INCORPORATED    
 
           
 
  By:   /s/ Norman Stout    
 
           
 
      Name: Norman Stout    
 
      Title: Chief Executive Officer    
 
                /s/ Steven G. Mihaylo                   STEVEN G. MIHAYLO    
 
                SUMMIT GROWTH
        MANAGEMENT LLC    
 
           
 
  By:   /s/ Steven G. Mihalyo    
 
           
 
      Name: Steven G. Mihaylo    
 
      Title: Managing Member    

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