SC TO-I

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE TO
TENDER OFFER STATEMENT
UNDER
SECTION 14(d)(1) OR 13(e)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934

INTERACTIVE INTELLIGENCE, INC.
(Name of Subject Company (Issuer) and Filing Person (Offeror))

OPTIONS TO PURCHASE COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)

n/a*
(Cusip Number of Class of Securities)

Michael J. Tavlin
Senior Vice President and Chief Financial Officer
Interactive Intelligence, Inc.
8909 Purdue Road, Suite 300
Indianapolis, Indiana 46268
(317) 872-3000
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of filing person)

Copy to:

James A. Aschleman, Esq.
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204
(317)237-0300

CALCULATION OF FILING FEE

Transaction Valuation(1)	Amount of Filing Fee
$31,251,532	$6,251

(1)	Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 1,480,000 shares of common stock of Interactive Intelligence, Inc. having an aggregate value of $31,251,532 as of April 23, 2001 will be exchanged and/or cancelled pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction.
/ /	Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable.
/ /	Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the statement relates:
	/ /	third party tender offer subject to Rule 14d-1.
	/x/	issuer tender offer subject to Rule 13e-4.
	/ /	going-private transaction subject to Rule 13e-3.
	/ /	amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the results of the tender offer: / /
*	There is no trading market or CUSIP Number for the options. The CUSIP Number for the underlying common stock is 45839M 10 3.

Item 1.  Summary Term Sheet.

    The information set forth under "Summary Term Sheet" in the Offer to Exchange all Outstanding Options for New Options dated April 26, 2001 ("Offer to Exchange"), a copy of which is attached hereto as Exhibit (a)(1), is incorporated herein by reference.

Item 2.  Subject Company Information.

    (a) The name of the issuer is Interactive Intelligence, Inc., an Indiana corporation (the "Company"). The address of its principal executive offices is 8909 Purdue Road, Suite 300, Indianapolis, Indiana 46268. The telephone number at that address is (317) 872-3000.

    (b) This Tender Offer Statement on Schedule TO relates to an offer by the Company to exchange options outstanding under the Company's 1999 Stock Option and Incentive Plan (the "Plan") to purchase approximately 1,480,000 shares of the Company's Common Stock, par value $0.01 per share ("Option Shares"), for new options that will be granted under the Plan (the "New Options"), on the terms and subject to the conditions set forth under "The Offer" in the Offer to Exchange. If you are not an employee of the Company or one of its subsidiaries, you will not be eligible to accept the Offer. The information set forth under "The Offer" in the Offer to Exchange is incorporated herein by reference.

    (c) The information set forth in the Offer to Exchange under Section 8 ("Price range of shares underlying the options") is incorporated herein by reference.

Item 3.  Identity and Background of Filing Person.

    (a) The filing person is the issuer. The information set forth under Item 2(a) above is incorporated herein by reference. The information set forth in the Offer to Exchange in Schedule A ("Information Concerning the Directors and Executive Officers of Interactive Intelligence") is incorporated herein by reference.

Item 4.  Terms of the Transaction.

    (a) The information set forth in the Offer to Exchange under "Summary Term Sheet," Section 2 ("Number of options; expiration date"), Section 4 ("Procedures for tendering options"), Section 5 ("Withdrawal rights and change of election"), Section 6 ("Acceptance of options for exchange and issuance of new options"), Section 7 ("Conditions of the offer"), Section 9 ("Source and amount of consideration; terms of new options"), Section 12 ("Status of options acquired by us in the offer; accounting consequences of the offer"), Section 13 ("Legal matters; regulatory approvals"), Section 14 ("Material U.S. federal income tax consequences"), and Section 15 ("Extension of offer; termination; amendment") are incorporated herein by reference.

    (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of directors and officers; transactions and arrangements concerning the options") is incorporated herein by reference.

Item 5.  Past Contacts, Transactions, Negotiations and Arrangements.

    (e) The information set forth in the Offer to Exchange under Section 11 ("Interests of directors and officers; transactions and arrangements concerning the options") is incorporated herein by reference. The Company has entered into an option agreement with each option holder. The form of such option agreements are attached hereto as Exhibits (d)(3) and (d)(4).

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Item 6.  Purposes of the Transaction and Plans or Proposals.

    (a) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the offer") is incorporated herein by reference.

    (b) The information set forth in the Offer to Exchange under Section 12 ("Status of options acquired by us in the offer; accounting consequences of the offer") is incorporated herein by reference.

    (c) The information set forth in the Offer to Exchange under Section 3 ("Purpose of the offer") is incorporated herein by reference.

Item 7.  Source and Amount of Funds or Other Consideration.

    (a) The information set forth in the Offer to Exchange under Section 9 ("Source and amount of consideration; terms of new options") and Section 16 ("Fees and expenses") is incorporated herein by reference.

    (b) Not applicable.

    (d) Not applicable.

Item 8.  Interest in Securities of the Subject Company.

    (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of directors and officers; transactions and arrangements concerning the options") is incorporated herein by reference.

    (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of directors and officers; transactions and arrangements concerning the options") is incorporated herein by reference.

Item 9.  Person/Assets, Retained, Employed, Compensated or Used.

    (a) Not applicable.

Item 10.  Financial Statements.

    (a) The information set forth on pages 35 through 50 of the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2000 is incorporated herein by reference.

    (b) Not applicable.

Item 11.  Additional Information.

    (a) The information set forth in the Offer to Exchange under Section 13 ("Legal matters; regulatory approvals") is incorporated herein by reference.

    (b) Not applicable.

Item 12.  Exhibits.

    (a) (1) Offer to Exchange all Outstanding Options for New Options dated April 26, 2001.

    (2) Election Form.

    (3) Memorandum from Michael J. Tavlin to Employees dated April 26, 2001.

    (4) Notice to Change Election from Accept to Reject.

    (5) Form of Promise to Grant Stock Option(s).

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    (6) Interactive Intelligence, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 30, 2001, and incorporated herein by reference.

    (b) Not applicable.

    (d) (1) Interactive Intelligence, Inc. 1999 Stock Option and Incentive Plan as amended February 22, 2000, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.

    (2) Interactive Intelligence, Inc. 1999 Stock Option and Incentive Plan Prospectus.

    (3) Interactive Intelligence, Inc. Form of Agreement for Incentive Stock Options under 1999 Stock Option and Incentive Plan.

    (4) Interactive Intelligence, Inc. Form of Agreement for Non qualified Stock Options under 1999 Stock Option and Incentive Plan.

    (g) Not applicable.

    (h) Not applicable.

Item 13.  Information Required by Schedule 13e-3.

    (a) Not applicable.

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SIGNATURE

    After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct.

	INTERACTIVE INTELLIGENCE, INC.
	By:	/s/ MICHAEL J. TAVLINSenior Vice President and Chief Financial Officer
Date: April 26, 2001

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INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
(a)(1)	Offer to Exchange all Outstanding Options for New Options dated April 26, 2001.
(a)(2)	Election Form.
(a)(3)	Memorandum from Michael J. Tavlin to Employees dated April 26, 2001.
(a)(4)	Notice to Change Election from Accept to Reject.
(a)(5)	Form of Promise to Grant Stock Option(s).
(a)(6)	Interactive Intelligence, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 30, 2001, and incorporated herein by reference.
(d)(1)	Interactive Intelligence, Inc. 1999 Stock Option and Incentive Plan as amended February 22, 2000, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.
(d)(2)	Interactive Intelligence, Inc. 1999 Stock Option and Incentive Plan Prospectus.
(d)(3)	Interactive Intelligence, Inc. Form of Agreement for Incentive Stock Options under 1999 Stock Option and Incentive Plan.
(d)(4)	Interactive Intelligence, Inc. Form of Agreement for Nonqualified Stock Options under 1999 Stock Option and Incentive Plan.

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SIGNATURE
INDEX TO EXHIBITS

EX-99.(A)(1)

                                                                 Exhibit (a)(1)

            OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS
                            (THE "OFFER TO EXCHANGE")


         THIS SUPPLEMENT CONSTITUTES PART OF THE SECTION 10(a) PROSPECTUS
RELATING TO THE INTERACTIVE INTELLIGENCE, INC. 1999 STOCK OPTION AND INCENTIVE
PLAN.

April 26, 2001

- --------------------------------------------------------------------------------

                         INTERACTIVE INTELLIGENCE, INC.
            OFFER TO EXCHANGE ALL OUTSTANDING OPTIONS FOR NEW OPTIONS
                            (THE "OFFER TO EXCHANGE")

              THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 9:00 P.M.,
        INDIANAPOLIS TIME, ON MAY 24, 2001 UNLESS THE OFFER IS EXTENDED.

         Interactive Intelligence, Inc. is offering eligible employees the
opportunity to exchange all outstanding options granted under our 1999 Stock
Option and Incentive Plan (the "1999 Stock Option Plan") to purchase shares of
our common stock for new options which we will grant under our 1999 Stock Option
Plan. We are making the offer on the terms and conditions described in this
Offer to Exchange (the "Offer to Exchange"), the related memorandum from Michael
J. Tavlin dated April 26, 2001, the Election Form and the Notice to Change
Election from Accept to Reject (which together, as they may be amended from time
to time, constitute the "offer").

         The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the options
tendered by the eligible employee and accepted for exchange. Subject to the
terms and conditions of this offer, we will grant the new options on or about
the first business day which is at least six months and one day after the date
we cancel the options accepted for exchange. You may only tender options for all
or none of the outstanding, unexercised shares subject to an individual option
grant. All tendered options accepted by us through the offer will be cancelled
as promptly as practicable after 9:00 P.M. Indianapolis Time on the date the
offer ends. The offer is currently scheduled to expire on May 24, 2001 (the
"Expiration Date") and we expect to cancel options on May 25, 2001, or as soon
as possible thereafter (the "Cancellation Date"). IF YOU TENDER ANY OPTION GRANT
FOR EXCHANGE, YOU WILL BE REQUIRED TO ALSO TENDER ALL OPTION GRANTS THAT YOU
RECEIVED DURING THE SIX-MONTH PERIOD PRIOR TO THE CANCELLATION DATE. Since we
currently expect to cancel all tendered options on May 25, 2001, this means that
if you participate in the offer, you will be required to tender all options
granted to you since November 24, 2000.

         The offer is not conditioned on a minimum number of options being
tendered. Participation in the offer is completely voluntary. The offer is
subject to conditions that we describe in Section 7 of this Offer to Exchange.

         You may participate in the offer if you are an otherwise eligible
employee of Interactive Intelligence, Inc. or one of our subsidiaries.
Non-employee directors are not eligible to participate. In order to receive a
new option pursuant to this offer, you must continue to be an employee as of the
date on which the new options are granted, which will be at least six months and
one day after the Cancellation Date.

         If you tender options granted under the 1999 Stock Option Plan for
exchange as described in the offer, and we accept your tendered options, then,
subject to the terms of this offer, we will grant you new options under the 1999
Stock Option Plan.

         The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant. However, for
employees who live or work in France only, the exercise price per share of the
new options will be at least the higher of (i) 100%



of the closing price reported by the Nasdaq National Market on the date of
grant, or (ii) 80% of the average of the closing prices on that market over the
twenty (20) trading days before the grant date.

         Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options.

         Each new option granted will vest in accordance with the vesting
schedule of the cancelled options. Each new option granted will vest as follows:

         o        any options that were fully vested on the date that the offer
                  expires will be fully vested,

         o        all unvested options on the date the offer expires that would
                  have been fully vested on the date the new options are granted
                  (at least six months and one day from the date we cancel the
                  options accepted for exchange) will be fully vested, and

         o        all remaining unvested options will have a vesting schedule
                  that is equivalent to what would have been in place had the
                  cancelled options remained in effect.

         However, each new option will not have a provision providing for
accelerated vesting in the event of a change in control of Interactive
Intelligence. Therefore, even if an option that you tender and we accept for
exchange contained such an accelerated vesting provision on a change in control,
your new option granted under the offer will not contain such a provision.

         Although our Board of Directors has approved the offer, neither we nor
our Board of Directors makes any recommendation as to whether you should tender
or not tender your options for exchange. You must make your own decision whether
or not to tender your options.

         Shares of Interactive Intelligence common stock are traded on the
Nasdaq National Market under the symbol "ININ." On April 23, 2001, the closing
price of our common stock reported on the Nasdaq National Market was $14.90 per
share.

         WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON
STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR
OPTIONS.

         THIS OFFER TO EXCHANGE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE SEC) OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

         You should direct questions about the offer or requests for assistance
or for additional copies of this Offer to Exchange, the memorandum from Michael
J. Tavlin dated April 26, 2001, the Election Form and the Notice to Change
Election From Accept to Reject to Jessica Egg at Interactive Intelligence, Inc.,
8909 Purdue Road, Suite 300, Indianapolis, IN 46268 (telephone: (317) 715-8507).






IMPORTANT

         If you wish to tender your options for exchange, you must complete and
sign the Election Form in accordance with its instructions, and fax or hand
deliver it and any other required documents to Jessica Egg at fax number (317)
715-8507.

         We are not making the offer to, and we will not accept any tender of
options from or on behalf of, option holders in any jurisdiction in which the
offer or the acceptance of any tender of options would not be in compliance with
the laws of that jurisdiction. However, we may, at our discretion, take any
actions necessary for us to make the offer to option holders in any of these
jurisdictions.

         WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR TO WHICH WE
HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR
TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THE
INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT AND IN THE RELATED
MEMORANDUM FROM MICHAEL J. TAVLIN DATED APRIL 26, 2001, THE ELECTION FORM AND
THE NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT. IF ANYONE MAKES ANY
RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST
NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN
AUTHORIZED BY US.



                                      TABLE OF CONTENTS




                                                                                                                 PAGE
                                                                                                              
Summary Term
Sheet............................................................................................................  1
Certain Risks of Participating in the Offer......................................................................  6
Introduction.....................................................................................................  7
The Offer........................................................................................................  8
1.  Eligibility..................................................................................................  8
2.  Number of options; expiration date...........................................................................  9
3.  Purpose of the offer.........................................................................................  10
4.  Procedures for tendering options.............................................................................  10
5.  Withdrawal Rights and Change of Election.....................................................................  11
6.  Acceptance of options for exchange and issuance of new options...............................................  12
7.  Conditions of the offer......................................................................................  13
8.  Price range of shares underlying the options.................................................................  14
9.  Source and amount of consideration; terms of new options.....................................................  14
10. Information concerning Interactive Intelligence..............................................................  18
11. Interests of directors and officers; transactions and arrangements concerning the options....................  18
12. Status of options acquired by us in the offer; accounting consequences of the offer..........................  19
13. Legal matters; regulatory approvals..........................................................................  19
14. Material U.S. Federal Income Tax Consequences................................................................  19
15. Extension of offer; termination; amendment...................................................................  21
16. Fees and expenses............................................................................................  22
17. Additional information.......................................................................................  22
18. Miscellaneous................................................................................................  23
Schedule A Information Concerning the Directors and Executive Officers of Interactive Intelligence, Inc.......... A-1




                               SUMMARY TERM SHEET

         The following are answers to some of the questions that you may have
about the offer. We urge you to read carefully the remainder of this Offer to
Exchange, the accompanying memorandum from Michael J. Tavlin dated April 26,
2001, the Election Form and the Notice to Change Election From Accept to Reject
because the information in this summary is not complete, and additional
important information is contained in the remainder of this Offer to Exchange,
the accompanying memorandum from Michael J. Tavlin dated April 26, 2001, the
Election Form and the Notice to Change Election From Accept to Reject. We have
included page references to the remainder of this Offer to Exchange where you
can find a more complete description of the topics in this summary.

WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?

         We are offering to exchange all outstanding, unexercised options to
purchase shares of common stock of Interactive Intelligence, Inc.
("Interactive Intelligence") that were granted under the 1999 Stock Option
Plan and are held by eligible employees for new options we will grant under
the 1999 Stock Option Plan. No outstanding options granted under any other
stock option plan of Interactive Intelligence are eligible for exchange.
(Page 7)

WHO IS ELIGIBLE TO PARTICIPATE?

         Employees are eligible to participate if they are employees of
Interactive Intelligence or one of Interactive Intelligence's subsidiaries as
of the date the offer commences and the date on which the tendered options
are cancelled. Members of our Board of Directors who are not also employees
of Interactive Intelligence are not eligible to participate. In order to
receive a new option, you must remain an employee as of the date the new
options are granted, which will be at least six months and one day after the
Cancellation Date. If Interactive Intelligence does not extend the offer, the
new options will be granted on November 26, 2001. (Page 8)

ARE EMPLOYEES OUTSIDE THE UNITED STATES ELIGIBLE TO PARTICIPATE?

         Yes, all employees outside the United States are eligible to
participate. However, in some of the non-United States countries in which our
employees are located, special considerations may apply due to certain taxation
and securities rules applicable in these countries. IF YOU ARE AN EMPLOYEE BASED
OUTSIDE OF THE UNITED STATES, WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX
ADVISOR TO DETERMINE THE TAX AND SOCIAL INSURANCE CONSEQUENCES OF THIS
TRANSACTION UNDER THE LAWS OF THE COUNTRY IN WHICH YOU LIVE AND WORK. (Page 8)

WHY ARE WE MAKING THE OFFER?

         We believe that granting stock options motivates high levels of
performance and provides an effective means of recognizing employee
contributions to the success of our company. The offer provides an opportunity
for us to offer eligible employees a valuable incentive to stay with our
company. Some of our outstanding options granted under the 1999 Stock Option
Plan, whether or not they are currently exercisable, have exercise prices that
are significantly higher than the current market price of our shares. We believe
these options are unlikely to be exercised in the foreseeable future. By making
this offer to exchange outstanding options granted under the 1999 Stock Option
Plan for new options that will have an exercise price at least equal to the
market value of the shares on the grant date, we intend to provide our eligible
employees with the benefit of owning options that over time may have a greater
potential to increase in value, create better performance incentives for
eligible employees and thereby maximize stockholder value. (Page 10)

WHAT ARE THE CONDITIONS TO THE OFFER?

         The offer is not conditioned on a minimum number of options being
tendered. Participation in the offer is completely voluntary. The conditions are
described in Section 7 of this Offer to Exchange. (Page 13)


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ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT YOU MUST SATISFY AFTER THE
EXPIRATION DATE OF THE OFFER TO RECEIVE THE NEW OPTIONS?

         To receive a grant of new options through the offer and under the terms
of the 1999 Stock Option Plan, you must be employed by Interactive Intelligence
or one of its subsidiaries as of the date the new options are granted.

         As discussed below, subject to the terms of this offer, we will not
grant the new options until on or about the first business day which is at least
six months and one day after the date we cancel the options accepted for
exchange. If, for any reason, you do not remain an employee of Interactive
Intelligence or one of its subsidiaries through the date we grant the new
options, you will not receive any new options or other consideration in exchange
for your tendered options that have been accepted for exchange. (Page 8)

HOW MANY NEW OPTIONS WILL YOU RECEIVE IN EXCHANGE FOR YOUR TENDERED OPTIONS?

         If you meet the eligibility requirements and subject to the terms of
this offer, we will grant you new options to purchase the number of shares equal
to the number of shares subject to the options you tender. All new options will
be subject to a new option agreement between you and us. You must execute the
new option agreement before receiving new options. (Page 9)

WHEN WILL YOU RECEIVE YOUR NEW OPTIONS?

         We will not grant the new options until on or about the first business
day which is at least six months and one day after the date we cancel the
options accepted for exchange. Our Board of Directors will select the actual
grant date for the new options. If we cancel tendered options on May 25, 2001,
which is the scheduled date for the cancellation of the options (the day
following the expiration date of the offer), the new options will not be granted
until November 26, 2001. You must be an employee on the date we are granting the
new options in order to be eligible to receive them. (Page 10)

WHY WON'T YOU RECEIVE YOUR NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF
THE OFFER?

         If we were to grant the new options on any date which is earlier than
six months and one day after the date we cancel the options accepted for
exchange, we would be subject to onerous accounting charges. We would be
required for financial reporting purposes to treat the new options as variable
awards. This means that we would be required to record the non-cash accounting
impact of decreases and increases in the company's share price as a compensation
expense for the new options issued under this offer. We would have to continue
this variable accounting for these new options until they were exercised,
forfeited or terminated. The higher the market value of our shares, the greater
the compensation expense we would have to record. By deferring the grant of the
new options for at least six months and one day, we believe we will not have to
treat the new options as variable awards. (Page 12)

IF YOU TENDER OPTIONS IN THE OFFER, WILL YOU BE ELIGIBLE TO RECEIVE OTHER OPTION
GRANTS BEFORE YOU RECEIVE YOUR NEW OPTIONS?

         No. If we accept options you tender in the offer, you may not receive
any other option grants before you receive your new options. We may defer until
the grant date for your new options the grant of other options, such as annual,
bonus or promotional options, for which you may otherwise be eligible before the
new option grant date. We may defer the grant to you of these other options if
we determine it is necessary for us to do so to avoid incurring compensation
expense against our earnings because of accounting rules that could apply to
these interim option grants as a result of the offer. Instead, we will issue a
Promise to Grant Stock Option(s) to you on the date when such grant would no
longer subject us to these onerous accounting charges as a result of the
exchange offer. However, if you are no longer employed at Interactive
Intelligence or one of its subsidiaries on the date of grant of the new options,
you will not receive new options even if a Promise to Grant Stock Option(s) has
been issued to you. (Page 12)


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WILL YOU BE REQUIRED TO GIVE UP ALL YOUR RIGHTS TO THE CANCELLED OPTIONS?

         Yes. Once we have accepted options tendered by you, your options will
be cancelled and you will no longer have any rights under those options. (Page
12)

WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?

         The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant.

         However, for employees who live or work in France only, the exercise
price per share of the new options will be at least the higher of (i) 100% of
the closing price reported by the Nasdaq National Market on the date of grant,
or (ii) 80% of the average of the closing prices on that market over the twenty
(20) trading days before the grant date.

         Accordingly, we cannot predict the exercise price of the new options.
Because we will not grant new options until on or about the first business day
that is at least six months and one day after the date we cancel the options
accepted for exchange, the new options may have a higher exercise price than
some or all of your current options. We recommend that you evaluate current
market quotes for our shares, among other factors, before deciding whether or
not to tender your options. (Page 16)

WHEN WILL THE NEW OPTIONS VEST?

         The vesting of the newly issued options will be in accordance with the
vesting schedule of the cancelled options. You will receive credit for vesting
accrued prior to the cancellation of the tendered options and will receive
credit for the period between the cancellation of the tendered options and the
grant of the new options.

         Each new option granted will vest as follows:

         o        any options that were fully vested on the date that the offer
                  expires will be fully vested,

         o        all unvested options on the date the offer expires that would
                  have been fully vested on the date the new options are granted
                  (at least six months and one day from the date we cancel the
                  options accepted for exchange) will be fully vested, and

         o        all remaining unvested options will have a vesting schedule
                  that is equivalent to what would have been in place had the
                  cancelled option remained in effect.

         However, each new option will not have a provision providing for
accelerated vesting in the event of a change in control of Interactive
Intelligence. Therefore, even if an option that you tender for exchange
contained such an accelerated vesting provision on a change in control, your new
option granted under the offer will not contain such a provision. (Page 16)

WHAT IF WE ENTER INTO A MERGER OR OTHER SIMILAR TRANSACTION?

         It is possible that, prior to the grant of new options, we might effect
or enter into an agreement such as a merger or other similar transaction. The
Promise to Grant Stock Option(s) which we will give you is a binding commitment,
and any successor to our company will honor that commitment.

         You should be aware that these types of transactions could have
substantial effects on our share price, including potentially substantial
appreciation in the price of our shares. Depending on the structure of this type
of transaction, tendering option holders might be deprived of any further price
appreciation in the shares associated with the new options. For example, if our
shares were acquired in a cash merger, the fair market value of our shares, and
hence the price at which we grant the new options, would likely be a price at or
near the cash price being paid for the shares in the transaction, yielding
limited or no financial benefit to a recipient of the new options for that
transaction.


                                       3



In addition, in the event of an acquisition of our company for stock, tendering
option holders might receive options to purchase shares of a different issuer.
(Page 10)

ARE THERE CIRCUMSTANCES WHERE YOU WOULD NOT BE GRANTED NEW OPTIONS?

         Yes. Even if we accept your tendered options, we will not grant new
options to you if we are prohibited by applicable law or regulations from doing
so. We will use reasonable efforts to avoid the prohibition, but if the
prohibition is applicable throughout the period from the first business day that
is at least six months and one day after we cancel the options accepted for
exchange, you will not be granted a new option. (Page 19)

         Also, if you are no longer an employee on the date we grant new
options, you will not receive any new options. (Page 8)

IF YOU CHOOSE TO TENDER AN OPTION WHICH IS ELIGIBLE FOR EXCHANGE, DO YOU HAVE TO
TENDER ALL THE SHARES IN THAT OPTION?

         Yes. We are not accepting partial tenders of options. However, you may
tender the remaining portion of an option which you have partially exercised.
Accordingly, you may tender one or more of your option grants, but you may only
tender all of the unexercised option. For example and except as otherwise
described below, if you hold (i) an option to purchase 1,000 shares at $10.00
per share, 700 of which you have already exercised, (ii) an option to purchase
1,000 shares at an exercise price of $20.00 per share and (iii) an option to
purchase 2,000 shares at an exercise price of $40.00 per share, you may tender:

         o        none of your options,

         o        options with respect to the 300 remaining unexercised shares
                  under the first option grant,

         o        options with respect to all 1,000 shares under the second
                  option grant,

         o        options with respect to all 2,000 shares under the third
                  option grant,

         o        options with respect to two of the three option grants, or

         o        all options under all three of the option grants.

         You may not tender options with respect to only 150 shares (or any
other partial amount) under the first option grant or less than all of the
shares under the second and third option grants. (Page 9)

         Also, if you decide to tender any of your options, then you must tender
all of the options that were granted to you during the six month period prior to
the cancellation of any tendered options. For example, if you received an option
grant in January 2001 and an option grant in February 2001 and you want to
tender your January 2001 option grant, you would also be required to tender your
February 2001 option grant. (Page 9).

WHAT HAPPENS TO OPTIONS THAT YOU CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED
FOR EXCHANGE?

         Nothing. Options that you choose not to tender for exchange or that we
do not accept for exchange remain outstanding until they expire by their terms
and retain their current exercise price and current vesting schedule.

WILL YOU HAVE TO PAY TAXES IF YOU EXCHANGE YOUR OPTIONS IN THE OFFER?

         If you exchange your current options for new options, you should not be
required under current law to recognize income for U.S. federal income tax
purposes at the time of the exchange. Further, at the grant date of the new
options, you will not be required under current law to recognize income for U.S.
federal income tax purposes.


                                       4



Special considerations apply to employees located outside the United States. In
some of these countries, the application of local taxation rules may have an
impact on the re-grant. FOR EMPLOYEES RESIDING OUTSIDE OF THE UNITED STATES, WE
RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE TAX AND
SOCIAL INSURANCE CONSEQUENCES OF THE OFFER UNDER THE LAWS OF THE COUNTRY IN
WHICH YOU LIVE AND WORK. (Page 19)

IF YOUR CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL YOUR NEW OPTIONS BE
INCENTIVE STOCK OPTIONS?

         If your current options are incentive stock options, your new options
will be granted as incentive stock options to the maximum extent they qualify as
incentive stock options under the tax laws on the date of the grant. For options
to qualify as incentive stock options under the current tax laws, the value of
shares subject to options that first become exercisable by the option holder in
any calendar year cannot exceed $100,000, as determined using the option
exercise price. The excess value is deemed to be a nonqualified stock option,
which is an option that is not qualified to be an incentive stock option under
the current tax laws. (Page 12)

WHEN WILL YOUR NEW OPTIONS EXPIRE?

         Your new options will expire ten years from the date of grant, or
earlier if your employment with Interactive Intelligence terminates. (Page 15)

WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL YOU
BE NOTIFIED IF IT IS EXTENDED?

         The offer expires on May 24, 2001, at 9:00 P.M., Indianapolis Time,
unless it is extended by us. We may, in our discretion, extend the offer at any
time, but we cannot assure you that the offer will be extended or, if extended,
for how long. If the offer is extended, we will make a public announcement of
the extension no later than 6:00 A.M., Indianapolis Time, on the next business
day following the previously scheduled expiration of the offer period. (Page 21)

HOW DO YOU TENDER YOUR OPTIONS?

         If you decide to tender your options, you must deliver, before 9:00
P.M., Indianapolis Time, on May 24, 2001 (or such later date and time as we may
extend the expiration of the offer), a properly completed and executed Election
Form and any other documents required by the Election Form via facsimile at
(317) 715-8507 or hand delivery to Jessica Egg. This is a one-time offer, and we
will strictly enforce the tender offer period. We reserve the right to reject
any or all tenders of options that we determine are not in appropriate form or
that we determine are unlawful to accept. Subject to our rights to extend,
terminate and amend the offer, we currently expect that we will accept all
properly tendered options promptly after the expiration of the offer. (Page 12)

DURING WHAT PERIOD OF TIME MAY YOU WITHDRAW PREVIOUSLY TENDERED OPTIONS?

         You may withdraw your tendered options at any time before the offer
expires at 9:00 P.M., Indianapolis Time, on May 24, 2001. If we extend the offer
beyond that time, you may withdraw your tendered options at any time until the
extended expiration of the offer. In addition, although we currently intend to
accept validly tendered options promptly after the expiration of this offer, if
we have not accepted your tendered options by June 22, 2001, you may withdraw
your tendered options at any time after June 22, 2001.

         To withdraw tendered options, you must deliver to us via facsimile at
(317) 715-8507 or hand delivery to Jessica Egg a signed Notice to Change
Election From Accept to Reject, with the required information while you still
have the right to withdraw the tendered options. Once you have withdrawn
options, you may re-tender options only by again following the delivery
procedures described above. (Page 11)

CAN YOU CHANGE YOUR ELECTION REGARDING PARTICULAR TENDERED OPTIONS?

         Yes, you may change your election regarding particular tendered options
at any time before the offer expires at 9:00 P.M., Indianapolis Time, on May 24,
2001. If we extend the offer beyond that time, you may change your


                                       5



election regarding particular tendered options at any time until the extended
expiration of the offer. In order to change your election, you must deliver to
us via facsimile at (317) 715-8507 or hand delivery to Jessica Egg a new
Election Form, which includes the information regarding your new election, and
is clearly dated after your original Election Form. (Page 11)

WHAT DO WE AND THE BOARD OF DIRECTORS THINK OF THE OFFER?

         Although our Board of Directors has approved the offer, neither we nor
our Board of Directors makes any recommendation as to whether you should tender
or not tender your options. You must make your own decision whether or not to
tender options. For questions regarding tax implications or other
investment-related questions, you should talk to your own legal counsel,
accountant and/or financial advisor.

WHOM CAN YOU TALK TO IF YOU HAVE QUESTIONS ABOUT THE OFFER?

         For additional information or assistance, you should contact:

                                         
         Jessica Egg                                 Barbara J. Claassen
         Interactive Intelligence, Inc.              Interactive Intelligence, Inc.
         8909 Purdue Road, Suite 300                 8909 Purdue Road, Suite 300
         Indianapolis, IN  46268                     Indianapolis, IN 46268
         (317) 715-8507                              (317) 715-8182


         

                                  CERTAIN RISKS
                          OF PARTICIPATING IN THE OFFER

         Participation in the offer involves a number of potential risks,
including those described below. This list briefly highlights some of the risks
and is necessarily incomplete. Eligible participants should carefully consider
these and other risks and are encouraged to speak with an investment and tax
advisor as necessary before deciding to participate in the offer. In addition,
we strongly urge you to read the rest of this Offer to Exchange, along with the
memorandum from Michael J. Tavlin dated April 26, 2001, the Election Form and
the Notice to Change Election from Accept to Reject before deciding to
participate in the exchange offer. THE LIST OF RISKS DOES NOT INCLUDE CERTAIN
RISKS THAT MAY APPLY TO EMPLOYEES WHO LIVE AND WORK OUTSIDE OF THE UNITED
STATES; AGAIN, WE URGE YOU TO CONSULT WITH AN INVESTMENT AND TAX ADVISOR AS
NECESSARY BEFORE DECIDING TO PARTICIPATE IN THIS EXCHANGE OFFER.

                                 ECONOMIC RISKS

PARTICIPATION IN THE OFFER WILL MAKE YOU INELIGIBLE TO RECEIVE ANY OPTION GRANTS
UNTIL NOVEMBER 26, 2001 AT THE EARLIEST.

         Employees are generally eligible to receive option grants at any time
that the Board of Directors or Compensation Committee chooses to make them.
However, if you participate in the offer, you will not be eligible to receive
any option grants until November 26, 2001 at the earliest.

IF THE STOCK PRICE INCREASES AFTER THE DATE YOUR TENDERED OPTIONS ARE CANCELLED,
YOUR CANCELLED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE REPLACEMENT OPTIONS
THAT YOU HAVE RECEIVED IN EXCHANGE FOR THEM.

         For example, if you cancel options with a $25.00 strike price, and
Interactive Intelligence's stock appreciates to a price in excess of $25.00 when
the replacement grants are made, your replacement option will have a higher
strike price than the cancelled option.

IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE GRANT OF THE REPLACEMENT OPTION, YOU
WILL RECEIVE NEITHER A REPLACEMENT OPTION NOR THE RETURN OF YOUR CANCELLED
OPTION.


                                       6



         Once your option is cancelled, it is gone for good. Accordingly, if
your employment terminates for any reason prior to the grant of the replacement
option, you will not have the benefit of either the cancelled option or the
replacement option.

                      TAX-RELATED RISKS FOR U.S. RESIDENTS

YOUR REPLACEMENT OPTION MAY BE A NONQUALIFIED STOCK OPTION, WHEREAS YOUR
CANCELLED OPTION MAY HAVE BEEN AN INCENTIVE STOCK OPTION.

         If your cancelled option was an incentive stock option, your new option
will be an incentive stock option, but only if and to the extent it qualifies
under the Internal Revenue Code of 1986, as amended. For options to qualify as
incentive stock options, the value of shares subject to options that first
become exercisable by the option holder in any calendar year cannot exceed
$100,000, as determined using the option exercise price. It is possible that by
participating in this exchange, your options will exceed this limit and will be
treated as nonqualified stock options. In general, nonqualified stock options
are less favorable to you from a tax perspective. For more detailed information,
please read the rest of the Offer to Exchange, and see the tax disclosure set
forth in the prospectus for the Interactive Intelligence, Inc. 1999 Stock Option
Plan.

EVEN IF YOU ELECT NOT TO PARTICIPATE IN THE OPTION EXCHANGE PROGRAM, YOUR
INCENTIVE STOCK OPTIONS MAY BE AFFECTED.

         We believe that you will not be subject to current U.S. federal income
tax if you do not elect to participate in the option exchange program. We also
believe that the option exchange program will not change the U.S. federal income
tax treatment of subsequent grants and exercises of your incentive stock options
(and sales of shares acquired upon exercise of such options) if you do not
participate in the option exchange program. However, the IRS may characterize
the option exchange program as a "modification" of those incentive stock
options, even if you decline to participate. A successful assertion by the IRS
of this position could extend the options' holding period to qualify for
favorable tax treatment and cause a portion of your incentive stock options to
be treated as nonqualified stock options.

                             BUSINESS RELATED RISKS

         For a description of risks related to Interactive Intelligence's
business, please see Section 18 of this Offer to Exchange.

                                  INTRODUCTION

         Interactive Intelligence, Inc. ("Interactive Intelligence") is offering
to exchange all outstanding options to purchase shares of Interactive
Intelligence common stock that were granted under its 1999 Stock Option and
Incentive Plan (the "1999 Stock Option Plan") and are held by eligible employees
for new options we will grant under the 1999 Stock Option Plan. An "eligible
employee" refers to employees of Interactive Intelligence and its subsidiaries
who are employees as of the date the offer commences and as of the date the
tendered options are cancelled. Members of our Board of Directors who are not
also employees are not eligible to participate in the exchange offer. We are
making the offer upon the terms and the conditions described in this Offer to
Exchange and in the related memorandum from Michael J. Tavlin dated April 26,
2001, the Election Form and the Notice to Change Election from Accept to Reject
(which together, as they may be amended from time to time, constitute the
"offer").

         The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the options
tendered by the eligible employee and accepted for exchange. Subject to the
terms and conditions of this offer, we will grant the new options on or about
the first business day which is at least six months and one day after the date
we cancel the options accepted for exchange. The grant date for the new options
will be November 26, 2001, unless the offer is extended, in which case the grant
date of the new options will be at least six months and one day after the
cancellation of the options accepted for exchange. You may only tender options
for all or none of the unexercised shares subject to an individual option grant.
All tendered options accepted by us through the offer will be cancelled on the
day following the date the offer expires or as soon as possible thereafter (the


                                       7



"Cancellation Date"). If you tender any option grant for exchange, you will be
required to also tender all option grants that you received during the six-month
period immediately prior to the Cancellation Date. We expect to cancel all
tendered options on May 25, 2001, which means that if you participate in the
offer, you will be required to tender all options granted to you since November
24, 2000.

         The offer is not conditioned on a minimum number of options being
tendered. The offer is subject to conditions that we describe in Section 7 of
this Offer to Exchange.

         If you tender options granted under the 1999 Stock Option Plan for
exchange as described in the offer and we accept your tendered options, then,
subject to the terms of this offer, we will grant you new options under our 1999
Stock Option Plan.

         The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant. However, for
employees who live or work in France only, the exercise price per share of the
new options will be at least the higher of (i) 100% of the closing price
reported by the Nasdaq National Market on the date of grant, or (ii) 80% of the
average of the closing prices on that market over the twenty (20) trading days
before the grant date.

         Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options.

         The new options will vest in accordance with the vesting schedule of
the cancelled options. Each new option granted will vest as follows:

         o        any options that were fully vested on the date that the offer
                  expires will be fully vested,

         o        all unvested options on the date the offer expires that would
                  have been fully vested on the date the new options are granted
                  (at least six months and one day from the date we cancel the
                  options accepted for exchange) will be fully vested, and

         o        all remaining unvested options will have a vesting schedule
                  that is equivalent to what would have been in place had the
                  cancelled option remained in effect.

         However, each new option will not have a provision providing for
accelerated vesting in the event of a change in control of Interactive
Intelligence. Therefore, even if an option that you tender for exchange
contained such an accelerated vesting provision on a change in control, your new
option granted under the offer will not contain such a provision.

         As of April 1, 2001, options to purchase approximately 1,480,000 of our
shares were issued and outstanding under our 1999 Stock Option Plan.


                                    THE OFFER

1. Eligibility.

         Employees are "eligible employees" if they are employees of Interactive
Intelligence, Inc. ("Interactive Intelligence") or one of Interactive
Intelligence's subsidiaries as of the date the offer commences and the date on
which the tendered options are cancelled.

         Special considerations apply to employees located outside the United
States. In some of these countries, the application of local taxation rules may
have an impact on the re-grant. FOR EMPLOYEES RESIDING OUTSIDE OF THE UNITED
STATES, WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE
TAX AND SOCIAL INSURANCE CONSEQUENCES OF THE OFFER UNDER THE LAWS OF THE COUNTRY
IN WHICH YOU LIVE AND WORK.


                                       8




         In order to receive a new option, you must remain an employee as of the
date the new options are granted, which will be at least six months and one day
after the Cancellation Date. If Interactive Intelligence does not extend the
offer, the new options will be granted on November 26, 2001.

         2. Number of options; expiration date.

         Subject to the terms and conditions of the offer, we will exchange all
outstanding, unexercised options that were granted under our 1999 Stock Option
Plan and are held by eligible employees that are properly tendered and not
validly withdrawn in accordance with Section 5 before the "expiration date," as
defined below, in return for new options. We will not accept partial tenders of
options for any portion of the shares subject to an individual option grant.
Therefore, you may tender options for all or none of the shares subject to each
of your eligible options. In addition, if you tender any option grant for
exchange, you will be required to also tender all option grants that you
received during the six-month period prior to the date the tendered option was
cancelled. We currently expect to cancel all tendered options on May 25, 2001,
which means that if you participate in the offer, you will be required to tender
all options granted to you since November 24, 2000.

         If your options are properly tendered and accepted for exchange, the
options will be cancelled and, subject to the terms of this offer, you will be
entitled to receive one or more new options to purchase the number of shares of
common stock equal to the number of shares subject to the options tendered by
you and accepted for exchange, subject to adjustments for any stock splits,
stock dividends and similar events. All new options will be subject to the terms
of our 1999 Stock Option Plan and to a new option agreement between you and us.
If, for any reason, you do not remain an employee of Interactive Intelligence or
its subsidiaries through the date we grant the new options, you will not receive
any new options or other consideration in exchange for your tendered options
that have been accepted for exchange. This means that if you quit, with or
without a good reason, or die or we terminate your employment, with or without
cause, prior to the date we grant the new options, you will not receive anything
for the options that you tendered and we cancelled.

         The term "expiration date" means 9:00 P.M., Indianapolis Time, on May
24, 2001, unless and until we, in our discretion, have extended the period of
time during which the offer will remain open, in which event the term
"expiration date" refers to the latest time and date at which the offer, as so
extended, expires. See Section 15 of this Offer to Exchange for a description of
our rights to extend, delay, terminate and amend the offer.

         If we decide to take any of the following actions, we will publish
notice or otherwise inform you in writing of such action:

         o        we increase or decrease the amount of consideration offered
                  for the options,

         o        we decrease the number of options eligible to be tendered in
                  the offer, or

         o        we increase the number of options eligible to be tendered in
                  the offer by an amount that exceeds 2% of the shares issuable
                  upon exercise of the options that are subject to the offer
                  immediately prior to the increase.

         If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of the increase or
decrease is first published, sent or given in the manner specified in Section 15
of this Offer to Exchange, we will extend the offer so that the offer is open at
least ten (10) business days following the publication, sending or giving of
notice.

         We will also notify you of any other material change in the information
contained in this Offer to Exchange.

         For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
A.M. through 12:00 midnight, Indianapolis Time.


                                       9




         3. Purpose of the offer.

         We issued the options outstanding to:

         o        provide our eligible employees with additional incentive and
                  to promote the success of our business, and

         o        encourage our eligible employees to continue their employment
                  with us.

         One of the keys to our continued growth and success is the retention of
our most valuable asset, our employees. The offer provides an opportunity for us
to offer our eligible employees a valuable incentive to stay with Interactive
Intelligence. Some of our outstanding options granted under our 1999 Stock
Option Plan, whether or not they are currently exercisable, have exercise prices
that are significantly higher than the current market price of our shares. We
believe these options are unlikely to be exercised in the foreseeable future. By
making this offer to exchange outstanding options granted under our 1999 Stock
Option Plan for new options that will have an exercise price at least equal to
the market value of the shares on the grant date, we intend to provide our
eligible employees with the benefit of owning options that over time may have a
greater potential to increase in value, create better performance incentives for
employees and thereby maximize stockholder value. Because we will not grant new
options until at least six months and one day after the date we cancel the
options accepted for exchange, the new options may have a higher exercise price
than some or all of our current outstanding options.

         From time to time we engage in strategic transactions with business
partners, customers and other third parties. We may engage in transactions in
the future with these or other companies which could significantly change our
structure, ownership, organization or management or the make-up of our Board of
Directors, and which could significantly affect the price of our shares. If we
engage in such a transaction or transactions before the date we grant the new
options, our shares could increase (or decrease) in value, and the exercise
price of the new options could be higher (or lower) than the exercise price of
options you elect to have cancelled as part of this offer. As is outlined in
Section 9, the exercise price of any new options granted to you in return for
your tendered options will be the fair market value of the underlying shares on
the date of grant, as determined by the closing price reported by the Nasdaq
National Market on the date of grant, unless you are an employee who lives or
works in France, in which case the exercise price may be higher. You will be at
risk of any such increase in our share price before the grant date of the new
options for these or any other reasons.

         Neither we nor our Board of Directors makes any recommendation as to
whether you should tender or not tender your options, nor have we authorized any
person to make any such recommendation. You are urged to evaluate carefully all
of the information in this Offer to Exchange and to consult your own investment
and tax advisors. You must make your own decision whether or not to tender your
options for exchange.

         4. Procedures for tendering options.

         Proper Tender of Options.

         To validly tender your options through the offer, you must, in
accordance with the terms of the Election Form, properly complete, execute and
deliver the Election Form to us via facsimile at (317) 715-8507 or hand delivery
to Jessica Egg, along with any other required documents. Jessica Egg must
receive all of the required documents before the expiration date. The expiration
date is 9:00 P.M. Indianapolis Time on May 24, 2001.

         THE DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS AND ANY NOTICES
TO CHANGE ELECTION FROM ACCEPT TO REJECT AND ANY OTHER REQUIRED DOCUMENTS, IS AT
YOUR RISK.

         Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects.

         We will determine, in our discretion, all questions as to the form of
documents and the validity, form, eligibility, including time of receipt, and
acceptance of any tender of options. Our determination of these matters will


                                       10



be final and binding on all parties. We reserve the right to reject any or all
tenders of options that we determine are not in appropriate form or that we
determine are unlawful to accept. Otherwise, we will accept properly and timely
tendered options that are not validly withdrawn. We also reserve the right to
waive any of the conditions of the offer or any defect or irregularity in any
tender of any particular options or for any particular option holder. No tender
of options will be deemed to have been properly made until all defects or
irregularities have been cured by the tendering option holder or waived by us.
Neither we nor any other person is obligated to give notice of any defects or
irregularities in tenders, nor will anyone incur any liability for failure to
give any notice. This is a one-time offer, and we will strictly enforce the
offer period, subject only to an extension which we may grant in our sole
discretion.

         Our Acceptance Constitutes an Agreement.

         Your tender of options pursuant to the procedures described above
constitutes your acceptance of the terms and conditions of the offer. OUR
ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS TENDERED BY YOU THROUGH THE OFFER WILL
CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO
THE CONDITIONS OF THE OFFER.

         Subject to our rights to extend, terminate and amend the offer, we
currently expect that we will accept promptly after the expiration of the offer
all properly tendered options that have not been validly withdrawn.

         5. Withdrawal rights and change of election.

         You may only withdraw your tendered options or change your election in
accordance with the provisions of this Section.

         You may withdraw your tendered options at any time before 9:00 P.M.,
Indianapolis Time, on May 24, 2001. If we extend the offer beyond that time, you
may withdraw your tendered options at any time until the extended expiration of
the offer. In addition, if we have not accepted your tendered options for
exchange by 9:00 P.M., Indianapolis Time, on June 22, 2001, you may withdraw
your tendered options at any time after June 22, 2001.

         To validly withdraw tendered options, you must deliver to Jessica Egg
via facsimile at (317) 715-8507 or by hand delivery, in accordance with the
procedures listed in Section 4 above, a signed and dated Notice to Change
Election From Accept to Reject, with the required information, while you still
have the right to withdraw the tendered options.

         To validly change your election regarding the tender of particular
options, you must deliver a new Election Form to Jessica Egg via facsimile at
(317) 715-8507 or by hand delivery, in accordance with the procedures listed
in Section 4 above. If you deliver a new Election Form that is properly
signed and dated, it will replace any previously submitted Election Form,
which will be disregarded. The new Election Form must be signed and dated and
must specify:

         o        the name of the option holder who tendered the options,

         o        the grant number of all options to be tendered,

         o        the grant date of all options to be tendered,

         o        the exercise price of all options to be tendered, and

         o        the total number of unexercised option shares subject to each
                  option to be tendered.

         Except as described in the following sentence, the Notice to Change
Election From Accept to Reject and any new or amended Election Form must be
executed by the option holder who tendered the options to be withdrawn exactly
as the option holder's name appears on the option agreement or agreements
evidencing such options. If the signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or another
person


                                       11



acting in a fiduciary or representative capacity, the signer's full title and
proper evidence of the authority of such person to act in that capacity must be
indicated on the notice of withdrawal.

         You may not rescind any withdrawal, and any options you withdraw will
thereafter be deemed not properly tendered for purposes of the offer, unless you
properly re-tender those options before the expiration date by following the
procedures described in Section 4.

         Neither we nor any other person is obligated to give notice of any
defects or irregularities in any Notice to Change Election From Accept to Reject
or any new or amended Election Form, nor will anyone incur any liability for
failure to give any notice. We will determine, in our discretion, all questions
as to the form and validity, including time of receipt, of Notices to Change
Election From Accept to Reject and new or amended Election Forms. Our
determination of these matters will be final and binding.

         6. Acceptance of options for exchange and issuance of new options.

         On the terms and conditions of the offer and as promptly as practicable
following the expiration date, we will accept for exchange and cancel options
properly tendered and not validly withdrawn before the expiration date. Once the
options are cancelled, you will no longer have any rights with respect to those
options. Subject to the terms and conditions of this offer, if your options are
properly tendered and accepted for exchange, these options will be cancelled as
of the date of our acceptance, which we anticipate to be May 25, 2001, and you
will be granted new options on or about the first business day that is at least
six months and one day after the date we cancel the options accepted for
exchange. If the options you tendered were incentive stock options, your new
options will also be incentive stock options, to the extent they qualify as
incentive stock options under the Internal Revenue Code of 1986, as amended. All
other newly granted options will be nonqualified stock options. Thus, subject to
the terms and conditions of this offer, if your options are properly tendered by
May 24, 2001, the scheduled expiration date of the offer, and accepted for
exchange and cancelled on May 25, 2001 you will be granted new options on or
about November 26, 2001. If we accept and cancel options properly tendered for
exchange after May 25, 2001, the period within which the new options will be
granted will be similarly delayed. As promptly as practicable after we accept
and cancel options tendered for exchange, we will issue to you a Promise to
Grant Stock Option(s), by which we will commit to grant stock options to you on
a date no earlier than November 26, 2001 covering the same number of shares as
the options cancelled pursuant to this offer, provided that you remain an
eligible employee on the date on which the grant is to be made.

         If we accept options you tender in the offer, we will defer any grant
to you of other options, such as annual, bonus or promotional options, for which
you may be eligible before the new option grant date until after the new option
grant date, so that you are granted no new options for any reason until at least
six months and one day after any of your tendered options have been cancelled.
We will defer the grant to you of these other options in order to avoid
incurring compensation expense against our earnings as a result of accounting
rules that could apply to these interim option grants as a result of the offer.
We may issue to you a Promise to Grant Stock Option(s), which is a binding
commitment to grant you an option or options on a date no earlier than November
26, 2001, provided that you remain an eligible employee on the date on which the
grant is to be made.

         Your new options will entitle you to purchase the number of shares
which is equal to the number of shares subject to the options you tender, as
adjusted for any stock splits, stock dividends and similar events. If, for any
reason, you are not an employee of Interactive Intelligence or its subsidiaries
through the date we grant the new options, you will not receive any new options
or other consideration in exchange for your tendered options which have been
cancelled pursuant to this offer.

         We will not accept partial tenders of your eligible option grants.
However, you may tender the remaining portion of an option which you have
partially exercised. Accordingly, you may tender one or more of your option
grants, but you may only tender all of the unexercised shares subject to that
option or none of those shares. In addition, if you tender any option grant for
exchange, you will be required to also tender all option grants that you
received during the six-month period prior to the cancellation of your tendered
options. We currently expect to cancel


                                       12



all tendered options on May 25, 2001, which means that if you participate in the
offer, you will be required to tender all options granted to you since November
24, 2000.

         Within forty-eight (48) hours of the receipt of your Election Form or
your Notice to Change Election From Accept to Reject, or as soon thereafter as
is practicable, Interactive Intelligence will e-mail the option holder a
Confirmation of Receipt. However, this is not by itself an acceptance of the
options for exchange. For purposes of the offer, we will be deemed to have
accepted options for exchange that are validly tendered and not properly
withdrawn as of the time when we give oral or written notice to the option
holders of our acceptance for exchange of such options, which notice may be made
by press release. Subject to our rights to extend, terminate and amend the
offer, we currently expect that we will accept promptly after the expiration of
the offer all properly tendered options that are not validly withdrawn.

         7. Conditions of the offer.

         Notwithstanding any other provision of the offer, we will not be
required to accept any options tendered for exchange, and we may terminate or
amend the offer, or postpone our acceptance and cancellation of any options
tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the
Securities Exchange Act, if at any time on or after April 26, 2001, and prior to
the expiration date, any of the following events has occurred, or has been
determined by us to have occurred, and, in our reasonable judgment in any case
and regardless of the circumstances giving rise to the event, including any
action or omission to act by us, the occurrence of such event or events makes it
inadvisable for us to proceed with the offer or with such acceptance and
cancellation of options tendered for exchange:

         o        there shall have been threatened or instituted or be pending
                  any action or proceeding by any governmental, regulatory or
                  administrative agency or authority that directly or indirectly
                  challenges the making of the offer, the acquisition of some or
                  all of the tendered options pursuant to the offer, or the
                  issuance of new options, or otherwise relates in any manner to
                  the offer, or that, in our reasonable judgment, could
                  materially and adversely affect our business, condition,
                  income, operations or prospects or materially impair the
                  contemplated benefits of the offer to Interactive
                  Intelligence;

         o        there shall have been any action threatened, pending or taken,
                  or approval withheld, or any statute, rule, regulation,
                  judgment, order or injunction threatened, proposed, sought,
                  promulgated, enacted, entered, amended, enforced or deemed to
                  be eligible to the offer or Interactive Intelligence, by any
                  court or any authority, agency or tribunal that, in our
                  reasonable judgment, would or might directly or indirectly:

                  (1)      make the acceptance for exchange of, or issuance of
                           new options for, some or all of the tendered options
                           illegal or otherwise restrict or prohibit
                           consummation of the offer or that otherwise relates
                           in any manner to the offer;

                  (2)      delay or restrict our ability, or render us unable,
                           to accept for exchange, or issue new options for,
                           some or all of the tendered options;

                  (3)      materially impair the contemplated benefits of the
                           offer to Interactive Intelligence; or

                  (4)      materially and adversely affect Interactive
                           Intelligence's business, condition, income,
                           operations or prospects or materially impair the
                           contemplated benefits of the offer to Interactive
                           Intelligence;

         o        there shall have occurred any change, development,
                  clarification or position taken in generally accepted
                  accounting standards that could or would require us to record
                  compensation expense against our earnings in connection with
                  the offer for financial reporting purposes;


                                      13




         o        a tender or exchange offer for some or all of our shares, or a
                  merger or acquisition proposal for Interactive Intelligence,
                  shall have been proposed, announced or made by another person
                  or entity or shall have been publicly disclosed; or

         o        any change or changes shall have occurred in Interactive
                  Intelligence's business, condition, assets, income,
                  operations, prospects or stock ownership that, in our
                  reasonable judgment, is or may be material to Interactive
                  Intelligence or may materially impair the contemplated
                  benefits of the offer to Interactive Intelligence.

         The conditions to the offer are for Interactive Intelligence's benefit.
We may assert them in our discretion regardless of the circumstances giving rise
to them before the expiration date. We may waive them, in whole or in part, at
any time and from time to time prior to the expiration date, in our discretion,
whether or not we waive any other condition to the offer. Our failure at any
time to exercise any of these rights will not be deemed a waiver of any such
rights. The waiver of any of these rights with respect to particular facts and
circumstances will not be deemed a waiver with respect to any other facts and
circumstances. Any determination we make concerning the events described in this
Section 7 will be final and binding upon all persons.

         8. Price range of shares underlying the options.

         The shares underlying your options are currently traded on the Nasdaq
National Market under the symbol "ININ". The following table shows, for the
periods indicated, the high and low sales prices per share of our common stock
as reported by the Nasdaq National Market.




                                                                       HIGH             LOW
                                                                                  
FISCAL YEAR 2001
         Second Quarter through April 23, 2001..................      $17.550          $12.000
         First Quarter..........................................       35.000           12.375
FISCAL YEAR 2000
         Fourth Quarter.........................................       42.000           20.000
         Third Quarter..........................................       48.938           30.938
         Second Quarter.........................................       44.125           19.875
         First Quarter..........................................       54.500           22.125
FISCAL YEAR 1999
         Fourth Quarter.........................................       33.875           20.250
         September 23, 1999 through September 30, 1999..........       40.000           18.500


         As of April 23, 2001, the last reported sale price during regular
trading hours of our common stock, as reported by the Nasdaq National Market,
was $14.90 per share.

         WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON
STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR
OPTIONS.

         9. Source and amount of consideration; terms of new options.

         Consideration.

         We will issue new options to purchase shares of common stock under our
1999 Stock Option Plan in exchange for the outstanding options properly tendered
and accepted for exchange by us which will be cancelled. The number of shares
subject to the new options to be granted to each option holder will be equal to
the number of shares subject to the options tendered by the option holder and
accepted for exchange and cancelled by us, as adjusted for


                                       14



any stock splits, reverse stock splits, stock dividends and similar events. If
we receive and accept tenders of all outstanding options from eligible
employees, subject to the terms and conditions of this offer we will grant new
options to purchase a total of approximately 1,480,000 shares of common stock.
The shares issuable on exercise of these new options would equal approximately
9% of the total shares of our common stock outstanding as of March 31, 2001.

         Terms of New Options.

         The new options will be granted under our 1999 Stock Option Plan. A new
option agreement will be entered into between Interactive Intelligence and each
option holder who has tendered options in the offer for every new option
granted. The terms and conditions of the new options may vary from the terms and
conditions of the options tendered for exchange, but generally will not
substantially and adversely affect the rights of option holders. Because we will
not grant new options until at least six months and one day after the date we
cancel the options accepted for exchange, the new options may have a higher
exercise price than some or all of the options, including as a result of a
significant corporate event. In addition, the new options will not have a
provision providing for accelerated vesting of the option on a change in control
of Interactive Intelligence. The following description summarizes the material
terms of our 1999 Stock Option Plan and the options granted thereunder.

         Shares.

         The maximum number of shares available for issuance through the
exercise of options granted under our 1999 Stock Option Plan is 3,750,000,
subject to adjustment in certain events. Our 1999 Stock Option Plan permits the
granting of options intended to qualify as incentive stock options under the
Internal Revenue Code and options that do not qualify as incentive stock
options, referred to as nonqualified stock options.

         Administration.

         The 1999 Stock Option Plan is administered by a committee appointed by
the Board of Directors (the "Administrator"). Subject to the other provisions of
the 1999 Stock Option Plan, the Administrator has the power to determine the
terms and conditions of the options granted, including the exercise price, the
number of shares subject to the option and the exercisability of the options.

         Term.

         Options generally have a term of ten (10) years. Incentive stock
options granted to an employee who, at the time the incentive stock option is
granted, owns stock representing more than 10% of the total combined voting
power of all classes of capital stock of Interactive Intelligence or an
affiliate company have a term of no more than five (5) years.

         Termination.

         Unless otherwise determined by the Administrator, generally if your
employment is terminated for cause, your rights under the options will terminate
at the date of termination and, unless the Administrator in its sole discretion
waives this requirement, you must repay to Interactive Intelligence the amount
of any gain realized upon the exercise of any options within the prior 90-day
period. Generally, if your employment is terminated voluntarily by you for any
reason other than death or disability, or by reason of retirement, or is
terminated without cause, you may exercise any vested options within the
one-month period immediately following the date of termination. With respect to
any option that is not exercisable on the date your employment is terminated,
that option shall terminate and be forfeited effective on such date.

         The termination of your option(s) under the circumstances specified in
this Section will result in the termination of your interests in our 1999 Stock
Option Plan. In addition, your option(s) may terminate, together with our stock
option plans and all other outstanding options issued to other employees,
following the occurrence of certain corporate events, as described below.


                                      15



         Exercise Price.

         The Administrator determines the exercise price at the time the option
is granted. For all eligible employees, except those employees who are residents
of, or work in, France, the exercise price per share of incentive stock options
will not be less than 100% of the fair market value on the date of grant, as
determined by the closing price reported by the Nasdaq National Market on the
date of grant.

         However, the exercise price may not be less than 110% of the closing
price per share reported by the Nasdaq National Market on the date of grant for
options intended to qualify as incentive stock options, granted to an employee
who, at the time the incentive stock option is granted, owns stock representing
more than 10% of the total combined voting power of all classes of capital stock
of Interactive Intelligence.

         For employees who live or work in France only, the exercise price per
share of the new options will be at least the higher of:

         o        100% of the closing price reported by the Nasdaq National
                  Market on the date of grant, or

         o        80% of the average of the closing prices on that market over
                  the twenty (20) trading days before the grant date.

         Vesting and Exercise.

         Each stock option agreement specifies the term of the option and the
date when the option becomes exercisable. The terms of vesting are determined by
the Administrator. Options granted by us generally become vested and exercisable
in 25% increments annually, beginning on the first anniversary of the date of
grant, provided the employee remains continuously employed by Interactive
Intelligence.

         The new options granted through the offer will vest as follows:

         o        any options that were fully vested on the date that the offer
                  expires will be fully vested,

         o        all unvested options on the date the offer expires that would
                  have been fully vested on the date the new options are granted
                  (at least six months and one day from the date we cancel the
                  options accepted for exchange) will be fully vested, and

         o        all remaining unvested options will have a vesting schedule
                  that is equivalent to what would have been in place had the
                  cancelled option remained in effect.

         However, each new option will not have a provision providing for
accelerated vesting in the event of a change in control of Interactive
Intelligence. Therefore, even if an option that you tender for exchange
contained such an accelerated vesting provision on a change in control, your new
option granted under the offer will not contain such a provision.

         Payment of Exercise Price.

         You may exercise your options, in whole or in part, by delivery of a
written notice to us specifying the number of shares with respect to which you
elect to exercise your options, together with full payment of the exercise
price. Payment of the option exercise price is due at the time of exercise and
may be made:

         o        in cash (including check, bank draft or money order),

         o        by delivery of certain other shares of our common stock,


                                       16




         o        by delivery of cash by a broker-dealer as a Cashless Exercise
                  (as defined in our 1999 Stock Option Plan), or

         o        by any other means determined by the Administrator in its sole
                  discretion.

         Adjustments On Certain Events.

         If there is a change in our capitalization, such as a stock split,
reverse stock split, stock dividend or other similar event, and the change
results in an increase or decrease in the number of issued shares without
receipt of consideration by us, an appropriate adjustment will be made to the
price of each option and the number of shares subject to each option.

         In the event there is a merger or consolidation (other than a
"Change of Control" subject to Section 13 of the 1999 Stock Option Plan), you
will be entitled, on exercise of an option, to receive shares or other
securities or consideration as the holders of common stock will be entitled
to receive pursuant to the terms of the merger or consolidation.

         In the event there is a liquidation or dissolution of Interactive
Intelligence, your outstanding options will terminate, but you will have the
right immediately prior to the liquidation or dissolution to exercise the option
in full, and we will notify you of such right.

         Termination of Employment.

         If, for any reason, you are not an employee of Interactive Intelligence
from the date you tender options through the date we grant the new options, you
will not receive any new options or any other consideration in exchange for your
tendered options that have been accepted for exchange. This means that if you
quit, with or without good reason, or die, or we terminate your employment, with
or without cause, before the date we grant the new options, you will not receive
anything for the options that you tendered and which we cancelled.

         Transferability of Options.

         New options, whether incentive stock options or nonqualified stock
options, may not be transferred, other than by will or the laws of descent and
distribution. In the event of your death, options may be exercised by a person
who acquires the right to exercise the option by bequest or inheritance.

         Registration of Option Shares.

         3,750,000 shares of common stock issuable upon exercise of options
under our 1999 Stock Option Plan have been registered under the Securities
Act on a registration statement on Form S-8 filed with the SEC. All the
shares issuable on exercise of all new options to be granted under the offer
will be registered under the Securities Act. Unless you are one of our
affiliates, you will be able to sell your option shares free of any transfer
restrictions under applicable U.S. securities laws.

         U.S. Federal Income Tax Consequences.

         You should refer to Section 14 of this Offer to Exchange for a
discussion of the U.S. federal income tax consequences of the new options and
the options tendered for exchange, as well as the consequences of accepting or
rejecting the new options under this offer to exchange. IF YOU ARE AN EMPLOYEE
BASED OUTSIDE OF THE UNITED STATES, WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN
TAX ADVISOR TO DETERMINE THE TAX AND SOCIAL INSURANCE CONSEQUENCES OF THIS
TRANSACTION UNDER THE LAWS OF THE COUNTRY IN WHICH YOU LIVE AND WORK.

         Our statements in this Offer to Exchange concerning our 1999 Stock
Option Plan and the new options are merely summaries and do not purport to be
complete. The statements are subject to, and are qualified in their entirety


                                       17




by reference to, all provisions of our 1999 Stock Option Plan and the form of
option agreement thereunder. Please contact Jessica Egg at Interactive
Intelligence, Inc., 8909 Purdue Road, Suite 300, Indianapolis, IN 46268
(telephone: (317) 715-8507), to receive a copy of our 1999 Stock Option Plan and
the form of option agreement thereunder. We will promptly furnish you copies of
these documents at our expense.

         10. Information concerning Interactive Intelligence.

         Our principal executive offices are located at 8909 Purdue Road, Suite
300, Indianapolis, IN 46268, and our telephone number is (317) 872-3000.

         We are a leading provider of software that manages a broad range of
customer interactions including traditional telephone calls and faxes as well as
Internet-based interactions such as e-mail, text chat, Web callback requests and
voice over Net calls. We sell our products into three large and growing
markets--call (or contact) centers, enterprises and service providers. Using our
software, our end-user customers are able to replace a variety of traditional
devices such as private branch exchange devices or PBXs, interactive voice
response systems or IVRs, automatic call distributors or ACDs, voice mail
systems, fax servers, call recorders and computer telephony integration or CTI
middleware. In addition, we have announced plans for a new product that will
allow organizations to quickly develop applications for wireless devices such as
personal digital assistants and digital cell phones.

         The financial information included in our annual report on Form 10-K
for the fiscal year ended December 31, 2000 is incorporated herein by reference.
See "Additional Information" beginning on page 21 for instructions on how you
can obtain copies of our SEC filings, including filings that contain our
financial statements.

         11. Interests of directors and officers; transactions and arrangements
concerning the options.

         A list of our directors and executive officers is attached to this
Offer to Exchange as Schedule A. As of April 23, 2001, our executive officers
(seven (7) persons) as a group beneficially owned options outstanding under our
1999 Stock Option Plan to purchase a total of 229,500 of our shares, which
represented approximately 16% of the shares subject to all options outstanding
under our 1999 Stock Option Plan as of that date. Our non-employee directors as
a group beneficially owned no options outstanding under our 1999 Stock Option
Plan. Our executive officers may participate in the offer. Non-employee
directors are not eligible to participate in the offer.

         Please see our definitive proxy statement for our 2001 Annual Meeting
of Shareholders, filed with the SEC on April 6, 2001, for information regarding
the amount of our securities beneficially owned by our executive officers and
directors as of February 28, 2001. In the sixty (60) days prior to and including
April 23, 2000, the executive officers and directors of Interactive Intelligence
had the following transactions in Interactive Intelligence shares:

         (a) On March 13, 2001, Jeremiah J. Fleming, one of our executive
officers, sold 5,000 shares of our common stock on the open market at a price of
$20.8125 per share.

         (b) On March 15, 2001, Jeremiah J. Fleming, one of our executive
officers, sold 2,000 shares of our common stock on the open market at a price of
$16.50 per share.

         (c) Several of our executive officers made common stock purchases under
our Employee Stock Purchase Plan on April 2, 2001 in the ordinary course
pursuant to the terms of such plan.

         Except as otherwise described above, there have been no transactions in
options to purchase our shares or in our shares which were effected during the
60 days prior to April 23, 2001 by Interactive Intelligence or, to our
knowledge, by any executive officer, director or affiliate of Interactive
Intelligence. Our officers may, but have not informed us whether they intend to,
participate in the offer and exchange their eligible options.


                                       18




         12. Status of options acquired by us in the offer; accounting
consequences of the offer.

         Options we acquire through the offer will be cancelled and the shares
subject to those options will be returned to the pool of shares available for
grants of new options under the plans pursuant to which they were originally
granted. However, we will not grant any new options under our 1995 Incentive
Stock Option Plan or our 1995 Nonstatutory Stock Option Incentive Plan. To the
extent these shares are not fully reserved for issuance upon exercise of the new
options to be granted in connection with the offer, the shares will be available
for future awards to employees and other eligible plan participants without
further stockholder action, except as required by applicable law or the rules of
the Nasdaq National Market or any other securities quotation system or any stock
exchange on which our shares are then quoted or listed.

         We believe that we will not incur any compensation expense solely as a
result of the transactions contemplated by the offer because:

         o        we will not grant any new options until a business day that is
                  at least six months and one day after the date that we accept
                  and cancel options tendered for exchange, and

         o        the exercise price of all new options will at least equal the
                  market value of the shares of common stock on the date we
                  grant the new options.

         13. Legal matters; regulatory approvals.

         We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We cannot assure you that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for exchange and to issue
new options for tendered options is subject to the conditions described in
Section 7.

         If we are prohibited by applicable laws or regulations from granting
new options during the period beginning immediately after the day that is six
months and one day from the date that we cancel the options accepted for
exchange, in which period we currently expect to grant the new options, we will
not grant any new options. We are unaware of any such prohibition at this time,
and we will use reasonable efforts to effect the grant, but if the grant is
prohibited we will not grant any new options and you will not get any other
consideration for the options you tendered.

         14. Material U.S. federal income tax consequences.

         The following is a general summary of the material U.S. federal income
tax consequences of the exchange of options pursuant to the offer. This
discussion is based on the Internal Revenue Code, its legislative history,
Treasury Regulations thereunder and administrative and judicial interpretations
thereof as of the date of the offer, all of which are subject to change,
possibly on a retroactive basis. This summary does not discuss all of the tax
consequences that may be relevant to you in light of your particular
circumstances, nor is it intended to be applicable in all respects to all
categories of option holders.

         Option holders who exchange outstanding options for new options should
not be required to recognize income for federal income tax purposes at the time
of the exchange. We believe that the exchange will be treated as a non-taxable
exchange. WE ADVISE ALL OPTION HOLDERS CONSIDERING EXCHANGING THEIR OPTIONS TO
MEET WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER.


                                       19



         Incentive Stock Options.

         Under current law, an option holder will not realize taxable income
on the grant of an incentive stock option under our 1999 Stock Option Plan.
In addition, an option holder generally will not realize taxable income upon
the exercise of an incentive stock option. However, an option holder's
alternative minimum taxable income will be increased by the amount that the
aggregate fair market value of the shares underlying the option, which is
generally determined as of the date of exercise, exceeds the aggregate
exercise price of the option. Except in the case of an option holder's death
or disability, if an option is exercised more than three months after the
option holder's termination of employment, the option ceases to be treated as
an incentive stock option and is subject to taxation under the rules that
apply to nonqualified stock options.

         If an option holder sells the option shares acquired on exercise of
an incentive stock option, the tax consequences of the disposition depend on
whether the disposition is qualifying or disqualifying. The disposition of
the option shares is qualifying if it is made:

         o        at least two years after the date the incentive stock option
                  was granted, and

         o        at least one year after the date the incentive stock option
                  was exercised.

         If the disposition of the option shares is qualifying, any excess of
the sale price of the option shares, over the exercise price of the option will
be treated as long-term capital gain taxable to the option holder at the time of
the sale. Any such capital gain will be taxed at the long-term capital gain rate
in effect at the time of sale. If the disposition is not qualifying, which we
refer to as a "disqualifying disposition," the excess of the fair market value
of the option shares on the date the option was exercised, over the exercise
price will be taxable income to the option holder at the time of the
disposition.

         Of that income, the amount up to the excess of the fair market value
of the shares at the time the option was exercised over the exercise price
will be ordinary income for income tax purposes and the balance, if any, will
be long-term or short-term capital gain, depending on whether or not the
shares were sold more than one year after the option was exercised.

         Unless an option holder engages in a disqualifying disposition, we will
not be entitled to a deduction with respect to an incentive stock option. If an
option holder engages in a disqualifying disposition, we will be entitled to a
deduction equal to the amount of compensation income taxable to the option
holder.

         If you tender incentive stock options and those options are accepted
for exchange, the new options will be granted as incentive stock options to the
maximum extent they qualify. For options to qualify as incentive stock options,
the value of shares subject to options that first become exercisable in any
calendar year cannot exceed $100,000, as determined using the option exercise
price. The excess value is deemed to be a nonqualified stock option. You should
note that if the new options have a higher exercise price than some or all of
your current options, the new options may exceed the limit for incentive stock
options.

         We do not believe that our offer to you will change any of the terms of
your eligible incentive stock options if you do not accept the offer. If you
choose not to accept this offer, it is possible that the IRS would decide that
your right to exchange your incentive stock options under this offer is a
"modification" of your incentive stock options, even if you do not exchange the
options. A successful assertion by the IRS that the options are modified could
extend the options' holding period to qualify for favorable tax treatment and
cause a portion of your incentive stock options to be treated as nonqualified
stock options.

         Nonqualified Stock Options.

         Under current law, an option holder will not realize taxable income
on the grant of an option which is not qualified as an incentive stock
option, also referred to as a nonqualified stock option. However, when an
option holder

                                       20



exercises the option, the difference between the exercise price of the option,
and the fair market value of the shares subject to the option on the date of
exercise will be compensation income taxable to the option holder.

         We will be entitled to a deduction equal to the amount of compensation
income taxable to the option holder if we comply with eligible reporting
requirements.

         WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE
OFFER.

         15. Extension of offer; termination; amendment.

         We expressly reserve the right, in our discretion, at any time and from
time to time, and regardless of whether or not any event listed in Section 7 has
occurred or is deemed by us to have occurred, to extend the period of time
during which the offer is open and thereby delay the acceptance for exchange of
any options by giving oral or written notice of such extension to the option
holders or making a public announcement thereof.

         We also expressly reserve the right, in our reasonable judgment, prior
to the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options tendered for exchange upon the
occurrence of any of the events listed in Section 7, by giving oral or written
notice of such termination or postponement to you or by making a public
announcement thereof. Our reservation of the right to delay our acceptance and
cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5)
promulgated under the Securities Exchange Act, which requires that we must pay
the consideration offered or return the options tendered promptly after
termination or withdrawal of a tender offer.

         Subject to compliance with applicable law, we further reserve the
right, in our discretion, and regardless of whether any event listed in Section
7 has occurred or is deemed by us to have occurred, to amend the offer in any
respect, including, without limitation, by decreasing or increasing the
consideration offered in the offer to option holders or by decreasing or
increasing the number of options being sought in the offer.

         Amendments to the offer may be made at any time and from time to time
by public announcement of the amendment. In the case of an extension, the
amendment must be issued no later than 6:00 A.M., Indianapolis Time, on the next
business day after the last previously scheduled or announced expiration date.
Any public announcement made through the offer will be disseminated promptly to
option holders in a manner reasonably designated to inform option holders of the
change. Without limiting the manner in which we may choose to make a public
announcement, except as required by applicable law, we have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a press release to the Dow Jones News Service.

         If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the Securities Exchange Act. These rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer, other than a change in price
or a change in percentage of securities sought, will depend on the facts and
circumstances, including the relative materiality of such terms or information.

         If we decide to take any of the following actions, we will publish
notice or otherwise inform you in writing of these actions:

         o        we increase or decrease the amount of consideration offered
                  for the options,

         o        we decrease the number of options eligible to be tendered in
                  the offer, or

         o        we increase the number of options eligible to be tendered in
                  the offer by an amount that exceeds 2% of the shares issuable
                  upon exercise of the options that are subject to the offer
                  immediately prior to the increase.


                                       21




         If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of such increase
or decrease is first published, sent or given in the manner specified in this
Section 15, we will extend the offer so that the offer is open at least ten (10)
business days following the publication, sending or giving of notice.

         For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
A.M. through 12:00 midnight, Indianapolis Time.

         16. Fees and expenses.

         We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of options pursuant to this Offer to Exchange.

         17. Additional information.

         This Offer to Exchange is part of a Tender Offer Statement on Schedule
TO that we have filed with the SEC. This Offer to Exchange does not contain all
of the information contained in the Schedule TO and the exhibits to the Schedule
TO. We recommend that you review the Schedule TO, including its exhibits, and
the following materials which we have filed with the SEC before making a
decision on whether to tender your options:

         1. Interactive Intelligence's annual report on Form 10-K for our fiscal
year ended December 31, 2000, filed with the SEC on March 30, 2001; and

         2. The description of our shares contained in our Registration
Statement on Form 8-A, filed with the SEC on September 17, 1999 (file number
000-27385).

         These filings, our other annual, quarterly and current reports, our
proxy statements and our other SEC filings may be examined, and copies may be
obtained, at the following SEC public reference rooms:


                                                                 
         450 Fifth Street, N.W.    7 World Trade Center                500 West Madison Street
         Room 1024                 Suite 1300                          Suite 1400
         Washington, D.C. 20549    New York, New York 10048            Chicago, Illinois 60661



         You may obtain information on the operation of the public reference
rooms by calling the SEC at 1-800-SEC-0330.

         Our SEC filings are also available to the public on the SEC's Internet
site at http://www.sec.gov.

         Our common stock is quoted on the Nasdaq National Market under the
symbol "ININ" and our SEC filings can be read at the following Nasdaq address:

         Nasdaq Operations
         1735 K Street, N.W.
         Washington, D.C. 20006

Each person to whom a copy of this Offer to Exchange is delivered may obtain a
copy of any or all of the documents to which we have referred you, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents) at no cost, by writing to us at Interactive
Intelligence, Inc., Attn: Mr. Michael J. Tavlin, 8909 Purdue Road, Suite 300,
Indianapolis, IN 46268, or telephoning us at (317) 872-3000.


                                       22



         As you read the foregoing documents, you may find some inconsistencies
in information from one document to another. If you find inconsistencies between
the documents, or between a document and this Offer to Exchange, you should rely
on the statements made in the most recent document.

         The information contained in this Offer to Exchange about Interactive
Intelligence should be read together with the information contained in the
documents to which we have referred you.

         18. Miscellaneous.

         This Offer to Exchange and our SEC reports referred to above include
"forward-looking statements." When used in this Offer to Exchange, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Interactive Intelligence or our management are intended to identify
these forward-looking statements. All statements by us regarding our expected
future financial position and operating results, our business strategy, our
financing plans and expected capital requirements, forecasted trends relating to
our services or the markets in which we operate and similar matters are
forward-looking statements. The documents we filed with the SEC, including our
annual report on Form 10-K filed on March 30, 2001, discuss some of the risks
that could cause our actual results to differ from those contained or implied in
the forward-looking statements. These risks include, but are not limited to:

         o        our limited operating history makes financial forecasting
                  difficult and, in assessing our prospects, you should consider
                  our early stage of development and presence in a new and
                  rapidly evolving industry;

         o        we have historically incurred losses and we may not achieve
                  profitability;

         o        our quarterly operating results have varied significantly and,
                  if several factors affecting our business cause them to
                  continue to do so, the market price of our common stock could
                  be affected;

         o        we have a lengthy product sales cycle, which has contributed,
                  and may continue to contribute, to the quarter-to-quarter
                  variability of our revenues and operating results, which could
                  affect the market price of our common stock;

         o        our inability to manage successfully our growth or our
                  increasingly complex third party relationships could adversely
                  affect us;

         o        we face competitive pressures, which may have a material
                  adverse effect on us;

         o        we may not be able to grow our business as planned if we do
                  not maintain successful relationships with our resellers or
                  OEM partners and continue to recruit and develop additional
                  successful resellers and OEM partners;

         o        our markets are characterized by rapid technological change
                  which may cause us to incur significant development costs and
                  prevent us from attracting new customers;

         o        the growth of our business may be impeded without increased
                  use of the Internet;

         o        our business will be adversely affected if web-based
                  electronic business solutions are not widely adopted;

         o        a decline in market acceptance for Microsoft Corporation
                  technologies on which our products rely could have a material
                  adverse effect on us;

         o        our future business prospects depend in part on our ability to
                  maintain and improve our current products and develop new
                  products;

                                       23



         o        slower than anticipated growth in demand for interaction
                  management software of the type we license could materially
                  adversely affect our growth prospects;

         o        if our end-user customers do not perceive our products or the
                  related services provided by us or our resellers or OEM
                  partners to be effective or of high quality, our brand and
                  name recognition will suffer;

         o        if we are unable to adapt our software in a way that will
                  permit us to serve large, single-site end-user customers, the
                  marketability of our Enterprise Interaction Center(R) could be
                  adversely affected;

         o        our main suppliers of voice processing boards may become
                  unwilling or unable to continue to manufacture and supply us
                  with voice processing boards, requiring us to introduce a
                  substitute supplier which could prove difficult or costly;

         o        we may not be able to protect our proprietary rights
                  adequately, which could allow third parties to copy or
                  otherwise obtain and use our technology without authorization;

         o        infringement claims could adversely affect us;

         o        we depend on key personnel and will need to recruit additional
                  skilled personnel, for which competition is intense, to
                  conduct and grow our business effectively;

         o        we may pursue acquisitions that by their nature present risks
                  and that may not be successful;

         o        our international operations and expansion involve financial
                  and operational risks;

         o        fluctuations in the value of foreign currencies could result
                  in losses;

         o        our products could have defects for which we are potentially
                  liable and which could result in loss of revenue, increased
                  costs or loss of our credibility or delay in acceptance of our
                  products in the market;

         o        we may not be able to obtain adequate financing to implement
                  our growth strategy; and

         o        our stock price has been and could continue to be highly
                  volatile.

         We are not aware of any jurisdiction where the making of the offer is
not in compliance with applicable law. If we become aware of any jurisdiction
where the making of the offer is not in compliance with any valid applicable
law, we will make a good faith effort to comply with such law. If, after such
good faith effort, we cannot comply with such law, the offer will not be made
to, nor will tenders be accepted from or on behalf of, the option holders
residing in such jurisdiction.

         WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT, THE
MEMORANDUM FROM MICHAEL J. TAVLIN DATED APRIL 26, 2001, THE ELECTION FORM AND
THE NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT. IF ANYONE MAKES ANY
RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST
NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN
AUTHORIZED BY US.

                         Interactive Intelligence, Inc.


April 26, 2001


                                       24



                                   SCHEDULE A

                    INFORMATION CONCERNING THE DIRECTORS AND
              EXECUTIVE OFFICERS OF INTERACTIVE INTELLIGENCE, INC.

         The directors and executive officers of Interactive Intelligence, Inc.
and their positions and offices as of April 26, 2001, are set forth in the
following table:




         NAME                       POSITION AND OFFICES HELD
         ----                       -------------------------
                                 
Donald E. Brown, M.D.               Chairman of the Board, President and Chief Executive Officer
John R. Gibbs                       Executive Vice President of Administration and Corporate Development, Treasurer and Director
Jeremiah J. Fleming                 Executive Vice President of Sales, The Americas, Europe, Middle East and Africa
Michael J. Tavlin                   Senior Vice President and Chief Financial Officer and Corporate Secretary
Michael E. Ford                     Vice President of Operations, Europe, Middle East and Africa
Douglas T. Shinsato                 Vice President of Operations, Asia/Pacific
Keith A. Midkiff                    Vice President of Finance and Controller
Jon Anton, D.Sc.                    Director
Robert A. Compton                   Director
Michael P. Cullinane                Director


         The address of each director and executive officer is: c/o Interactive
Intelligence, Inc., 8909 Purdue Road, Suite 300, Indianapolis, IN 46268.








                                      A-1

EX-99.(A)(2)

                                                                 Exhibit (a)(2)

                         INTERACTIVE INTELLIGENCE, INC.
                            OFFER TO EXCHANGE OPTIONS

                                  ELECTION FORM

         I have received, read and understand the Offer to Exchange, the
memorandum from Michael J. Tavlin, each dated April 26, 2001, the Election
Form and Notice to Change Election From Accept to Reject (together, as they
may be amended from time to time, constituting the "Offer"), offering to
eligible employees the opportunity to exchange outstanding stock options
granted under Interactive Intelligence, Inc.'s 1999 Stock Option and
Incentive Plan ("Old Options") for options exercisable at the fair market
value on November 26, 2001, issued under the 1999 Stock Option and Incentive
Plan. The Offer expires at 9:00 P.M. Indianapolis Time on May 24, 2001.

         I understand that if I elect to cancel my Old Options in exchange for
the promise to issue a new option or options (the "New Option(s)"), the number
of shares will remain the same and the original vesting schedule for the Old
Options will be applied to the New Options, except that the New Options will not
automatically vest on a change in control of Interactive Intelligence. I
understand that for each option I cancel, I lose my right to all outstanding
unexercised shares under that option. I have read the Offer and understand the
possible loss of my cancelled stock options if employment is terminated for
whatever reason before November 26, 2001. I UNDERSTAND THAT THERE IS A
POSSIBILITY THAT THE EXERCISE PRICE OF THE NEW OPTIONS COULD BE HIGHER THAN THE
EXERCISE PRICE OF THE OLD OPTIONS RESULTING IN A LOSS OF SOME STOCK OPTION
BENEFIT. I ALSO UNDERSTAND THAT IF I ELECT TO CANCEL ANY OPTIONS, ALL OPTIONS
GRANTED IN THE SIX MONTHS PRIOR TO CANCELLATION, I.E. SINCE NOVEMBER 24, 2000,
WILL ALSO BE CANCELLED AND REPLACED WITH NEW OPTIONS. I AGREE TO ALL TERMS OF
THE OFFER.

         Subject to the above understandings, I would like to participate in the
Offer as indicated below. I HAVE READ AND FOLLOWED THE INSTRUCTIONS ATTACHED TO
THIS FORM.

         Please check the box and note the grant date and grant number of each
stock option grant with respect to which you agree to have such grant and all
stock option grants since November 24, 2000 cancelled and replaced pursuant to
the terms of this Election Form.

         You may change the terms of your election to tender options for
exchange by submitting a new Election Form or a Notice to Change Election From
Accept to Reject prior to the cutoff date of 9:00 P.M. Indianapolis Time, May
24, 2001.

         [ ]    Yes, I wish to tender for exchange each of the options
                specified below (and on any additional sheets which I have
                attached to this form), along with all options granted since
                November 24, 2000:

                                                           
                                                                 TOTAL NUMBER OF UNEXERCISED
                                                                 SHARES SUBJECT TO THE
                                                                 OPTION (SHARES TO BE
GRANT DATE                       EXERCISE PRICE                  CANCELLED)

_______________________          _______________                 _____________________________
_______________________          _______________                 _____________________________
_______________________          _______________                 _____________________________
_______________________          _______________                 _____________________________





         [ ]    I have attached an additional sheet listing my name and any
additional grants I wish to cancel.



I understand that all of these options will be irrevocably cancelled on May 25,
2001.

- ---------------------------------    -------------------------------------------
EMPLOYEE SIGNATURE                   NATIONAL INSURANCE/SOCIAL SECURITY/NATIONAL
                                     ID/TAX FILE NUMBER

- ---------------------------------      --------------------------    ----------
EMPLOYEE NAME (PLEASE PRINT)                 E-MAIL ADDRESS             DATE


         RETURN TO JESSICA EGG NO LATER THAN 9:00 P.M. INDIANAPOLIS TIME
        ON MAY 24, 2001 VIA FACSIMILE AT (317) 715-8507 OR HAND DELIVERY

                  INTERACTIVE INTELLIGENCE WILL SEND AN E-MAIL
                     CONFIRMATION WITHIN 48 HOURS OF RECEIPT
                      OR AS SOON AS PRACTICABLE THEREAFTER


                                       2



                                  INSTRUCTIONS
              FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

         1. Delivery of Election Form.

         A properly completed and executed original of this Election Form (or
a facsimile of it), and any other documents required by this Election Form,
must be received by Jessica Egg either via hand delivery or via the facsimile
number listed on the front cover of this Election Form on or before 9:00 P.M.
Indianapolis Time on May 24, 2001 (the "Expiration Date").

         THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR
OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE COMPANY. YOU MAY HAND DELIVER YOUR ELECTION FORM TO JESSICA EGG
AT INTERACTIVE INTELLIGENCE, INC. (THE "COMPANY"), OR YOU MAY FAX IT TO HER AT
THE NUMBER LISTED ON THE FRONT COVER OF THIS ELECTION FORM. IN ALL CASES, YOU
SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.

         IMPORTANT: THE ELECTION FORM (OR A FACSIMILE COPY OF IT) TOGETHER WITH
ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE COMPANY, ON OR BEFORE THE
EXPIRATION DATE.

         Tenders of options made through the Offer may be withdrawn at any time
before the Expiration Date. If the Offer is extended by the Company beyond that
time, you may withdraw your tendered options at any time until the extended
expiration of the Offer. In addition, although the Company currently intends to
accept your validly tendered options promptly after the expiration of the Offer,
unless the Company accepts your tendered options before 9:00 P.M., Indianapolis
Time, on June 22, 2001, you may withdraw your tendered options at any time after
June 22, 2001. To withdraw tendered options you must deliver a signed and dated
Notice to Change Election From Accept to Reject, or a facsimile of the Notice to
Change Election From Accept to Reject, with the required information to the
Company while you still have the right to withdraw the tendered options.
Withdrawals may not be rescinded and any options withdrawn will thereafter be
deemed not properly tendered for purposes of the Offer unless the withdrawn
options are properly re-tendered before the Expiration Date by delivery of a new
Election Form following the procedures described in these Instructions.

         Tenders of options made through the offer may be changed at any time
before the Expiration Date. If the Offer is extended by the Company beyond that
time, you may change your election regarding particular tendered options at any
time until the extended expiration of the Offer. To change your election
regarding particular tendered options while continuing to elect to participate
in the Offer, you must deliver a signed and dated new Election Form, with the
required information, following the procedures described in these Instructions.
On receipt of such a new, properly signed and dated Election Form, any
previously submitted Election Form will be disregarded and will be considered
replaced in full by the new Election Form.

         The Company will not accept any alternative, conditional or contingent
tenders. All tendering option holders, by signing this Election Form (or a
facsimile of it), waive any right to receive any notice of the acceptance of
their tender, except as provided for in the Offer to Exchange.

         2. Inadequate Space.

         If the space provided in this Election Form is inadequate, the
information requested by the table on this Election Form regarding the options
to be tendered should be provided on a separate schedule attached to this
Election Form. Print your name on this schedule and sign it. The schedule should
be delivered with the Election Form, and will thereby be considered part of this
Election Form.

         3. Tenders.

         If you intend to tender options through the Offer, you must complete
the table on this Election Form by providing the following information for each
option that you intend to tender:


                                       3



         o grant date,

         o exercise price, and

         o the total number of unexercised option shares subject to the option.

         The Company will not accept partial tenders of options. Accordingly,
you may tender all or none of the unexercised shares subject to the options you
decide to tender. Also, if you intend to tender any of the options that were
granted to you, then you must tender all of your options that were granted to
you under during the six month period prior to the Cancellation Date.

         4. Signatures on This Election Form.

         If this Election Form is signed by the holder of the options, the
signature must correspond with the name as written on the face of the option
agreement or agreements to which the options are subject without alteration,
enlargement or any change whatsoever.

         If this Election Form is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, that person should so indicate when
signing, and proper evidence satisfactory to the Company of the authority of
that person so to act must be submitted with this Election Form.

         5. Other Information on This Election Form.

         In addition to signing this Election Form, you must print your name
and indicate the date at which you signed. You must also include a current
e-mail address and your identification number, such as your social security
number, tax identification number or national identification number, as
appropriate.

         6. Requests for Assistance or Additional Copies.

         Any questions or requests for assistance, as well as requests for
additional copies of the Offer to Exchange or this Election Form may be directed
to Jessica Egg, at Interactive Intelligence, Inc. 8909 Purdue Road, Suite 300,
Indianapolis, Indiana 46268, telephone number (317) 715-8507. Copies will be
furnished promptly at the Company's expense.

         7. Irregularities.

         All questions as to the number of option shares subject to options to
be accepted for exchange, and the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of options will be determined
by the Company in its discretion. The Company's determinations shall be final
and binding on all parties. The Company reserves the right to reject any or all
tenders of options the Company determines not to be in proper form or the
acceptance of which may, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the right to waive any of the conditions of the Offer
and any defect or irregularity in the tender of any particular options, and the
Company's interpretation of the terms of the Offer (including these
instructions) will be final and binding on all parties. No tender of options
will be deemed to be properly made until all defects and irregularities have
been cured or waived. Unless waived, any defects or irregularities in connection
with tenders must be cured within such time as the Company shall determine.
Neither the Company nor any other person is or will be obligated to give notice
of any defects or irregularities in tenders, and no person will incur any
liability for failure to give any such notice.

         IMPORTANT: THE ELECTION FORM (OR A FACSIMILE COPY OF IT), TOGETHER WITH
ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE COMPANY, ON OR BEFORE THE
EXPIRATION DATE.


                                       4



         8. Additional Documents to Read.

         You should be sure to read the Offer to Exchange, all documents
referenced therein, and the memorandum from Michael J. Tavlin dated April 26,
2001 before deciding to participate in the Offer.

         9. Important Tax Information.

         You should refer to Section 14 of the Offer to Exchange, which contains
important U.S. federal income tax information. IF YOU LIVE OR WORK OUTSIDE THE
UNITED STATES, WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX ADVISOR TO
DETERMINE THE TAX CONSEQUENCES WHICH MAY APPLY TO YOU.

         10. Miscellaneous.

         A. Data Privacy. By accepting the Offer, you hereby explicitly and
unambiguously consent to the collection, use and transfer, in electronic or
other form, of your personal data as described in this document by and among, as
applicable, Interactive Intelligence, Inc. and/or any affiliate for the
exclusive purpose of implementing, administering and managing your participation
in the Offer.

         You understand that Interactive Intelligence, Inc. and/or any affiliate
may hold certain personal information about you, including, but not limited to,
your name, home address and telephone number, date of birth, social insurance
number or other identification number, salary, nationality, job title, any
shares of stock or directorships held in the Company, details of all options or
any other entitlement to shares of stock awarded, canceled, exercised, vested,
unvested or outstanding in your favor, for the purpose of implementing,
administering and managing the stock option plan and this Offer ("Data"). You
understand that Data may be transferred to any third parties assisting in the
implementation, administration and management of the Offer, that these
recipients may be located in your country, or elsewhere, and that the
recipient's country may have different data privacy laws and protections than in
your country. You authorize the recipients to receive, possess, use, retain and
transfer the Data, in electronic or other form, for the purposes of
implementing, administering and managing your participation in the stock option
plans and this Offer. You understand that Data will be held only as long as is
necessary to implement, administer and manage your participation in the stock
option plans and this Offer. You understand that you may, at any time, view
Data, request additional information about the storage and processing of Data,
require any necessary amendments to Data or withdraw the consents herein by
contacting Jessica Egg at (317) 715-8507 (phone and fax) or
jessica.egg@inin.com. You understand that withdrawal of consent may affect your
ability to participate in this Offer and exercise or realize benefits from the
stock option plans.

         B. Acknowledgement and Waiver. By accepting this Offer, you
acknowledges that: (i) your acceptance of the Offer is voluntary; (ii) your
acceptance of the Offer shall not create a right to further employment with your
employer and shall not interfere with the ability of your employer to terminate
your employment relationship at any time with or without cause; and (iii) the
Offer, the Old Options and the New Options are not part of normal or expected
compensation or salary for any purposes, including, but not limited to,
calculating any severance, resignation, redundancy, end of service payments,
bonuses, long-service awards, pension or retirement benefits or similar
payments.


                                       5

EX-99.(A)(3)

                                                                 Exhibit (a)(3)

FROM: Michael J. Tavlin

SUBJECT: OFFER TO EXCHANGE OPTIONS

DATE: April 26, 2001

IMPORTANT NEWS -- PLEASE READ IMMEDIATELY AND TAKE ACTION BEFORE MAY 24, 2001!

         The Board of Directors has adopted resolutions offering to all
eligible employees who hold stock options granted under Interactive
Intelligence, Inc.'s ("Interactive Intelligence") 1999 Stock Option and
Incentive Plan (the "1999 Plan") the opportunity to exchange their
outstanding stock options for options exercisable at the fair market value of
our stock on November 26, 2001. We are making the offer on the terms and
conditions described in the Offer to Exchange, this memorandum, the Election
Form and the Notice to Change Election From Accept to Reject. Please read
these documents carefully before you make any decisions regarding the offer.
This offer expires at 9:00 P.M. Indianapolis Time on May 24, 2001.

         If you elect to participate in this exchange, your existing unexercised
stock option or options (the "Old Option(s)") will be cancelled and a promise to
issue a new option or options, as applicable (the "New Option(s)") will be
issued. The New Options will be for the same number of shares (split-adjusted)
as your Old Options, less any exercised shares. The New Options will be granted
under the terms of our 1999 Plan. This offer may be accepted or rejected as to
each grant or none of your grants. There must be strict adherence to the
following rules:

THE NEW OPTIONS

         1. All grants cancelled pursuant to this program are eligible for the
New Options.

         2. The New Options will be priced at the fair market value on the day
we grant the options, expected to be November 26, 2001, which is defined as the
closing price on Nasdaq on the date of grant. French employees may have a
slightly higher exercise price. This price may be higher, or lower, or the same
as the exercise price on your option to be cancelled. THERE IS A POSSIBILITY
THAT THE EXERCISE PRICE OF THE NEW OPTIONS COULD BE HIGHER THAN THE EXERCISE
PRICE OF THE OLD OPTIONS, RESULTING IN A LOSS OF SOME STOCK OPTION BENEFIT.

         3. The New Options will be vested in accordance with the vesting
schedule of the Old Options, except that the vesting schedule of the New Options
will not be accelerated on a change in control of the Company.

         4. If your employment with the Company terminates voluntarily OR
involuntarily prior to November 26, 2001, you will not receive any New Options.

         5. All other rules of the 1999 Plan will be applied.

ELIGIBLE GRANTS AND OPTION CANCELLATION RULES

         1. All option grants under the 1999 Plan are eligible for consideration
for the New Options assuming your election is received by 9:00 P.M. Indianapolis
Time on May 24, 2001 or, if we have extended the offer, by the new expiration of
the offer.

         2. Any of your outstanding, unexercised options under the 1999 Plan may
be cancelled. If you elect to cancel an Old Option, it must be cancelled in its
entirety.

         3. If a decision is made to cancel a grant, all grants issued since
November 24, 2000 (within the prior six months of the cancellation) must also be
cancelled. All cancelled grants will be replaced with a promise to issue a New
Option at least six months and one day from the date the Old Options are
cancelled (a "Promise to Grant Stock Option(s)"). We expect to grant the New
Options on November 26, 2001, unless we have to change the date because the
offer had been extended.



         4. Individuals canceling a grant pursuant to this program will not be
eligible for additional grants until after November 26, 2001. In lieu thereof,
the Company may issue additional Promises To Grant Stock Option(s).

         5. Once your Old Options are cancelled, you will not be able to
exercise your Old Options, even if you terminate employment and do not receive a
New Option.

         6. All New Options will be the same type of options as your Old
Options, to the extent allowed by law.

         7. All rights to cancelled grants will be irrevocably forfeited.

         THIS OFFER IS NOT A GUARANTY OF EMPLOYMENT FOR ANY PERIOD. YOUR
EMPLOYMENT WITH THE COMPANY REMAINS "AT WILL" EMPLOYMENT AND MAY BE TERMINATED
AT ANY TIME BY EITHER YOU OR THE COMPANY, WITH OR WITHOUT CAUSE OR NOTICE.

         All eligible Option Holders must complete an Interactive Intelligence,
Inc. Offer to Exchange Options Election Form ("Election Form") and hand deliver
or fax a signed copy to Jessica Egg at (317) 715-8507 by May 24, 2001, no later
than 9:00 P.M. Indianapolis Time. You are required to make your election to
"accept" the exchange agreement and identify the option grant(s) being cancelled
if you wish to participate.

         Interactive Intelligence will e-mail a confirmation of receipt within
48 hours of receiving your Election Form, or as soon thereafter as practicable.

         IF YOUR ELECTION IS RECEIVED AFTER 9:00 P.M. INDIANAPOLIS TIME ON MAY
24, 2001, IT WILL NOT BE ACCEPTED AND YOU WILL BE CONSIDERED TO HAVE DECLINED TO
ACCEPT THE EXCHANGE OFFER.

         You will receive shortly a more detailed document, entitled an Offer to
Exchange, explaining the program in greater detail. In the meantime, below are
the answers to some Frequently Asked Questions ("FAQ's") regarding the offer,
which you should read.

                          "FREQUENTLY ASKED QUESTIONS"

         The following are answers to some of the questions that you may have
about this offer. We urge you to read carefully the Offer to Exchange, the
Election Form and the Notice to Change Election from Accept to Reject because
the information in this memorandum and in the FAQ's is not complete, and
additional important information is contained in the Offer to Exchange, the
Election Form and the Notice to Change Election from Accept to Reject.

GENERAL QUESTIONS ABOUT THE PROGRAM

         1. WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?

         We are offering to exchange all outstanding and unexercised Interactive
Intelligence stock options granted under the 1999 Plan held by eligible
employees for New Options under the 1999 Plan. YOU MAY NOT EXCHANGE ANY STOCK
OPTIONS THAT WERE GRANTED TO YOU UNDER THE COMPANY'S 1995 INCENTIVE STOCK OPTION
PLAN OR THE COMPANY'S 1995 NONSTATUTORY STOCK OPTION INCENTIVE PLAN.

         2. WHY ARE WE MAKING THE OFFER TO EXCHANGE?

         We implemented the offer to exchange because a considerable number of
employees have stock options, whether or not they are currently exercisable,
that are priced significantly above our current and recent trading prices. We
believe these options are unlikely to be exercised in the foreseeable future.
This program is voluntary and will allow employees to choose whether to keep
their current stock options at their current exercise price, or to cancel those
options in exchange for a New Option for the same number of shares to be granted
on a date at least six months and one day from the date we cancel the tendered
options (the "replacement grant date"). We expect the replacement grant date to
be November 26 2001. It is hoped that this program will ameliorate the current
underwater options issue, but this cannot be guaranteed considering the
ever-present risks associated with a volatile and unpredictable stock

                                       2



market. By making this offer to exchange outstanding options granted under the
1999 Plan for New Options that will have an exercise price equal to the market
value of our common stock on the replacement grant date, we intend to provide
our employees with the benefit of owning options that over time may have a
greater potential to increase in value, create better performance incentives for
employees and thereby maximize stockholder value.

         3. WHO IS ELIGIBLE?

         Any current employee of Interactive Intelligence or its subsidiaries
with a stock option granted under the 1999 Plan at any price is eligible. You
must be an employee as of April 26, 2001, the date this offer commences, and
remain an employee as of the date the options are cancelled in order to
participate in this offer. In order to receive a new grant, you must remain an
eligible employee as of the replacement grant date. Participation in the
exchange offer is strictly voluntary.

         4. WILL EMPLOYEES OUTSIDE THE UNITED STATES BE ELIGIBLE TO PARTICIPATE?

         Except as noted above, all employees with stock options granted under
the 1999 Plan are eligible.

         5. HOW DOES THE EXCHANGE WORK?

         The offer to exchange will require an employee to make a voluntary,
irrevocable election to cancel outstanding stock options by 9:00 P.M.
Indianapolis Time on May 24, 2001 (unless we extend the offer), in exchange for
a one-for-one grant of a New Option to be issued on the replacement grant date,
which we expect to be on November 26, 2001, and priced at Interactive
Intelligence's closing market price on that date. Such New Options would retain
the original vesting schedule of the cancelled options and be subject to the
terms and conditions of the 1999 Plan. However, the New Options will not have a
provision providing for the acceleration of vesting of such options on a change
in control of Interactive Intelligence. To participate, employees must cancel
any and all Interactive Intelligence options granted from November 24, 2000 to
May 24, 2001; but may choose to cancel some, all, or none of their options
granted prior to November 24, 2000.

         6. WHAT DO I NEED TO DO TO PARTICIPATE IN THE OFFER TO EXCHANGE?

         To participate, you must complete the Election Form, sign and date it,
and ensure that Jessica Egg at Interactive Intelligence receives it no later
than 9:00 P.M. Indianapolis Time on May 24, 2001. You can return your form
either by fax to Jessica Egg at (317) 715-8507, or you may hand deliver it to
her at Interactive Intelligence, Inc., 8909 Purdue Road, Suite 300,
Indianapolis, Indiana 46268, USA.

         7. IS THIS A REPRICING?

         This is not a stock option repricing in the traditional sense. Under a
traditional stock option repricing, an employee's current options would be
immediately repriced and Interactive Intelligence would have a variable
accounting charge against earnings.

         8. WHY CAN'T INTERACTIVE INTELLIGENCE JUST REPRICE MY OPTIONS, AS I
HAVE SEEN DONE AT OTHER COMPANIES?

         In 1998, the Financial Accounting Standards Board adopted unfavorable
accounting charge consequences for companies that reprice options. If we were to
simply reprice options, the company's potential for profitability in the future
would be in serious jeopardy, as we would be required to take a charge against
earnings on any future appreciation of the repriced options.

         9. WHY CAN'T I JUST BE GRANTED ADDITIONAL OPTIONS?

         Because of the large number of underwater options currently outstanding
at Interactive Intelligence, a total grant of additional options would have
severe negative impact on Interactive Intelligence's dilution, outstanding
shares and earnings per share. Additionally, Interactive Intelligence has a
limited pool of options that it is allowed to


                                       3


grant per calendar year, without stockholder approval, and therefore our current
reserves must be conserved for new hires and ongoing grants.

         10. WOULDN'T IT BE EASIER TO JUST QUIT INTERACTIVE INTELLIGENCE AND
THEN GET REHIRED?

         This is not an alternative for us because this would be treated the
same as a repricing if the rehire and resulting re-grant are within six months
of the option cancellation date. Again, such a repricing would cause Interactive
Intelligence to incur a variable accounting charge against earnings. In
addition, by leaving Interactive Intelligence and being rehired later, an
employee would not receive credit for prior service for vesting purposes.

         11. IF I PARTICIPATE, WHAT WILL HAPPEN TO MY CURRENT OPTIONS?

         Options designated to be exchanged under this program will be cancelled
on May 25, 2001.

         12. WHAT IS THE DEADLINE TO ELECT TO EXCHANGE AND HOW DO I ELECT TO
EXCHANGE?

         The deadline to participate in this program is 9:00 P.M. Indianapolis
Time on May 24, 2001, unless we extend the offer. This means that Jessica Egg at
Interactive Intelligence must have your form in her hands before that time. We
have no plans to extend the offer, but if it is extended, you will be notified.
We reserve the right to reject any or all options elected for exchange that we
determine are not in appropriate form or that we determine are unlawful to
accept. Otherwise, we will accept properly and timely elected options that are
not validly withdrawn, subject to our rights to extend, terminate and amend the
offer.

         13. WHAT WILL HAPPEN IF I DO NOT TURN IN MY FORM BY THE DEADLINE?

         If you do not turn in your Election Form by the deadline, then you
will not participate in the option exchange, and all stock options currently
held by you will remain intact at their original price and subject to their
original terms.

         14. DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY ELECTED
OPTIONS?

         You may withdraw the options you have elected for exchange at any
time before 9:00 P.M., Indianapolis Time, on May 24, 2001. To withdraw
options elected for exchange, you must submit a Notice to Change Election
from Accept to Reject to Jessica Egg at Interactive Intelligence by 9:00 P.M.
Indianapolis Time on May 24, 2001. Once you have withdrawn your election to
exchange options, you may re-elect to exchange options only by again
following the delivery procedures described in the Instructions to the
Election Form. If we extend this offer, you may withdraw your previously
elected options until the new expiration of the offer.

         15. MAY I CHANGE MY MIND ABOUT WHICH OPTIONS I WANT TO TENDER FOR
EXCHANGE?

         Yes, you may change your election at any time before the offer
expires. In order to change your election, you must properly fill out, sign
and date a new Election Form and deliver it to Jessica Egg by hand delivery
or by fax to Jessica Egg at (317) 715-8507 by 9:00 P.M. Indianapolis Time on
May 24, 2001. Once you have done this, your previous Election Form will be
disregarded. If we extend this offer, you may change your election until the
new expiration of the offer.

         16. AM I ELIGIBLE TO RECEIVE FUTURE GRANTS IF I PARTICIPATE IN THIS
EXCHANGE?

         Because of the accounting limitations, participants in this program are
ineligible to receive any additional stock option grants until after the
replacement grant date (expected to be November 26, 2001).

         17. WILL I HAVE TO PAY TAXES AS A CONSEQUENCE OF MY PARTICIPATION IN
THIS EXCHANGE?

         If you are a United States-based employee, neither the cancellation of
your options nor your receipt of a replacement option should give rise to a
taxable event for you, but we recommend that you consult with your own tax
advisor to determine if there are any tax consequences to tendering options for
exchange that will apply to you. If you

                                       4


exchange your current options for New Options, you will not be required under
current law to recognize income for U.S. federal income tax purposes at the time
of the exchange. We believe that the exchange will be treated as a non-taxable
exchange in the United States. Further, at the date of grant of the New Options,
you will not be required under current law to recognize income for U.S. federal
income tax purposes. The grant of options is not recognized as taxable income in
the United States. FOR EMPLOYEES RESIDING OUTSIDE OF THE UNITED STATES, WE
RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE TAX AND
SOCIAL INSURANCE CONSEQUENCES OF ELECTING TO EXCHANGE OPTIONS PURSUANT TO THE
OFFER. All employees are strongly urged to read the Offer to Exchange for an
additional discussion of the potential tax consequences.

         18. HOW SHOULD I DECIDE WHETHER OR NOT TO PARTICIPATE?

         We understand that this will be a challenging decision for all
employees. The program does carry considerable risk, and there are no guarantees
of our future stock performance. Therefore, the decision to participate must be
each individual employee's personal decision.

         19. WHAT DO WE AND OUR BOARD OF DIRECTORS THINK OF THE OFFER?

         Although our Board of Directors has approved this offer, neither we nor
our Board of Directors make any recommendation as to whether you should elect to
exchange or refrain from exchanging your options. Our non-employee directors are
not eligible to participate in the offer.

         20. WHAT IF I LEAVE INTERACTIVE INTELLIGENCE BETWEEN THE DATE MY
OPTIONS ARE CANCELLED AND THE DATE THE NEW OPTIONS ARE GRANTED?

         You will have forfeited the options tendered and accepted for exchange
and you will receive no New Options. Once the offer to exchange expires (at 9:00
P.M. Indianapolis Time on May 24, 2001, unless the offer is extended), your
election to tender your options is not revocable. Therefore, if you leave
Interactive Intelligence or one of its subsidiaries voluntarily, involuntarily,
or for any other reason, before your New Option is granted, you will not have a
right to any stock options that were previously cancelled, and you will not have
a right to the New Option that would have been issued on the replacement grant
date. THEREFORE, IF YOU DO NOT REMAIN AN ELIGIBLE EMPLOYEE ON THE REPLACEMENT
GRANT DATE, YOU WILL NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR OPTIONS
THAT HAVE BEEN ACCEPTED FOR EXCHANGE. YOU ALSO WILL NOT RECEIVE ANY OTHER
CONSIDERATION FOR THE OPTIONS ELECTED TO BE EXCHANGED IF YOU DO NOT REMAIN AN
ELIGIBLE EMPLOYEE ON THE REPLACEMENT GRANT DATE (EXPECTED TO BE NOVEMBER 26,
2001).

SPECIFIC QUESTIONS ABOUT THE CANCELLED OPTIONS

         21. WHICH OPTIONS CAN BE CANCELLED?

         If you are eligible and elect to participate in this offer, you may
elect to cancel one or more options granted under our 1999 Plan. If you elect
to cancel one or more options, you are required to cancel all options granted
to you on or after November 24, 2000.

         22. CAN I CHOOSE WHICH OPTIONS I WANT TO CANCEL, IF I HAVE MULTIPLE
OPTIONS?

         You may choose to cancel one or more options granted under our 1999
Plan. It is up to you to pick which options, if any, you would like to tender
for exchange. However, if you wish to participate in this program, you are
required to cancel all options granted to you on or after November 24, 2000.

         23. CAN I CANCEL THE REMAINING PORTION OF AN OPTION THAT I HAVE ALREADY
PARTIALLY EXERCISED?

         Yes, any remaining outstanding, unexercised portion of an option
granted under our 1999 Plan can be cancelled. The New Option will be on a
one-for-one basis but only in replacement of the portion of the option
cancelled.


                                       5



         24. CAN I SELECT WHICH PORTION OF AN OPTION TO CANCEL?

         No, we cannot partially cancel an outstanding option. The remaining
unexercised portion of an option must either be exchanged in full or not
exchanged.

         25. IF I CHOOSE TO PARTICIPATE, WHAT WILL HAPPEN TO MY OPTIONS THAT
WILL BE CANCELLED?

         If you elect to participate in this program, then on May 25, 2001, or
as soon as we can after that, we will cancel all of your outstanding options
that were granted since November 24, 2000, plus any others that you elected to
cancel. You will not have a right to be granted any further options from us
until the replacement grant date, when your New Options will be issued.

SPECIFIC QUESTIONS ABOUT THE REPLACEMENT OPTIONS

         26. WHAT WILL BE MY NEW OPTION SHARE AMOUNT?

         Employees who participate in this program will receive a new
replacement stock option on the replacement grant date. The new stock option
will be equal to the number of shares cancelled under the old stock option. Each
New Option will be granted under the 1999 Plan pursuant to a new option
agreement between you and us.

         27. WHAT WILL BE THE VESTING SCHEDULE OF MY REPLACEMENT OPTIONS?

         The vesting schedule for all replacement options granted in this
program will be exactly the same as the vesting schedule for the cancelled
options. Your option will continue to vest on the same schedule as your
cancelled option as if your cancelled option was still in effect. However, each
New Option will not have a provision providing for accelerated vesting in the
event of a change in control of Interactive Intelligence. Therefore, even if an
option that you tender for exchange contained such an accelerated vesting
provision on a change in control, your New Option granted under the offer will
not contain such a provision.

         28. WHAT WILL BE MY NEW OPTION EXERCISE PRICE?

         The exercise price for the New Options, which will be granted on the
replacement grant date, (expected to be November 26, 2001), will be the fair
market value of our stock on the date of grant, which is defined as the last
reported sales price of our common stock on the Nasdaq National Market on the
date of grant. The exercise price for French employees may be slightly higher.
BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY
AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, THE NEW OPTIONS MAY
HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS. WE
RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK, AMONG
OTHER FACTORS YOU CONSIDER, BEFORE DECIDING WHETHER TO ELECT TO EXCHANGE YOUR
OPTIONS.

         29. WHAT WILL BE MY NEW OPTION TYPE, INCENTIVE STOCK OPTION OR
NONQUALIFIED STOCK OPTION?

         Generally, you will receive the same option type you currently have. If
you are a United States employee and your cancelled stock options were an
incentive stock option, your New Options will be incentive stock options if and
to the extent they qualify under the Internal Revenue Code of 1986, as amended.
If your cancelled options were nonqualified stock options, your New Options will
be nonqualified stock options. Please read the Offer to Exchange for additional
information regarding the tax treatment of your options. In addition, we
recommend that you consult your own tax advisor to determine the tax
consequences of electing to exchange options pursuant to this offer.

         30. WHEN WILL I RECEIVE MY REPLACEMENT OPTIONS?

         We will grant the New Options on the replacement grant date which will
be at least six months and one day after the date we cancel the options accepted
for exchange. If we cancel options elected for exchange on May 25,


                                       6



2001, the first business day after the scheduled expiration date of the offer,
the replacement grant date of the New Options will be November 26, 2001.

         31. WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION
DATE OF THE OFFER?

         If we were to grant the New Options on any date which is earlier than
six months and one day after the date we cancel the options accepted for
exchange, we would be required for financial reporting purposes to record a
compensation expense against our earnings. By deferring the grant of the New
Options for six months and one day, we believe we will not have to record such a
compensation expense.

         32. WHAT WILL BE THE TERMS AND CONDITIONS OF MY REPLACEMENT OPTIONS?

         Your New Options will be subject to the terms and conditions of the
1999 Plan. The terms and conditions of this plan is described in the Offer to
Exchange. As noted above, the vesting schedule for the New Option will be
exactly the same as the cancelled option, except there will be no accelerated
vesting provision in the event of a change in control of Interactive
Intelligence.

         33. CAN I HAVE SOME EXAMPLES OF HOW AN OFFER TO EXCHANGE MIGHT WORK?

Example 1

         Assumptions:

         Your Hire Date: November 1, 2000

         Your Original Stock Option: 1,000 shares

         Your Original Stock Option Price: $35.00

         Your Original Vesting Schedule: 250 shares vest November 1, 2001, then
         yearly thereafter until fully vested in November 2004 or until
         termination of employment.

         Hypothetical Stock Price on New Options Grant Date, November 26, 2001:
         $25.00

         Using the above assumptions for the sake of illustrating the offer to
exchange, we would cancel your original stock option on May 25, 2001. On the
replacement grant date, which would be November 26, 2001, we would grant you a
New Option for 1,000 shares, and in this example using the purely hypothetical
stock price of $25.00, your new exercise price would be $25.00. The vesting
schedule for this New Option will be the same as for the prior option, and
therefore 250 shares will have vested on November 1, 2001, and a similar number
of shares will vest yearly thereafter. However, the New Option will not have
accelerated vesting in the event of a change in control of Interactive
Intelligence.

Example 2

         Assumptions:

         Your Hire Date: October 2, 2000

         Your Original Stock Option: 1,000 shares

         Your Original Stock Option Price: $40.00

         Your Original Vesting Schedule: 250 shares vest October 2, 2001, then
         yearly thereafter until fully vested in October 2004 or until
         termination of employment.


                                       7




         Hypothetical Stock Price on New Options Grant Date, November 26, 2001:
         $45.00

         Using the above assumptions for the sake of illustrating the offer to
exchange, we would cancel your original stock option on May 25, 2001. On the
replacement grant date, we would grant you a New Option for 1,000 shares, and in
this example using the purely hypothetical stock price of $45.00, your new
exercise price would be $45.00. (Please note that this is higher than your
original stock option price). The New Option will retain the same vesting
schedule as the original option, except that the New Option will not vest in the
event of a change in control of Interactive Intelligence.

         34. WHAT HAPPENS IF INTERACTIVE INTELLIGENCE IS ACQUIRED BEFORE THE
REPLACEMENT OF OPTIONS ARE GRANTED?

         If we are acquired or involved in a similar transaction which is
closed before the replacement options are granted, we would require the
surviving corporation to inherit our obligation to grant replacement options.
However, entering into the agreement could result in a substantial
appreciation in our share price and, accordingly, tendering option holders
might be deprived of any further price appreciation.The replacement options
would still be granted on the new grant date, but they would be options to
purchase the shares of the surviving corporation. The exercise price would be
equal to the market price of the surviving company's stock on the date of
grant (for French employees, the exercise price might be slightly higher).
For example, if we were acquired by means of a merger, the number of shares
would be equal to the number of our shares that you would have received,
multiplied by the exchange ratio that was used in the merger.

         35. WHAT HAPPENS IF INTERACTIVE INTELLIGENCE AGREES TO BE ACQUIRED IN A
TRANSACTION THAT WOULD NOT CLOSE UNTIL AFTER THE REPLACEMENT GRANT DATE?

         If we entered into an agreement to be acquired that was scheduled to
close after the replacement grant date, we would grant the replacement options
on the replacement grant date. However, entering into the agreement could result
in a substantial appreciation in our share price and, accordingly, tendering
option holders might be deprived of any further price appreciation. For example,
if our shares were to be acquired in a cash merger, they would likely trade at a
price at or near the merger price and the replacement options would be granted
at the fair market value on the date of grant, resulting in little or no further
appreciation on the replacement options.

         36. AFTER THE GRANT OF THE NEW OPTIONS, WHAT HAPPENS IF MY OPTIONS
AGAIN END UP UNDERWATER?

         We are conducting this offer only at this time, considering the unusual
stock market conditions that have affected many companies throughout the
country. This is therefore considered a one-time offer and is not expected to be
offered again in the future. Since your stock options are valid for ten years
from the date of initial grant, subject to continued employment, the price of
our common stock may appreciate over the long term even if your options are
underwater for some period of time after the grant date of the New Options.
HOWEVER, WE CAN PROVIDE NO ASSURANCE AS TO THE PRICE OF OUR COMMON STOCK AT ANY
TIME IN THE FUTURE.

         37. WHAT DO I NEED TO DO TO PARTICIPATE IN THE OFFER TO EXCHANGE
PROGRAM?

         To participate, you must properly complete the Election Form, sign and
date it, and ensure that Jessica Egg at Interactive Intelligence receives it no
later than 9:00 P.M. Indianapolis Time on Thursday, May 24, 2001 or, if we
extend the offer, no later than the new expiration of the offer. You can return
your form either by fax to her at (317) 715-8507, or hand deliver it to her at
Interactive Intelligence, Inc., 8909 Purdue Road, Suite 300, Indianapolis,
Indiana 46268, USA. If you need an additional copy of the Election Form, you may
contact her at (317) 715-8507. The Company will provide additional copies at no
expense to you.


                                       8

EX-99.(A)(4)

                                                                 Exhibit (a)(4)

                         INTERACTIVE INTELLIGENCE, INC.

                            OFFER TO EXCHANGE OPTIONS

                 NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT

         I previously received a copy of the Offer to Exchange, the memorandum
from Michael J. Tavlin, dated April 26, 2001 and an Election Form. I signed and
returned the Election Form, in which I elected to accept Interactive
Intelligence, Inc.'s ("Interactive Intelligence") offer to exchange (the
"Offer") some of or all of my options. I now wish to change that election and
reject Interactive Intelligence's Offer to exchange my options. I understand
that by signing this Notice and delivering it to Jessica Egg by 9:00 P.M.
Indianapolis Time on May 24, 2001, I will be able to withdraw my acceptance of
the Offer and reject the Offer to exchange options instead. I have read and
understand all the terms and conditions of the Offer to exchange options. I have
read and understand the instructions attached to this Notice.

         I understand that in order to reject the Offer, I must sign, date and
deliver this Notice via facsimile at (317) 715-8507 or hand delivery to Jessica
Egg by 9:00 P.M. Indianapolis Time on May 24, 2001.

         I understand that by rejecting the Offer to exchange options, I will
not receive any New Options pursuant to the Offer and I will keep the Old
Options that I have. These options will continue to be governed by the 1999
Stock Option and Incentive Plan under which they were granted and by the
existing option agreements between Interactive Intelligence and me.

         I understand that I may change this election, and once again accept the
Offer to exchange options, by submitting a new Election Form to Jessica Egg via
facsimile at (317) 715-8507 prior to 9:00 P.M. Indianapolis Time on May 24,
2001.

         I have signed this Notice and printed my name exactly as it appears on
the Election Form.

         I do not accept the Offer to exchange any options.


- ----------------------------   -------------------------------------------------
EMPLOYEE SIGNATURE             NATIONAL INSURANCE/SOCIAL SECURITY/NATIONAL
                               ID/TAX FILE NUMBER


- ----------------------------   -----------------------------   -----------------
EMPLOYEE NAME (PLEASE PRINT)           E-MAIL ADDRESS                DATE


                       RETURN TO JESSICA EGG NO LATER THAN
   9:00 P.M. INDIANAPOLIS TIME ON MAY 24, 2001 VIA FACSIMILE AT (317) 715-8507

                  INTERACTIVE INTELLIGENCE WILL SEND AN E-MAIL
                   CONFIRMATION WITHIN 48 HOURS OF RECEIPT, OR
                         AS SOON THEREAFTER AS POSSIBLE



                                  INSTRUCTIONS

              FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

         1. Delivery of Notice to Change Election From Accept to Reject.

         A properly completed and executed original of this Notice to Change
Election From Accept to Reject (or a facsimile of it), and any other
documents required by this Notice to Change Election From Accept to Reject,
must be received by Jessica Egg either via hand delivery or via the facsimile
number listed on the front cover of this Notice to Change Election From
Accept to Reject on or before 9:00 P.M. Indianapolis Time on May 24, 2001
(the "Expiration Date").

         THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT YOUR
OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE COMPANY. YOU MAY HAND DELIVER YOUR NOTICE TO CHANGE ELECTION
FROM ACCEPT TO REJECT TO JESSICA EGG AT INTERACTIVE INTELLIGENCE, INC. (THE
"COMPANY"), OR YOU MAY FAX IT TO HER AT THE NUMBER LISTED ON THE FRONT COVER OF
THIS NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT. IN ALL CASES, YOU SHOULD
ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.

         Although by submitting a Notice to Change Election From Accept to
Reject you have withdrawn your tendered options from the Offer, you may change
your mind and re-accept the Offer until the expiration of the Offer. Tenders of
options made through the Offer may be made at any time before the Expiration
Date. If the Offer is extended by the Company beyond that time, you may tender
your options at any time until the extended expiration of the Offer. To change
your mind and elect to participate in the Offer, you must deliver a new signed
and dated Election Form, or a facsimile of the Election Form, with the required
information to the Company, while you still have the right to participate in the
Offer. Your options will not be properly tendered for purposes of the Offer
unless the withdrawn options are properly re-tendered before the Expiration Date
by delivery of the new Election Form following the procedures described in the
Instructions to the Election Form.

         IF YOU DO NOT WISH TO WITHDRAW ALL YOUR TENDERED OPTIONS FROM THE
OFFER, YOU SHOULD NOT FILL OUT THIS NOTICE TO CHANGE ELECTION FROM ACCEPT TO
REJECT. IF YOU WISH TO CHANGE YOUR ELECTION WITH RESPECT ONLY TO PARTICULAR
OPTIONS, YOU SHOULD SUBMIT A NEW ELECTION FORM INSTEAD. To change your election
regarding particular tendered options while continuing to elect to participate
in the Offer, you must deliver a signed and dated new Election Form, with the
required information, following the procedures described in the Instructions to
the Election Form before the Expiration Date or, if the Offer is extended,
before the extended expiration of the Offer. On receipt of such a new, properly
signed and dated Election Form, any previously submitted Election Form or Notice
to Change Election From Accept to Reject will be disregarded and will be
considered replaced in full by the new Election Form.

         By signing this Notice to Change Election From Accept to Reject (or a
facsimile of it), you waive any right to receive any notice of the withdrawal of
the tender of your options, except as provided for in the Offer to Exchange.

         2. Signatures on This Notice to Change Election from Accept to Reject.

         If this Notice to Change Election From Accept to Reject is signed by
the holder of the eligible Options, the signature must correspond with the name
as written on the face of the option agreement or agreements to which the
options are subject without alteration, enlargement or any change whatsoever.

         If this Notice to Change Election From Accept to Reject is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of that person so to act must be submitted with
this Notice to Change Election From Accept to Reject.


                                       2



         3. Other Information on This Notice to Change Election from Accept to
Reject.

         In addition to signing this Notice to Change Election From Accept to
Reject, you must print your name and indicate the date on which you signed.
You must also include a current e-mail address and your identification
number, such as your social security number, tax identification number or
national identification number, as appropriate.

         4. Requests for Assistance or Additional Copies.

         Any questions or requests for assistance, as well as requests for
additional copies of the Offer to Exchange, the Election Form or this Notice to
Change Election From Accept to Reject may be directed to Jessica Egg, at
Interactive Intelligence, Inc. 8909 Purdue Road, Suite 300, Indianapolis,
Indiana 46268, telephone number (317) 715-8507. Copies will be furnished
promptly at the Company's expense.

         5. Irregularities.

         All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of this withdrawal from the Offer will be determined by
the Company in its discretion. The Company's determinations shall be final and
binding on all parties. The Company reserves the right to reject any or all
Notices to Change Election From Accept to Reject that the Company determines not
to be in proper form or the acceptance of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the right to waive any
of the conditions of the Offer and any defect or irregularity in the Notice to
Change Election From Accept to Reject, and the Company's interpretation of the
terms of the Offer (including these instructions) will be final and binding on
all parties. No Notice to Change Election From Accept to Reject will be deemed
to be properly made until all defects and irregularities have been cured or
waived. Unless waived, any defects or irregularities in connection with Notices
to Change Election From Accept to Reject must be cured within the time as the
Company shall determine. Neither the Company nor any other person is or will be
obligated to give notice of any defects or irregularities in Notices to Change
Election From Accept to Reject, and no person will incur any liability for
failure to give any such notice.

         IMPORTANT: THE NOTICE TO CHANGE ELECTION FROM ACCEPT TO REJECT (OR A
FACSIMILE COPY OF IT) TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE COMPANY, ON OR BEFORE THE EXPIRATION DATE.

         6. Additional Documents to Read.

         You should be sure to read the Offer to Exchange, all documents
referenced therein, and the memorandum from Michael J. Tavlin dated April 26,
2001 before deciding to participate in the Offer.

         7. Important Tax Information.

         You should refer to Section 14 of the Offer to Exchange, which contains
important U.S. federal income tax information. IF YOU LIVE OR WORK OUTSIDE THE
UNITED STATES, WE URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE
TAX AND SOCIAL INSURANCE CONSEQUENCES OF THE OFFER UNDER THE LAWS OF THE COUNTRY
IN WHICH YOU LIVE AND WORK.



                                       3

EX-99.(A)(5)

                                                                Exhibit (a)(5)

                                     FORM OF
                        PROMISE TO GRANT STOCK OPTION(S)

         In exchange for your agreement to cancel certain stock options ("Old
Option(s)") you received from Interactive Intelligence, Inc. ("Interactive
Intelligence"), Interactive Intelligence hereby promises to grant you a stock
option or options, as applicable, covering shares of Interactive Intelligence's
common stock on November 26, 2001 (the "New Option(s)"). Each New Option will
vest according to the same vesting schedule as the Old Option it replaces,
subject to your continued employment with Interactive Intelligence on a
full-time basis or on your being on a bona fide leave of absence as described
below, except that the New Options will not provide for accelerated vesting on a
change in control of Interactive Intelligence. Each New Option will otherwise be
subject to the standard terms and conditions under Interactive Intelligence's
1999 Stock Option and Incentive Plan (the "Plan") and applicable form of stock
option agreement.

         In order to receive the New Option(s), you must be employed by
Interactive Intelligence in a full-time capacity or be on a bona fide leave of
absence that was approved by Interactive Intelligence in writing (if the terms
of the leave provide for continued service crediting or when continued service
crediting is required by law), as of November 26, 2001. This promise to grant
does not constitute a guarantee of employment with Interactive Intelligence for
any period. Your employment with Interactive Intelligence remains "at-will" and
can be terminated by either you or Interactive Intelligence at any time, with or
without cause or notice. If you voluntarily terminate your employment with
Interactive Intelligence or if Interactive Intelligence terminates your
employment for any reason before November 26, 2001, you will lose all rights you
have to receive any New Options.

         This Promise is subject to the terms and conditions of the Offer to
Exchange dated April 26, 2001, the memorandum from Michael J. Tavlin, Senior
Vice President and Chief Financial Officer of Interactive Intelligence dated
April 26, 2001, and the Election Form previously completed and submitted by you
to Interactive Intelligence, all of which are incorporated herein by reference.
The documents described herein reflect the entire agreement between you and
Interactive Intelligence with respect to this transaction. This Promise may only
be amended by means of a writing signed by you and a duly authorized officer of
Interactive Intelligence.

                                 INTERACTIVE INTELLIGENCE, INC.


                                 By:____________________________________________
                                    ____________________________________________
                                    ____________________________________________

Date:  _____________, 2001

EX-99.(D)(2)

                                                                 Exhibit (d)(2)


                         INTERACTIVE INTELLIGENCE, INC.

                                ----------------

                      1999 STOCK OPTION AND INCENTIVE PLAN

                                   -----------


                 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
                  COVERING SECURITIES THAT HAVE BEEN REGISTERED
                        UNDER THE SECURITIES ACT OF 1933.

                                   -----------


                  Interactive Intelligence, Inc., an Indiana corporation (the
"Company"), has in effect a 1999 Stock Option and Incentive Plan (the "Plan").
This Memorandum relates to the shares of the Common Stock, $.01 par value, of
the Company ("Shares") that may be issued by the Company to its officers, key
employees or consultants and other individuals, pursuant to restricted stock
awards or upon the exercise of stock options granted under the Plan.

                  The Company has filed a Registration Statement on Form S-8
(File No. 333-87919) with the Securities and Exchange Commission (the
"Commission"). The Registration Statement incorporates by reference certain
documents filed with the Commission, including quarterly and annual reports.
Such documents are also incorporated by reference into the prospectus of which
this document is a part. A Participant under the Plan may receive, without
charge, a copy of any such document incorporated by reference into the
Registration Statement, or any other document required to be delivered to
employees pursuant to Rule 428(b) promulgated under the Securities Act of 1933,
as amended, upon written or oral request directed to the Secretary of the
Company at the Company's principal offices located at 8909 Purdue Road, Suite
300, Indianapolis, Indiana 46268. The Company's telephone number is (317)
872-3000.


               The date of this Memorandum is September 27, 1999.




                    THE 1999 STOCK OPTION AND INCENTIVE PLAN

                  The Company's Board of Directors approved the Plan effective
April 14, 1999 and recommended its approval by the Company's shareholders which
was obtained on April 16, 1999. The Plan reserves for issuance 3,750,000 Shares
(subject to adjustment for subsequent stock splits, stock dividends,
recapitalizations and certain other changes in the Company's outstanding Shares)
upon exercise of stock options and awards of restricted stock granted as
incentive awards to the Company's officers, key employees, consultants or other
individuals by a committee appointed by the Board of Directors (the
"Committee"), which administers the Plan. The Plan provides for the grant to
officers, key employees and consultants of the Company or its Affiliates and
such other individuals who, in the opinion of the Committee, have the capacity
for contributing in a substantial measure to the successful performance of the
Company or its Affiliates, Awards in the form of the following: stock options
qualifying for tax treatment under Section 422 of the Code ("Incentive Stock
Options"); stock options not qualifying for tax treatment under Section 422 of
the Code ("Non-Qualified Stock Options"); and restricted stock ("Restricted
Stock"). Incentive Stock Options and Non-Qualified Stock Options are
collectively referred to herein as "Options."

                  The term of the Plan will run for a period of ten years,
expiring April 16, 2009, unless terminated earlier. Incentive Stock Options
granted under the Plan must be exercised within ten years of the date granted
(or, in the case of a Participant who, at the date of grant, owns stock
possessing more than 10% of the total combined voting power of all classes of
capital stock of the Company or any Affiliate, five years).

                  The essential features of the Plan are summarized below, but
such summary is qualified in its entirety by the full text of the Plan, a copy
of which is available for inspection at the Company's principal offices.
Capitalized terms used but not defined herein have the meanings assigned to them
in the Plan.

STOCK SUBJECT TO THE PLAN

                  The stock subject to the Plan consists of 3,750,000 Shares.
The number of Shares issued pursuant to an Award under the Plan is charged
against the maximum number of Shares set forth above. However, any Shares
subject to an Option which terminates or is surrendered for cancellation, or
with respect to Restricted Stock which is forfeited, may again become available
for new Awards under the Plan. The number of Shares which may be granted to any
Participant during any calendar year under all forms of Awards cannot exceed
375,000 Shares. The Shares with respect to which Awards may be made under the
Plan may be authorized and unissued Shares or unissued Shares reacquired and
held as treasury Shares.


                                       2



OPTIONS

         GRANT OF OPTIONS

                  Except as expressly limited by the Plan, the number of Shares
subject to any Option granted under the Plan shall be determined by the
Committee. Incentive Stock Options are only granted to Participants who are
Employees. No Incentive Stock Option can be granted which would permit the
Participant to acquire, through the exercise of Incentive Stock Options in any
calendar year, Shares or shares of capital stock of the Company or any Affiliate
having an aggregate Market Value (determined as of the time any Incentive Stock
Option is granted) in excess of $100,000 (determined by assuming that the
Participant will exercise each Incentive Stock Option on the date that such
Option first becomes exercisable).

                  The Exercise Price for Incentive Stock Options will be not
less than 100% (or, in the case of a Participant who, at the date of the grant,
owns shares possessing more than 10% of the total combined voting power of all
classes of capital stock of the Company or any Affiliate, 110%) of the Market
Value per Share on the date the Incentive Stock Option is granted. With respect
to Non-Qualified Stock Options, the Committee will establish the Exercise Price
at the time the Non-Qualified Stock Option is granted.

         EXERCISE OR TERMINATION OF OPTIONS

                  No Incentive Stock Option granted under the Plan may be
exercised more than ten years (or, in the case of a Participant who, at the date
of the grant, owns stock possessing more than 10% of the total combined voting
power of all classes of capital stock of the Company or any Affiliate, five
years) from the date it is granted or such shorter period as the Committee may
determine. Non-Qualified Stock Options may be exercised during such period as
the Committee determines at the time of grant. No Non-Qualified Stock Option
granted under the Plan may be exercised more than ten years from the date it is
granted or such shorter period as the Committee may determine. Except in the
event of a Change in Control or as otherwise determined by the Committee,
Options granted to a Participant generally become vested and exercisable 25% per
year beginning on the first anniversary date of the date of grant.

                  If a Participant's employment as an employee of the Company or
an Affiliate is terminated for Cause, all rights under any Options granted to
the Participant will terminate immediately upon such termination, and the
Participant must (unless the Committee in its sole discretion waives this
requirement) repay to the Company within 10 days of the Committee's demand the
amount of any gain realized by the Participant upon any exercise within the
90-day period prior to the Participant's cessation of employment of any Options
granted to such Participant under the Plan.

                  If a Participant's employment as an employee of the Company or
an Affiliate is terminated by reason of Retirement, terminated by the Company
without Cause, or by Voluntary Termination, the Participant may exercise
outstanding Options to the extent that the Participant was entitled to exercise
the Options at the date of such termination, but only within the period of


                                       3



one (1) month immediately succeeding the Participant's termination, and in no
event after the applicable expiration dates of the Options.

                  If a Participant's employment as an employee of the Company or
an Affiliate is terminated by reason of the Participant's death or Disability,
the Participant or the Participant's beneficiary, as the case may be, may
exercise outstanding Options to the extent that the Participant was entitled to
exercise the Options at the date of such termination, but only within the
one-year period immediately succeeding the Participant's termination by reason
of death or Disability, and in no event after the applicable expiration date of
the Options. Provided, however, an Incentive Stock Option is not exercisable (i)
more than three (3) months after the Participant's employment as an employee of
the Company or an Affiliate is terminated for any reason other than Disability
or (ii) more than one (1) year after the Participant's employment as an employee
of the Company or an Affiliate is terminated by reason of Disability.

         METHOD OF EXERCISE AND PAYMENT OF EXERCISE PRICE

                  To exercise an Option under the Plan, the Participant must
give written notice to the Company specifying the number of Shares with respect
to which the Participant elects to exercise the Option together with full
payment of the Exercise Price. The date of exercise shall be the date on which
the notice is received by the Company. Payment for Shares issuable upon the
exercise of Options is due at the time of exercise and may be made: (i) in cash
(including check, bank draft or money order); (ii) by delivery of Shares already
owned by the Participant for more than six months and having a Market Value on
the date of exercise equivalent to the Exercise Price; (iii) by delivery of cash
by a broker-dealer as a Cashless Exercise; or (iv) by any other means determined
by the Committee in its sole discretion.

                  In the event a Participant exercises an Option and pays all or
a portion of the Exercise Price in Shares, such Participant may (either pursuant
to terms of the Award agreement or pursuant to the sole discretion of the
Committee at the time the Option is exercised) be issued a new Option to
purchase additional Shares equal to the number of Shares surrendered to the
Company in such payment. The new Option shall (i) have an Exercise Price equal
to the Market Value per Share on the grant date of the new Option, (ii) first be
exercisable six (6) months from such grant date, and (iii) expire on the same
date as the original Option so exercised by payment of the Exercise Price in
Shares.



                                       4



RESTRICTED STOCK

         GRANT OF RESTRICTED STOCK

                  Incentive awards may be made in the form of Restricted Stock.
The Committee will specify the number of Shares of Restricted Stock subject to
each Award and the terms and conditions which will apply to such Restricted
Stock. At the time of an Award of Shares of Restricted Stock, the Participant
will enter into an Agreement with the Company in a form specified by the
Committee, agreeing to the terms and conditions of the Award, and to such other
matters as the Committee shall in its sole discretion determine. Except in the
case of grants of Restricted Stock which are intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, the Committee
has the authority, in its discretion, to accelerate the time at which any or all
of the restrictions lapse with respect to any Shares of Restricted Stock prior
to the expiration of the Restricted Period, or to remove any or all of such
restrictions, whenever it may determine that such action is appropriate by
reason of changes in applicable tax or other laws or other changes in
circumstances occurring after commencement of the Restricted Period.

                  At the time of an award of Shares of Restricted Stock, the
Committee may require that the payment to the Participant of dividends declared
or paid on the Restricted Stock by the Company, or a specified portion thereof,
be deferred and held by the Company for the account of the Participant until the
restrictions imposed on the Restricted Stock lapse or the Participant forfeits
unvested Restricted Stock due to the Participant's Termination of Continuous
Service for any reason other than death, Disability or Retirement. In the event
of deferral, interest will be credited at the end of each year on the amount of
the account at the beginning of the year at a rate per annum as the Committee
may determine.

                  Certificates representing Shares of Restricted Stock will be
held by the Company pending the lapse of restrictions, but the Participant
generally will have all of the rights of a shareholder, including the right to
vote the Shares and the right to receive all dividends thereon. The Committee
may restrict or prohibit the sale, assignment, transfer, pledge or encumbrance
of the Shares of Restricted Stock by the Participant during the Restricted
Period.

         PERIOD OF RESTRICTION AND FORFEITURE OF RESTRICTED STOCK

                  The Plan does not set forth any minimum or maximum period of
restrictions with respect to incentive awards in the form of Restricted Stock.
The Committee may establish different periods of restrictions from time to time,
and may establish different periods of each Award of Restricted Stock. Except
for an involuntary cessation in Continuous Service of a Participant as a result
of a Change in Control as described herein, if a Participant ceases to maintain
Continuous Service for any reason (other than death, Disability or Retirement)
before the Participant's Shares of Restricted Stock have vested, unless the
Committee provides otherwise, the Participant's rights with respect to the
unvested portion of the Restricted Stock will be forfeited and returned to the
Company. If a Participant ceases to maintain Continuous Service by reason of
death or Disability, then the restrictions with respect to the Ratable Portion


                                       5



of the Shares of Restricted Stock will lapse and such Shares will be free of
restrictions and will not be forfeited. The Ratable Portion with respect to each
separate Award of Restricted Stock issued is equal to (i) the number of Shares
of Restricted Stock awarded to the Participant multiplied by the portion of the
Restricted Period that expired at the date of the Participant's death or
Disability reduced by (ii) the number of Shares of Restricted Stock awarded with
respect to which the restrictions had lapsed as of the date of the death or
Disability of the Participant.

         RESTRICTED STOCK QUALIFYING AS "PERFORMANCE-BASED COMPENSATION"

                  For purposes of qualifying grants of Restricted Stock as
"performance-based compensation" under Section 162(m) of the Code, the Committee
will establish restrictions based upon the achievement of performance goals. The
specific targets under the performance goals that must be satisfied for the
Restricted Period to lapse or terminate will be set by the Committee on or
before the latest date permissible to enable the Restricted Stock to qualify as
"performance-based compensation" under Section 162(m) of the Code. The business
criteria for performance goals will be one or more of the return on equity,
total revenues, net earnings, or earnings per share of the Company as selected
by the Committee on, where applicable, a consolidated basis, for a calendar year
calculated in accordance with generally accepted accounting principles
consistently applied.

ADMINISTRATION

                  The Committee administers the Plan. All members of the
Committee are appointed by the Board. The members of the Committee serve at the
pleasure of the Board. The Committee consists of two or more members of the
Board, each of whom is a "non-employee director" as provided under Rule 16b-3 of
the Securities Exchange Act of 1934, as amended, and an "outside director" as
provided under Section 162(m) of the Code. Subject to the terms of the Plan, the
Committee has the sole and complete authority and discretion to: (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan; (iii) determine the terms and conditions upon which Awards will be granted
under the Plan; (iv) prescribe the form and terms of instruments evidencing such
grants; (v) establish procedures and regulations for the administration of the
Plan; (vi) construe and interpret the Plan; (vii) make all determinations deemed
necessary or advisable for the administration of the Plan; and (viii) establish,
amend, or waive rules and regulations for administration of the Plan.



                                       6



AMENDMENT AND TERMINATION OF THE PLAN

                  The Board may supplement, amend, alter, or discontinue the
Plan in its sole discretion at any time and from time to time, but no
supplement, amendment, alteration, or discontinuation will be made which would
impair the rights of a Participant under an Award granted under the Plan without
the Participant's consent, except that any supplement, amendment, alteration, or
discontinuation may be made to (i) avoid a material charge or expense to the
Company or an Affiliate; (ii) cause the Plan to comply with applicable law; or
(iii) permit the Company or an Affiliate to claim a tax deduction under
applicable law. In addition, the Board, in its sole discretion at any time and
from time to time, may supplement, amend, alter, or discontinue the Plan without
the approval of the Company's shareholders (i) to the extent such approval is
not required by applicable law or the terms of a written agreement and (ii) so
long as any such amendment or alteration does not increase the number of Shares
subject to the Plan (other than necessary adjustments in response to changes in
the capitalization of the Company) or increase the maximum number of Options or
Shares of Restricted Stock that the Committee may award to an individual
Participant under the Plan.

EFFECT OF REORGANIZATION

                  In the event the Company is dissolved or liquidated, the
restrictions on Shares of Restricted Stock will lapse and each outstanding
Option will terminate, but each Participant to whom the Option was granted will
have the right immediately prior to the dissolution or liquidation to exercise
the Option in full, and the Company will notify the Participant of such right
within a reasonable period of time prior to any dissolution or liquidation. In
addition, in the event the Company is involved in a merger or consolidation,
other than a "Change in Control" subject to Section 13 of the Plan, upon the
effective date of such merger or consolidation each Participant will be
entitled, upon exercise of an Option in accordance with all the terms and
conditions of the Plan, to receive in lieu of Shares, shares or other securities
or consideration as the holders of the Shares will be entitled to receive
pursuant to the terms of the merger or consolidation, and each holder of
Restricted Stock will receive shares or other securities as holders of Shares
received which will be subject to certain restrictions set forth in the Plan,
unless the Committee accelerates the lapse of such restrictions, and the
certificate(s) or other instruments representing or evidencing the shares or
other securities will be legended and deposited with the Company.

TAX WITHHOLDING

                  Upon the termination of the Restricted Period with respect to
any Shares of Restricted Stock or the issuance of Shares pursuant to the
exercise of any Option, the Company may, in lieu of requiring the Participant or
other person receiving such Shares to pay the Company the amount of any taxes
which the Company is required to withhold with respect to such Shares, retain a
sufficient number of Shares held by it to cover the amount required to be
withheld. The Company has the right to deduct from all dividends paid with
respect to Shares of Restricted Stock the amount of any taxes which the Company
is required to withhold with respect to such dividend payments.


                                       7



                  Where a Participant or other person is entitled to receive
Shares pursuant to the exercise of an Option pursuant to the Plan, the Company
may, in lieu of requiring the Participant or such other person to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares, retain a number of such Shares sufficient to cover the
amount required to be withheld.

LOANS BY THE COMPANY

                  The Plan permits the Company to make loans to Participants in
connection with the exercise of Options or the ownership of Restricted Stock, up
to the following amounts:

                  (1) With respect to the exercise of Options, the sum of the
aggregate option price payable upon exercise of the Option in relation to which
the loan is made, plus the amount of income taxes reasonably estimated to be
payable by the Participant in connection with such exercise; or

                  (2) With respect to Restricted Stock, the amount of income
taxes reasonably estimated to be payable by the Participant in connection with
the ownership of the Restricted Stock.

                  Loans made under the terms of the Plan bear interest at such
rates as may be established by the Company. No loan may have an initial term
exceeding three years, but the loan may be renewed at the discretion of the
Committee. With the consent of the Committee, loans may be repaid in Shares at
Market Value on the date of such payment. Loans may, but are not required to, be
secured by Shares.

MISCELLANEOUS PROVISIONS

                  Except as otherwise determined by the Committee, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
otherwise than by will or the laws of descent and distribution.

                  In general, unless the Committee has provided otherwise in the
instrument evidencing the Award, if the Continuous Service of any Participant is
involuntarily terminated, for whatever reason, at any time within 12 months
following a Change in Control of the Company, any Restricted Period with respect
to an Award of Restricted Stock will lapse upon the Participant's termination
and all Shares of Restricted Stock will become fully vested in the Participant.
If a Change in Control occurs, unless the Committee provides otherwise in the
instrument evidencing the grant of an Option, all Options granted under the Plan
and not fully exercisable will become exercisable in full (except as otherwise
provided in Section 9 of the Plan) upon the happening of such Termination of
Continuous Service and will remain so exercisable in accordance with their
terms; provided, however, that no Option which has previously been exercised or
otherwise terminated will become exercisable.


                                       8




                      OTHER INFORMATION REGARDING THE PLAN

LEGAL STATUS

                  The Plan is not subject to any provision of the Employee
Retirement Income Security Act of 1974, as amended, and does not qualify under
Section 401(a) (relating to certain pension, profit-sharing, and stock bonus
plans) of the Code. The Plan is intended to qualify under Section 422 (relating
to "incentive stock option plans") of the Code.


EMPLOYEE RIGHTS UNDER THE PLAN

                  No officer, Employee or other person has a right to be
selected as a Participant, nor having been so selected, to be selected again as
a Participant.

                  No person selected for participation in the Plan,
notwithstanding such status, will acquire any rights, as a result of such
selection, to retain their employee status with the Company or any Affiliate for
any specific period of time.

ADJUSTMENTS FOR DILUTION

                  In the event of any change in the Shares by virtue of any
stock dividends, stock splits, recapitalizations, or reclassifications or any
acquisition, merger, consolidation, share exchange, tender offer, or other
combination involving the Company that does not constitute a Change in Control
but that results in the acquisition of a subsidiary by the Company, or in the
event that other stock shall be substituted for the Shares as the result of any
merger, consolidation, share exchange, or reorganization or any similar
transaction which constitutes a Change in Control of the Company, the Committee
will correspondingly adjust (i) the number, kind, and class of Shares which may
be delivered under the Plan; (ii) the number, kind, class, and price of Shares
subject to outstanding Awards (except for mergers or other combinations in which
the Company is the surviving entity); (iii) the maximum number of Shares with
respect to which Awards may be granted under the Plan; and (iv) the number of
Shares which may be granted under the Plan to any Participant during any
calendar year of the Plan under all forms of Awards, all in such manner as the
Committee in its sole discretion shall determine to be advisable or appropriate
to prevent the dilution or diminution of such Awards.


                                       9



FEDERAL INCOME TAX CONSEQUENCES

                  The statements below are based upon those laws that are in
force on the date of this Memorandum and are subject to any subsequent changes
therein. The following discussion applies only to acquisitions or dispositions
of Awards occurring during the lifetime of the Participants. The consequences
may differ in the event of an acquisition or disposition of an Award following
the death of a Participant. The Company and its employees may also be subject to
federal, state and local taxes. In view of the individual nature of tax
consequences, each Participant is advised to consult his or her own tax adviser
with respect to the specific tax consequences of participation in the Plan,
including the effect and applicability of federal, state, local and other tax
laws and the possible effects of changes therein.

         TAXATION OF ORDINARY INCOME AND CAPITAL GAINS

                  Subject to certain exceptions, the maximum rate of tax on "net
capital gains" from the sale or exchange of capital assets is 20%. "Net capital
gain" is the excess of net long-term capital gain over net short-term capital
loss. Short-term capital gains are taxed at the same rates applicable to
ordinary income. Gains or losses from the sale or exchange of capital assets
will be "long-term" if the capital asset was held for more than one year and
"short term" if the capital asset was held for one year or less. For taxpayers
with certain income levels, the marginal tax rate applicable to ordinary income
can range up to 39.6%. The classification of income as ordinary income or
capital gain is also relevant for income tax purposes for taxpayers who have
capital losses and investment interest.

         NON-QUALIFIED STOCK OPTIONS

                  A Participant who is granted a Non-Qualified Stock Option does
not recognize taxable income upon the grant of the Option, and the Company is
not entitled to a tax deduction. The Participant will recognize ordinary income
upon the exercise of the Non-Qualified Stock Option in an amount equal to the
excess of the fair market value of the option shares on the exercise date over
the Exercise Price. Such income will be treated as compensation to the
Participant subject to applicable withholding requirements. The Company is
generally entitled to a tax deduction in an amount equal to the amount taxable
to the Participant as compensation income in the year the income is taxable to
the Participant.

                  The Participant will also be required to recognize gain or
loss upon the sale of the option shares. If the selling price of the option
shares exceeds the Participant's basis in the shares, the Participant will
recognize long-term capital gain if the option shares were held for more than
one year, and short-term capital gain if the shares were held for one year or
less. If the selling price of the option shares is less than the Participant's
basis in the shares, the Participant will recognize long-term capital loss if
the shares were held for more than one year, and short-term capital loss if the
shares were held for one year or less. The Participant's basis in the option
shares will equal the amount of ordinary income recognized by the Participant
upon exercise of the Non-Qualified Stock Option, plus any cash paid to exercise
the Option.


                                       10



         INCENTIVE STOCK OPTIONS

                  A Participant who receives an Incentive Stock Option does not
recognize taxable income upon the grant or exercise of the Incentive Stock
Option, and the Company is not entitled to a tax deduction. The difference
between the Exercise Price and the fair market value of the option shares on the
date of exercise, however, will be treated as a tax preference item for purposes
of determining the alternative minimum tax liability, if any, of the Participant
in the year of exercise. The Company will not be entitled to a deduction with
respect to any item of tax preference.

                  A Participant will recognize gain or loss upon the disposition
of Shares acquired from the exercise of Incentive Stock Options. The nature of
the gain or loss depends on how long the option shares were held. If the option
shares are not disposed of pursuant to a "disqualifying disposition" (i.e., no
disposition occurs within two years from the date the Incentive Stock Option was
granted nor one year from the date of exercise), the Participant will recognize
long-term capital gain or capital loss depending on the selling price of the
Shares. If option shares are sold or disposed of as part of a disqualifying
disposition, the Participant must recognize ordinary income in an amount equal
to the lesser of the amount of gain recognized on the sale, or the difference
between the fair market value of the option shares on the date of exercise and
the Exercise Price. Any additional gain will be taxable to the Participant as a
long-term or short-term capital gain, depending on how long the option shares
were held. The Company is generally entitled to a deduction in computing its
federal income taxes for the year of disposition in an amount equal to any
amount taxable to the Participant as ordinary income pursuant to a
"disqualifying disposition" by the Participant.

         RESTRICTED STOCK

                  A Participant who receives an award of Restricted Stock will
not recognize taxable income at the time of the award, nor will the Company be
entitled to a tax deduction at that time, unless the Participant makes an
election under Section 83(b) of the Code to recognize the income upon the
receipt of the Restricted Stock. If the election is not made, the Participant
will recognize ordinary income when the Restricted Stock becomes vested (i.e.,
when the restrictions lapse through attainment of specified performance goals or
otherwise) in an amount equal to the fair market value of the shares at that
time less any amount paid by the Participant. The Company may claim a deduction
when the Participant recognizes income, in an amount equal to the income
recognized by the Participant. Dividends paid to the Participant with respect to
Restricted Stock prior to vesting constitute compensation taxable to the
Participant and a tax deduction to the Company.

                  Pursuant to the provisions of Section 83(b) of the Code, a
Participant who receives Restricted Stock may elect to be taxed at the time of
the award. If the Participant so elects, the full value of the shares (without
regard to restrictions) at the time of the grant, less any amount paid by the
Participant, will be taxed to the Participant as ordinary income and will be
deductible by the Company. Dividends paid with respect to the shares during the
period of restriction will be taxable as dividends to the Participant and not
deductible by the Company. If,


                                       11



after making an election pursuant to Section 83(b), any Shares are subsequently
forfeited, the Participant will be entitled to a capital loss deduction.
















                                       12

EX-99.(D)(3)

                                                                Exhibit (d)(3)

                         INTERACTIVE INTELLIGENCE, INC.

                        INCENTIVE STOCK OPTION AGREEMENT
                   UNDER 1999 STOCK OPTION AND INCENTIVE PLAN


         THIS AGREEMENT is made and entered into as of the [Day] of [Month],
[Year] by and between Interactive Intelligence, Inc., an Indiana corporation
(the "Company"), and [Name] ("Participant") pursuant to the terms, conditions,
and limitations contained in the Interactive Intelligence, Inc. 1999 Stock
Option and Incentive Plan (the "Plan"), a copy of which has been provided to the
Participant and is incorporated herein by reference;

                                   WITNESSETH:

         WHEREAS, the Board of Directors has determined that the Participant is
eligible for the grant of options under the Plan; and

         WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company for the Company to grant to the
Participant an option to purchase Common Shares of the Company pursuant to the
terms, conditions and limitations of the Plan and this Agreement; and

         WHEREAS, the Participant desires to have the option to purchase Common
Shares of the Company pursuant to the terms, conditions and limitations of the
Plan and this Agreement; and

         NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Participant hereby agree as
follows:

         1. GRANT OF OPTION. The Company hereby grants to Participant, effective
as of [Insert Effective Date of Grant] ("Option Date"), the right, privilege and
option to purchase [Type Total Number of Shares (numeric number)] shares of
Common Stock of the Company at the purchase price of [Typed Price per Share]
Dollars [($_______)] per share (the "Option"), in the manner and subject to the
terms and conditions provided in this Agreement and the Plan. The parties
acknowledge that the Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code.

         2. VESTING OF OPTION. The Option granted herein shall become
exercisable for (a) twenty-five percent (25%) of the Option Shares on the first
(1st) anniversary of the Option Date, (b) twenty-five percent (25%) of the
Option Shares on the second (2nd) anniversary of the Option Date, (c)
twenty-five percent (25%) of the Option Shares on the third (3rd) anniversary of
the Option Date, and (d) twenty-five percent (25%) of the Option Shares on the
fourth (4th) anniversary of the Option Date.

         3. TIME AND EXERCISE OF OPTION. Subject to Sections 5, 6 and 7 below,
at such time as the Option becomes exercisable pursuant to Sections 2 and 10,
the Option may be exercised in whole or in part, from time to time, prior to the
tenth (10th) anniversary of the Option Date.



         4. METHOD OF EXERCISE. The Option shall be exercised by written notice
directed to the Company in substantially the form attached hereto as Exhibit
"A", accompanied by a check or other consideration contemplated by the Plan in
full payment of the Exercise Price for the specified number of shares purchased.
The Company shall make prompt delivery of the certificate or certificates for
such shares, provided that if any law or regulation requires the Company to take
any action with respect to the shares specified in such notice before the
issuance thereof, then the date of delivery of such shares shall be extended for
the period necessary to take such action. Neither Participant nor any person
claiming under or through him shall have any rights as a shareholder of the
Company with respect to any of the Option Shares until full payment of the
Exercise Price and delivery to him of certificates for such shares as provided
herein.

         5. TERMINATION FOR CAUSE. If the Participant incurs a Termination of
Continuous Service for Cause, all rights under any Options granted to the
Participant shall terminate immediately upon the Participant's Termination of
Continuous Service, and the Participant shall (if the Committee in its sole
discretion exercises its rights under Section 8(b) of the Plan within ten (10)
days of such Termination of Continuous Service) repay to the Company within ten
(10) days of the Committee's demand therefor the amount of any gain realized by
the Participant upon any exercise within the 90-day period prior to the
Termination of Continuous Service of any Options granted to such Participant
under the Plan.

         6. TERMINATION DUE TO RETIREMENT OR WITHOUT CAUSE OR VOLUNTARY
TERMINATION. If the Continuous Service of a Participant is terminated by reason
of Retirement, terminated by the Company without Cause, or by Voluntary
Termination, the Participant may exercise outstanding Options to the extent that
the Participant was entitled to exercise the Options at the date of Termination
of Continuous Service, but only within the period of one (1) month immediately
succeeding the Participant's Termination of Continuous Service, and in no event
after the applicable expiration dates of the Options. Any Option that is
unvested or not exercisable on the date of Termination of Continuous Service
shall terminate and be forfeited effective on such date.

         7. DEATH OR DISABILITY OF PARTICIPANT. In the event of the
Participant's death or disability, the Participant or the Participant's
beneficiary, as the case may be, may exercise outstanding Options to the extent
that the Participant was entitled to exercise the Options at the date of
Termination of Continuous Service, but only within the one (1) year period
immediately succeeding the Participant's Termination of Continuous Service in
the case of disability, and in no event after the applicable expiration date of
the Options. Any Option that is unvested or not exercisable on the date of
Termination of Continuous Service shall terminate and be forfeited effective on
such date.

         8. NON-TRANSFERABILITY OF OPTION. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
life-time of Participant only by Participant.

         9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION. The
number of shares and price per share are subject to adjustment as provided in
the Plan.


                                       2



         10. CHANGE IN CONTROL. The Option shall not become fully vested and
exercisable in the event of a Change in Control. Notwithstanding a Change in
Control, the provisions of Section 2 of this Agreement shall continue to govern
the vesting and exercisability of the Option.

         11. CONDITIONS UPON ISSUANCE OF SHARES. (a) Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

         (b) As a condition to the exercise of an Option, the Company may
require Participant to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

         12. RIGHT TO TERMINATE RELATIONSHIP. Nothing contained in this
Agreement shall restrict the right of the Company to terminate the relationship
of Participant at any time.

         13. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.

         14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Indiana.

         15. TERMS OF PLAN CONTROL. All parties acknowledge that the Option is
granted under and pursuant to the Plan, which shall govern all rights,
interests, obligations and undertakings of both the Company and the Participant.
All capitalized terms used herein and not otherwise defined shall have the
meanings assigned to such terms in the Plan.

         IN WITNESS WHEREOF, the parties hereby have caused this Incentive Stock
Option Agreement to be executed as of the day and year first written.

INTERACTIVE INTELLIGENCE, INC.               "PARTICIPANT"
or "COMPANY"


By:_________________________________         __________________________________
Printed:____________________________         Printed:__________________________
Title:______________________________


                                       3

EX-99.(D)(4)

                                                                 Exhibit (d)(4)

                         INTERACTIVE INTELLIGENCE, INC.

                       NONQUALIFIED STOCK OPTION AGREEMENT
                   UNDER 1999 STOCK OPTION AND INCENTIVE PLAN


         THIS AGREEMENT is made and entered into as of the [Day] of [Month],
[Year], by and between Interactive Intelligence, Inc., an Indiana corporation
(the "Company"), and [Name] ("Participant") pursuant to the terms, conditions,
and limitations contained in the Interactive Intelligence, Inc. 1999 Stock
Option and Incentive Plan (the "Plan"), a copy of which has been provided to the
Participant and is incorporated herein by reference;

                                   WITNESSETH:

         WHEREAS, the Board of Directors has determined that the Participant is
eligible for the grant of options under the Plan; and

         WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company for the Company to grant to the
Participant an option to purchase Common Shares of the Company pursuant to the
terms, conditions and limitations of the Plan and this Agreement; and

         WHEREAS, the Participant desires to have the option to purchase Common
Shares of the Company pursuant to the terms, conditions and limitations of the
Plan and this Agreement; and

         NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Participant hereby agree as
follows:

         1. GRANT OF OPTION. The Company hereby grants to Participant, effective
as of [Insert Effective Date of Grant] ("Option Date"), the right, privilege and
option to purchase [Type Total Number of Shares (numeric number)] shares of
Common Stock of the Company at the purchase price of [Typed Price per Share]
Dollars [($_______)] per share (the "Option"), in the manner and subject to the
terms and conditions provided in this Agreement and the Plan.

         2. VESTING OF OPTION. The Option granted herein shall become
exercisable for (a) twenty-five percent (25%) of the Option Shares on the first
(1st) anniversary of the Option Date, (b) twenty-five percent (25%) of the
Option Shares on the second (2nd) anniversary of the Option Date, (c)
twenty-five percent (25%) of the Option Shares on the third (3rd) anniversary of
the Option Date, and (d) twenty-five percent (25%) of the Option Shares on the
fourth (4th) anniversary of the Option Date.

         3. TIME AND EXERCISE OF OPTION. Subject to Sections 5, 6 and 7 below,
at such time as the Option becomes exercisable pursuant to Sections 2 and 10,
the Option may be exercised in whole or in part, from time to time, prior to the
tenth (10th) anniversary of the Option Date.



         4. METHOD OF EXERCISE. The Option shall be exercised by written notice
directed to the Company in substantially the form attached hereto as Exhibit
"A", accompanied by a check or other consideration contemplated by the Plan in
full payment of the Exercise Price for the specified number of shares purchased.
The Company shall make prompt delivery of the certificate or certificates for
such shares, provided that if any law or regulation requires the Company to take
any action with respect to the shares specified in such notice before the
issuance thereof, then the date of delivery of such shares shall be extended for
the period necessary to take such action. Neither Participant nor any person
claiming under or through him shall have any rights as a shareholder of the
Company with respect to any of the Option Shares until full payment of the
Exercise Price and delivery to him of certificates for such shares as provided
herein.

         5. TERMINATION FOR CAUSE. If the Participant incurs a Termination of
Continuous Service for Cause, all rights under any Options granted to the
Participant shall terminate immediately upon the Participant's Termination of
Continuous Service, and the Participant shall (if the Committee in its sole
discretion exercises its rights under Section 8(b) of the Plan within ten (10)
days of such Termination of Continuous Service) repay to the Company within ten
(10) days of the Committee's demand therefor the amount of any gain realized by
the Participant upon any exercise within the 90-day period prior to the
Termination of Continuous Service of any Options granted to such Participant
under the Plan.

         6. TERMINATION DUE TO RETIREMENT OR WITHOUT CAUSE OR VOLUNTARY
TERMINATION. If the Continuous Service of a Participant is terminated by reason
of Retirement, terminated by the Company without Cause, or by Voluntary
Termination, the Participant may exercise outstanding Options to the extent that
the Participant was entitled to exercise the Options at the date of Termination
of Continuous Service, but only within the period of one (1) month immediately
succeeding the Participant's Termination of Continuous Service, and in no event
after the applicable expiration dates of the Options. Any Option that is
unvested or not exercisable on the date of Termination of Continuous Service
shall terminate and be forfeited effective on such date.

         7. DEATH OR DISABILITY OF PARTICIPANT. In the event of the
Participant's death or disability, the Participant or the Participant's
beneficiary, as the case may be, may exercise outstanding Options to the extent
that the Participant was entitled to exercise the Options at the date of
Termination of Continuous Service, but only within the one (1) year period
immediately succeeding the Participant's Termination of Continuous Service in
the case of disability, and in no event after the applicable expiration date of
the Options. Any Option that is unvested or not exercisable on the date of
Termination of Continuous Service shall terminate and be forfeited effective on
such date.

         8. NON-TRANSFERABILITY OF OPTION. Except as otherwise determined by the
Committee, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised during the life-time of Participant
only by Participant.

                                       2



         9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION. The
number of shares and price per share are subject to adjustment as provided in
the Plan.

         10. CHANGE IN CONTROL. The Option shall not become fully vested and
exercisable in the event of a Change in Control. Notwithstanding a Change in
Control, the provisions of Section 2 of this Agreement shall continue to govern
the vesting and exercisability of the Option.

         11. CONDITIONS UPON ISSUANCE OF SHARES. (a) Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

         (b) As a condition to the exercise of an Option, the Company may
require Participant to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

         12. RIGHT TO TERMINATE RELATIONSHIP. Nothing contained in this
Agreement shall restrict the right of the Company to terminate the relationship
of Participant at any time.

         13. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.

         14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Indiana.

         15. TERMS OF PLAN CONTROL. All parties acknowledge that the Option is
granted under and pursuant to the Plan, which shall govern all rights,
interests, obligations and undertakings of both the Company and the Participant.
All capitalized terms used herein and not otherwise defined shall have the
meanings assigned to such terms in the Plan.

         IN WITNESS WHEREOF, the parties hereby have caused this Nonqualified
Stock Option Agreement to be executed as of the day and year first written.


                                       3



INTERACTIVE INTELLIGENCE, INC.              "PARTICIPANT"
or "Company"


By:_______________________________          ___________________________________
Printed:____________________________        Name: _____________________________
Title:______________________________


                                       4