-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V6bn3b0FYQn9Ne0WXLjXIkKwmxgclookO1e8BjJSmDuS1I75GRBaE8UbmI+1oket p9iur1yDLd0xPeewkLlqzw== 0000950123-10-028824.txt : 20100326 0000950123-10-028824.hdr.sgml : 20100326 20100326163300 ACCESSION NUMBER: 0000950123-10-028824 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20100505 FILED AS OF DATE: 20100326 DATE AS OF CHANGE: 20100326 EFFECTIVENESS DATE: 20100326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPHASE CORP CENTRAL INDEX KEY: 0000728249 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 751549797 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13071 FILM NUMBER: 10708024 BUSINESS ADDRESS: STREET 1: 13800 SENLAC DR CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 2146545000 MAIL ADDRESS: STREET 1: 13800 SENLAC DR STREET 2: 13800 SENLAC DR CITY: DALLAS STATE: TX ZIP: 75234 DEF 14A 1 d71714ddef14a.htm DEF 14A def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )
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o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
 
Interphase Corporation
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(INTERPHASE LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 5, 2010
 
To the Holders of Common Stock of
  Interphase Corporation:
     NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Interphase Corporation, a Texas corporation (the “Company”), will be held on May 5, 2010 at 9:00 a.m. local time at the Embassy Suites Hotel at 7600 John Q. Hammons Drive, Frisco, Texas, for the following purposes:
  (a)   to elect six directors of the Company to serve until the next annual meeting of shareholders or until their respective successors shall be elected and qualified; and
 
  (b)   to transact such other business as may properly come before the meeting or any adjournment thereof.
     It is desirable that as large a proportion as possible of the shareholders’ interests be represented at the meeting. Whether or not you plan to be present at the meeting, you are requested to sign the enclosed proxy and return it promptly in the enclosed envelope.
     Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 5, 2010. This Proxy Statement and Annual Report on Form 10-K are available online at www.proxydocs.com/inph.
By order of the Board of Directors
S. Thomas Thawley
Vice Chairman and Secretary
Plano, Texas
March 26, 2010

 

 

Interphase Corporation
Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 5, 2010
 
     This Proxy Statement is furnished to shareholders of Interphase Corporation, a Texas corporation (the “Company”), in connection with the solicitation of proxies by the Board of Directors of the Company for use at the annual meeting of shareholders to be held on May 5, 2010. Proxies in the form enclosed will be voted at the meeting if properly executed, returned to the Company prior to the meeting, and not revoked. The proxy may be revoked at any time before it is voted by giving written notice to the Secretary of the Company. This proxy statement is first being mailed to shareholders on or about March 26, 2010. This proxy statement and the Company’s 2009 annual report are available online at www.proxydocs.com/inph.
PERSONS MAKING THE SOLICITATION
     The accompanying proxy is being solicited by the Board of Directors of the Company. The cost of soliciting the proxies and the annual meeting will be borne entirely by the Company. In addition to the use of the mail, proxies may be solicited by personal interview, telephone, and facsimile transmission by directors and officers and employees of the Company. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of shares of Common Stock, $.10 par value (“Common Stock”), held of record by such persons, and the Company may reimburse them for reasonable out-of-pocket expenses they incur in connection with forwarding the solicitation material.
OUTSTANDING CAPITAL STOCK AND RECORD DATE
     The record date for shareholders entitled to notice of and to vote at the annual meeting is March 12, 2010. At the close of business on that date, the Company had issued, outstanding and entitled to be voted at the meeting 6,832,574 shares of Common Stock.
ACTION TO BE TAKEN AT THE MEETING
     The accompanying proxy, unless the shareholder otherwise specifies in the proxy, will be voted for the election as directors of the Company of the six persons named under the caption “Election of Directors”, and, in the discretion of the proxy holder, with respect to such other business as may properly come before the meeting.
     Where shareholders have appropriately specified how their proxies are to be voted, they will be voted accordingly. If any other matter or business is brought before the meeting, the proxy holders may vote the proxies at their discretion. The directors do not know of any such other matter or business.

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QUORUM AND VOTING
     The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the annual meeting. In deciding all questions, a holder of Common Stock is entitled to one vote, in person or by proxy, for each share held in his or its name on the record date. Abstentions will be included in vote totals and, as such, will have the same effect on each proposal other than the election of directors, if any, as a negative vote. Because the six nominees for director who receive the most votes will be elected, any abstention will not be included in vote totals. Broker non-votes, if any, will not be included in vote totals and will have no effect on any proposal at this meeting.
PRINCIPAL SHAREHOLDERS
     The following table sets forth certain information as to the number of shares of Common Stock of the Company beneficially owned as of March 12, 2010 by (i) each person who is known to the Company to own beneficially more than 5% of the outstanding Common Stock of the Company, (ii) certain executive officers and each director of the Company and (iii) all executive officers and directors as a group. To the knowledge of the Company, each of the owners named below has sole voting and investment power with respect to the shares of Common Stock beneficially owned by him or it unless otherwise indicated.
                 
Name and address of   Amount and Nature of   Percent of
Beneficial Owner   Beneficial Ownership   Class
 
Gregory B. Kalush
     543,145  (1)     7.5 %
S. Thomas Thawley
     298,626  (1)     4.3 %
Randall E. McComas
     220,447  (1)     3.1 %
Deborah A. Shute
     119,527  (1)     1.7 %
James W. Gragg
     102,800  (1)     1.5 %
Thomas N. Tipton, Jr.
     66,496  (1)     1.0 %
Paul N. Hug
     58,501  (1)     0.8 %
Yoram Solomon
     44,686        0.6 %
Marc E. DeVinney
     41,566        0.6 %
Michael J. Myers
     47,501  (1)     0.7 %
Kenneth V. Spenser
     47,501  (1)     0.7 %
Christopher B. Strunk
     9,167        0.1 %
 
                
All executive officers and directors as a group (12 persons)
     1,599,963  (2)     20.5 %
 
                
Royce & Associates, LLC
1414 Avenue of the Americas
New York, NY 10019
     539,029  (3)     7.8 %
 
                
Renaissance Technologies, LLC
800 Third Avenue
New York, NY 10022
     419,900  (3)     6.1 %
 
(1)   Includes vested options to purchase Common Stock with exercise prices ranging from $4.12-$17.81 per share (fair market value on the respective dates of grant) as follows: Mr. Kalush, 357,500 shares; Mr. Thawley, 55,000 shares; Mr. McComas, 191,540 shares; Ms. Shute, 95,000 shares;

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  Mr. Gragg, 73,000 shares; Mr. Tipton, 14,500 shares; Mr. Hug, 45,000 shares; Mr. Myers, 35,000 shares; and Mr. Spenser, 35,000 shares.
 
(2)   Includes 901,540 shares that may be acquired upon exercise of vested stock options.
 
(3)   Based upon information contained in Schedule 13G filings made prior to March 12, 2010.
ELECTION OF DIRECTORS
     Six directors are to be elected at the meeting. To be elected a director, each nominee must receive a plurality of all of the votes cast at the meeting for the election of directors. Should any nominee become unable or unwilling to accept nomination or election, the proxy holders may vote the proxies for the election in his stead of any other person the Board of Directors may recommend. Each nominee has expressed his intention to serve the entire term for which election is sought.
     A brief description of each nominee for director of the Company is provided below. Directors hold office until the next annual meeting of shareholders or until their successors are elected and qualified.
     OUR BOARD OF DIRECTORS AND NOMINATING AND GOVERNANCE COMMITTEE UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE “FOR” EACH OF THE FOLLOWING NOMINEES FOR DIRECTOR.
     Gregory B. Kalush, 53, was elected Chairman of the Board in May 2000. Mr. Kalush was appointed the Chief Executive Officer, President and Director of the Company in March 1999. He joined the Company in February 1998, as Chief Financial Officer, Vice President of Finance and Treasurer. Mr. Kalush is also the sole member of the New Employee and Retention Stock Award Committee of the Board of Directors. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
     Mr. Kalush’s depth of experience in leading Interphase as CEO and Chairman of the Board, his responsibilities for the strategic direction and management of Interphase’s day-to-day operations, and his experience as the former Chief Financial Officer of Interphase and other executive general management experiences in the telecommunications and enterprise computing technology sector bring a broad array of industry experience and institutional knowledge to the Board.
     Paul N. Hug, 66, was elected a director in 1984. He has been a certified public accountant engaged in public accounting practice as owner of Paul Hug & Co. CPAs since 1980. Mr. Hug is a member of the Compensation Committee, the Nominating and Governance Committee and is Chairman of the Audit Committee of the Board of Directors.
     Mr. Hug is an experienced financial professional with the skills necessary to lead our Audit Committee. His experiences in handling complex financial issues make him a valuable asset, both on our Board of Directors and as the Chairman of our Audit Committee. Mr. Hug qualifies as an “audit committee financial expert” under the SEC guidelines.

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     Michael J. Myers, 63, was elected a director in 2002. From 2002 until his retirement in 2006, Mr. Myers served as President and CEO of Coppercom Inc., a provider of networking equipment for telecommunications operators. Mr. Myers served as the President of the Broadband Systems Division of Alcatel from 2000 to 2002 and as Group Vice President for Alcatel’s Networking Systems Group from 1998 to 2000. Prior to 1998, Mr. Myers worked for DSC Communications Corporation, serving as its Executive Vice President and Chief Operating Officer from 1997 to 1998, at its DSC Denmark A/S subsidiary, and as a Group Vice President for its transmission business in 1997. Mr. Myers also had prior experience with Nortel Networks, NCR, and General Motors Corporation. Mr. Myers is Chairman of the Compensation Committee and a member of the Nominating and Governance Committee and the Audit Committee of the Board of Directors.
     As a former chief executive officer and senior executive with both general management and finance expertise as well as significant international experience across a variety of industry sectors including telecommunications, computing and automotive, Mr. Myers contributes valuable insight to the Board in the areas of general management, financial acumen, strategic insight and governance.
     Kenneth V. Spenser, 61, was elected a director in 2002. Mr. Spenser is currently the Chief Executive Officer for Entivity Holdings. Mr. Spenser served as President, Chief Executive Officer and Chairman of the Board for Entivity, Inc. or its predecessors from 1997 to 2004. Entivity is a leading provider of PC-based control systems to the automation marketplace. In 2007, Mr. Spenser became President of Better Rehab, LLC. Better Rehab was founded by orthopedic surgeons, exercise physiologists and rehabilitation specialists to assist patients of total joint replacements. Prior to founding Entivity, Mr. Spenser served as Vice President for Texas Instruments’ Information Technology Group and as General Manager for Autodesk’s Mechanical Division. Mr. Spenser spent ten years on active duty as a naval aviator and twelve years in the Naval Reserves, retiring in 1993 with the rank of Captain. Mr. Spenser is a member of the Nominating and Governance Committee and the Audit Committee of the Board of Directors.
     As a chief executive officer and a former senior executive in the technology industry along with his successful entrepreneurial experiences, Mr. Spenser offers a unique and insightful perspective to the Board in the areas of strategic market selection, positioning and market expansion, sales and channel development and overall general management.
     Christopher B. Strunk, 61, was elected a director in 2007. Prior to his retirement in 2004, Mr. Strunk served as Senior Vice President, North American Sales for Alcatel, from 2002 to 2004. He was Vice President Sales-Bell Atlantic/Verizon for Alcatel from 1998 to 2002. Prior to 1998, Mr. Strunk was Regional Vice President-Sales for DSC Communications Corporation. Mr. Strunk also had prior experience with Granger Associates, AT&T, Bell of Pennsylvania and Diamond State Telephone. Mr. Strunk is a member of the Compensation Committee and the Nominating and Governance Committee.
     As a senior executive with significant sales experience in the telecommunications industry, Mr. Strunk contributes valuable insight about the telecom market and customer trends to the Board.
     S. Thomas Thawley, 69, is a co-founder of the Company and has served as Secretary and a director of the Company since its incorporation in 1977. Mr. Thawley was elected Vice Chairman in May 2000 and is the Chairman of the Nominating and Governance Committee of the Board of Directors.
     Mr. Thawley’s experience in leading the business as co-founder of Interphase brings broad electronics industry experience and technical expertise and specific institutional knowledge to the Board.

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Committees and Meetings of the Board of Directors
     The Board of Directors has established four committees, the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the New Employee and Retention Stock Award Committee. During 2009, the Audit Committee was composed of Mr. Hug, Chairman, Mr. Myers, and Mr. Spenser. The Audit Committee met eight times during 2009. The Audit Committee’s responsibilities are described in the Audit Committee Charter, which is available on the Company’s website at www.interphase.com. During 2009, the Compensation Committee was composed of Mr. Myers, Chairman, Mr. Hug, and Mr. Strunk. The Compensation Committee met five times during 2009 and reviewed the executive compensation plan of the Company in light of industry practices and circumstances unique to the Company. The Compensation Committee has overall responsibility for the Company’s executive compensation policies as provided in a written charter adopted by the Board of Directors, which is available on the Company’s website at www.interphase.com. During 2009, the Nominating and Governance Committee was composed of Mr. Thawley, Chairman, Mr. Hug, Mr. Myers, Mr. Spenser, and Mr. Strunk. The Nominating and Governance Committee is responsible for considering and approving nominees for election as director, and the other responsibilities set forth in its charter, which is available on the Company’s website at www.interphase.com. The Nominating and Governance Committee met six times during 2009. In 2009, the New Employee and Retention Stock Award Committee was composed of one member, Mr. Kalush. The New Employee and Retention Stock Award Committee has the authority to grant stock options and restricted stock under the 2004 Long-Term Stock Incentive Plan to newly hired employees of the Company and, for retention purposes, to existing employees of the Company.
     The Board of Directors held eight meetings during the year ended December 31, 2009. None of the directors attended fewer than 75% of the meetings of the Board of Directors and its committees on which such director served.
     The Company encourages board members and nominees for director to attend the annual meeting of shareholders. All current board members attended the Company’s 2009 annual meeting of shareholders.
Board Leadership Structure and Role in Risk Oversight
     Our Chief Executive Officer also serves as the Chairman of the Board. The Board has chosen this structure because it believes the Chief Executive Officer serves as a bridge between management and the Board, ensuring that both groups act with a common purpose. Separating the roles could risk creating the perception of having two chiefs, which could lead to fractured leadership and a weakened ability to develop and implement strategy. However, the Board believes that it is simultaneously important to have a strong governance structure to ensure a strong and independent Board. All directors, with the exception of the Chairman, are independent as defined under NASDAQ rules, and the Audit Committee, the Compensation and Nominating and Governance Committee are comprised entirely of independent directors. The Committee chairs set the agendas for their committees and report to the full Board on their work. The chairman of the Nominating and Governance Committee also serves as the lead independent director.
     In its corporate governance guidelines, the Board acknowledges its responsibility for reviewing the process for assessing the major risks facing the Company and the options for their mitigation. Each of our Board committees considers the risks within its areas of responsibilities. For example, the Audit Committee is responsible for reviewing and discussing with management and the Company’s registered public accountant the Company’s major risk exposures and the policies management has implemented to monitor such exposures, including the Company’s financial risk exposures and risk management policies. Additionally, the outcome of the Company’s Audit Risk assessment is presented to the Audit Committee

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annually; this assessment identifies internal controls risks and drives the internal controls testing for the coming year. The Compensation Committee reviews the Company’s overall compensation program and its effectiveness at both linking executive pay to performance and aligning the interests of our executives and our stockholders. Finally, the Nominating and Governance Committee reviews the Company’s management and Board performance as well as the Board’s structure on a regular basis. Material violations of the Company’s Code of Ethics and related policies are reported to the full Board.
Compensation of Directors
     The following table sets forth the compensation paid to our non-employee directors, who during 2009 were Mr. Hug, Mr. Myers, Mr. Spenser, Mr. Strunk, and Mr. Thawley.
                         
    Fees Earned or              
    Paid in Cash     Stock Awards     Total  
Name   ($)     ($)(1)     ($)  
Paul N. Hug
     34,200       —       34,200  
 
Michael J. Myers
     34,200       —       34,200  
 
Kenneth V. Spenser
     25,200       —       25,200  
 
Christopher B. Strunk
     24,000       —       24,000  
 
S. Thomas Thawley
     23,000       —       23,000  
 
(1)   During 2009, there were no stock awards granted to non-employee directors.
Each non-employee member of the Board received a quarterly cash retainer of $5,000 for his service. Each committee chairman, except the Nominating and Governance Committee Chairman, received an annual retainer of $5,000. The Nominating and Governance Committee Chairman received an annual retainer of $3,000. Each member of the Compensation Committee, including the chairman, received an annual retainer of $4,000. Each member of the Audit Committee, including the chairman, received an annual retainer of $5,200. All directors are reimbursed for their reasonable out-of-pocket expenses in serving on the Board or any committee of the Board.
AUDIT COMMITTEE
     The Audit Committee of the Board is currently composed of Mr. Hug, Chairman, Mr. Myers, and Mr. Spenser. The purpose of the Audit Committee is to assist the Board of Directors in carrying out its responsibility to oversee the Company’s internal controls and financial reporting process.
Audit Committee Charter
     The Board of Directors has adopted and maintains a written charter for the Audit Committee. A copy of the Audit Committee Charter is available on the Company’s website at www.interphase.com.

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Audit Committee Member Independence
     The Board has made the determination that all members of the Audit Committee are independent as defined in the applicable requirements of the Securities and Exchange Commission and the listing standards of the NASDAQ Global Market.
Financial Expert
     The Board has determined that Mr. Hug meets the SEC criteria of an “audit committee financial expert.” Mr. Hug has been a certified public accountant engaged in public accounting practice as owner of Paul Hug & Co. CPAs since 1980, and as such, has participated in dealing with accounting, auditing, internal control, and risk management issues.
Report of Audit Committee
March 19, 2010
To the Board of Directors of Interphase Corporation:
     We have reviewed and discussed with management the Company’s internal controls over financial reporting and its audited financial statements as of and for the year ended December 31, 2009.
     We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 114, “Communication with Audit Committees,” as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants.
     We have received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”, as amended, by the Independence Standards Board, and have discussed with the auditors the auditors’ independence.
     Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
     
 
  THE AUDIT COMMITTEE
 
    
 
  Paul N. Hug, Chairman
 
  Kenneth V. Spenser
 
  Michael J. Myers
NOMINATING AND GOVERNANCE COMMITTEE
     The members of the Nominating and Governance Committee are Mr. Thawley, Chairman, Mr. Hug, Mr. Myers, Mr. Spenser and Mr. Strunk. All members of the Committee meet the independence requirements of the NASDAQ Global Market.
     The responsibilities of the Nominating and Governance Committee are to identify individuals qualified to serve as Directors of the Company consistent with criteria developed by the Nominating and

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Governance Committee and approved by the Board. The Nominating and Governance Committee recommends nominees, for election as Directors at the Company’s annual meetings of shareholders; develops and recommends to the Board corporate governance principles applicable to the Company; and oversees the evaluation of the Board and the Company by the Directors. The Company has adopted a Nominating and Governance Committee Charter, which is available on the Company’s website at www.interphase.com.
     The Nominating and Governance Committee proposes and the Board of Directors adopts guidelines for identifying and evaluating Director candidates. Under those guidelines, the Nominating and Governance Committee shall consider a number of factors when identifying potential nominees, including: applicable requirements of law and of the NASDAQ Global Market, independence from management, diversity, relevant business experience, good business judgment, specific expertise, strength of character, integrity and reputation, existing commitments to other businesses, potential conflicts of interest with other pursuits, legal restraints, corporate governance background, financial and accounting background and education, executive compensation background, and other factors deemed appropriate in adding value to the composition of the existing Board and its size and structure.
     The Nominating and Governance Committee does not have a formal policy with respect to Board nominee diversity. In recommending proposed nominees to the full Board, the Nominating and Governance Committee is charged with building and maintaining a board that has an ideal mix of skills and experience to achieve the Company’s business objectives in the current environment. In particular, the Nominating and Governance Committee is focused on relevant subject matter expertise, depth of knowledge in key areas that are important to the Company, and diversity of thought, background, perspective and experience so as to facilitate meaningful discussion and broad thinking on strategies and tactics used by the Company.
     In all cases, Directors should have expertise that will be useful to the Company, and should possess the highest personal and professional integrity and ethics, and be willing and able to devote the required time to properly serve the Company.
     The Nominating and Governance Committee may use a variety of means to identify potential nominees, including recommendations from the Chairman, other Directors or others associated with the Company or with the help of executive search firms (which receive a fee for their services).
     The Nominating and Governance Committee will consider candidates for Director suggested by shareholders applying the criteria for candidates described above and considering the additional information set forth below.
     Shareholders wishing to suggest a candidate for Director should write to our Secretary and include:
a. as to each person whom the shareholder proposes to nominate for election or re-election as a Director:
  i.   the name, age, business address and residence of such person,
 
  ii.   the principal occupation or employment of such person,
 
  iii.   the number of shares of the Company which are beneficially owned by such person,
 
  iv.   information about each of the factors to be considered by the Nominating and Governance Committee listed above,
 

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  v.   a statement detailing any relationship between the candidate and any customer, supplier or competitor of the Company,
 
  vi.   detailed information about any relationship or understanding between the shareholder proposing the candidate or any other shareholder and the candidate,
 
  vii.   a statement from the candidate that the candidate is willing to be considered and will serve as a Director if nominated and elected, and
  viii.   any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934 and any other applicable laws or rules or regulations of any governmental authority or of any national securities exchange or similar body overseeing any trading market on which shares of the Company are traded, and
b. as to the shareholder giving the notice:
  i.   the name and record address of the shareholder, and
 
  ii.   the number of shares of the Company beneficially owned by the shareholder.
     Any shareholder suggested candidates must be submitted no later than December 13, 2010 to be considered for election at the 2011 annual meeting of shareholders.
EXECUTIVE OFFICERS
     The current executive officers of the Company, their respective ages, positions held and tenure as officers are listed below:
                     
                Executive
                Officer of
                the Company
Name   Age   Position(s) Held with the Company   Since
Gregory B. Kalush
    53     Chairman of the Board,
Chief Executive Officer and President 		    1998  
 
                    
Thomas N. Tipton, Jr.
    35     Chief Financial Officer, Assistant Secretary,
Vice President of Finance and Treasurer 		    2005  
 
                    
Randall E. McComas
    60     Vice President of Global Sales and Customer Support     2002  
 
                    
Deborah A. Shute
    47     Vice President of Human Resources and Administration     2002  
 
                    
James W. Gragg
    58     Vice President of Operations and Fulfillment     2004  
 
                    
Marc E. DeVinney
    48     Vice President of Engineering     2007  
 
                    
Yoram Solomon
    45     Vice President of Corporate Strategy and Business Development     2008  

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     Gregory B. Kalush joined the Company in February 1998, as Chief Financial Officer, Vice President of Finance and Treasurer. Mr. Kalush was appointed the Chief Executive Officer, President and Director of the Company in March 1999 and was elected Chairman of the Board in May 2000. Mr. Kalush is also the sole member of the New Employee and Retention Stock Award Committee of the Board. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
     Thomas N. Tipton, Jr. joined the Company in January 2000, as Financial Planning and Analysis Manager. In December 2000, Mr. Tipton became Corporate Controller and Director of Finance, a position he held until December 2005. In August 2005, Mr. Tipton began serving as interim Chief Financial Officer, Vice President of Finance and Treasurer until December 2005 when Mr. Tipton was promoted to Chief Financial Officer, Vice President of Finance and Treasurer. Prior to joining Interphase, Mr. Tipton served in various positions in the Assurance and Business Advisory practice of Arthur Anderson LLP.
     Randall E. McComas joined the Company in February 2002, as Vice President of Global Sales and Marketing, a position he held until May 2005 when he became Vice President of Global Sales and Customer Support. Prior to joining Interphase, Mr. McComas served as General Manager of Business Development, a position he held since 1998, for Scient, an enterprise organizational consulting firm. In that position Mr. McComas was responsible for overseeing all industry business units and delivery units for Scient, including sales and marketing. Prior to 1998, Mr. McComas was Vice President and General Manager of Telecommunications for Scient, managing the global telecom and utilities business units for that company. Mr. McComas also spent 15 years at IBM, where he held various positions in the telecom and media industries, including Vice President of Telecommunications for IBM’s global telecom and media business, and Vice President of Marketing and Strategy, managing IBM’s worldwide telecom business, including the wireline and wireless carriers.
     Deborah A. Shute joined the Company in January 1999, as Director of Human Resources. In November 1999, Ms. Shute became Vice President of Human Resources. In January 2001, Ms. Shute became Vice President of Human Resources and Administration. Prior to joining Interphase, Ms. Shute was Senior Director of Human Resources for Packard Bell NEC in Sacramento, California.
     James W. Gragg joined the Company in September 1998, as Manufacturing/Test Engineering Manager. In 2000, Mr. Gragg became Director of Manufacturing and Operations, a position he held until November 2004 when he became Vice President of Operations and Fulfillment. Prior to joining Interphase, Mr. Gragg held various technical leadership roles including Hardware Design Engineering Manager at Compaq Computer Corporation, Vice President of Engineering for MSD Systems and Test Engineering Manager for Mostek Corporation. Mr. Gragg also had his own engineering consulting company, Emtech, Inc., for over 10 years.
     Marc E. DeVinney joined the Company in August 2007, as Vice President of Engineering. Prior to joining Interphase, Mr. DeVinney spent 25 years with Alcatel, serving in various capacities. While with Alcatel, Mr. DeVinney most recently served as Director, Mobile Solutions Circuit Core from 2005 to 2006 and as Program Manager, CTO Product Engineering from 2001 to 2005.

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     Yoram Solomon joined the Company in November 2008, as Vice President of Corporate Strategy and Business Development. Prior to joining Interphase, Mr. Solomon spent the last six years at Texas Instruments (TI) serving in various capacities including, most recently as the Sr. Director of Technology Strategy and Industry Relations for the Chief Technology Officer’s office, and Sr. Director of Strategic Marketing, Industry & Standards. Mr. Solomon held additional roles at TI including Director, Strategic Business Development, and General Manager, Consumer Electronics Connectivity Business Unit. Prior to TI, Mr. Solomon served as Vice President and General Manager of PCTEL’s Advanced Communications Business Unit from 2000 to 2002, and senior level management positions at Voyager Technologies, Israel’s Ministry of Industry and Trade, and Electronic Line, Ltd.
Employment Agreement Summaries
     Each executive officer has an employment agreement that defines the terms and conditions of his or her employment at the Company. In some cases, the employment agreement may be supplemented by certain stock option agreements and/or restricted stock agreements. In all cases, the summaries set forth below are qualified in their entirety by the terms of the employment agreements and stock agreements.
     Gregory B. Kalush. The Board of Directors approved Mr. Kalush’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Kalush as its Chief Executive Officer and President, at a base salary of at least $325,000 per year and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. A new two-year term began in March 2009, and Mr. Kalush’s current base salary is $325,000 per year. The employment agreement will continue for successive two-year terms, unless either Mr. Kalush or the Company gives notice to the other more than 30 days prior to the expiration of the then-current term that the agreement will not be renewed.
     If the Company elects not to renew Mr. Kalush’s employment agreement or terminates Mr. Kalush for other than overt misconduct or death or disability, and subject to Mr. Kalush’s execution of a general release of claims, then Mr. Kalush will be entitled to receive severance payments in the amount of three (3) years base salary, health coverage premiums for up to 18 months paid for Mr. Kalush and his dependents as long as they are qualified and eligible for COBRA coverage, and for vested stock options with a strike price greater than the fair market value on the date of termination, an exercise period of equal to the shorter of three (3) years from the date of termination or the original expiration date of the option. If the Company terminates Mr. Kalush’s employment agreement by reason of disability, and subject to Mr. Kalush’s execution of a general release of claims, then Mr. Kalush will be entitled to receive (i) compensation in the amount of two (2) years base salary, (ii) payment of two (2) years of his annual bonus calculated based on the greater of the prior fiscal year’s Executive Bonus Plan payment or 100% of the Executive’s Bonus Plan target for the year in which Mr. Kalush’s employment terminates, (iii) health coverage premiums for up to 18 months paid for Mr. Kalush and his dependents as long as they are qualified and eligible for COBRA coverage, and (iii) for vested stock options with a strike price greater than the fair market value on the date of termination, an exercise period of equal to the shorter of three (3) years from the date of termination or the original expiration date of the option. If Mr. Kalush dies, then Mr. Kalush’s estate will be entitled to (i) a $1.0 million death benefit payable to Mr. Kalush’s designated beneficiary under a life insurance policy with company-paid premiums, and (ii) for vested stock options with a strike price greater than the fair market value on the date of his death, an exercise period of equal to the shorter of three (3) years from the date of termination or the original expiration date of the option. If Mr. Kalush becomes employed during the period he is eligible to receive post-employment payments, then payments made as a result of such employment shall reduce any remaining severance payments or other amounts or liability owed by the Company to Mr. Kalush. Additionally,

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Mr. Kalush’s employment agreement permits the Company to terminate Mr. Kalush without further compensation for overt misconduct.
     Thomas N. Tipton Jr. The Board of Directors approved Mr. Tipton’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Tipton as its Chief Financial Officer and Vice President of Finance, at a base salary of at least $185,000 per year and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. His current base salary is $202,500. The employment agreement automatically renews for successive six month periods, unless either Mr. Tipton or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. Tipton is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Tipton received in December 2005, 10,000 shares of restricted stock under the Company’s 2004 Long-Term Stock Incentive Plan.
     Randall E. McComas. The Board of Directors approved Mr. McComas’ current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. McComas, at a base salary of at least $235,000 per year and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. His current base salary is $240,000. The employment agreement automatically renews for successive six month periods, unless either Mr. McComas or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. McComas is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. McComas received in February 2002, a non-qualified stock option for 40,597 shares of Common Stock, and an incentive stock option for 59,403 shares of Common Stock, all with a ten year term and with an exercise price of $5.05 per share.
     Deborah A. Shute. The Board of Directors approved Ms. Shute’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Ms. Shute, at a base salary of at least $158,000 per year and she is entitled to an annual bonus based upon her annual bonus target established by the Compensation Committee. Her current base salary is $165,000. The employment agreement automatically renews for successive six month periods, unless either Ms. Shute or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Ms. Shute is terminated for cause. In addition, in accordance with her prior employment agreement, Ms. Shute received in November 1999, a non-qualified stock option for 10,000 shares of Common Stock, with a ten year term and an exercise price of $31.00 per share.
     James W. Gragg. The Board of Directors approved Mr. Gragg’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Gragg, at a base salary of at least $175,000 per year and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. His current base salary is $182,000. The employment agreement automatically renews for successive six month periods, unless either Mr. Gragg or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. Gragg is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Gragg received in November 2004, a non-qualified stock option for 2,959 shares of Common Stock, and an incentive stock option for 7,041 shares of Common Stock, all with a ten year term and with an exercise price of $7.20 per share.
     Marc E. DeVinney. The Board of Directors approved Mr. DeVinney’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs

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Mr. DeVinney, at a base salary of at least $175,000 per year and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. His current base salary is $182,000. The employment agreement automatically renews for successive six month periods, unless either Mr. DeVinney or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. DeVinney is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. DeVinney received in August 2007, a grant of 10,000 shares of restricted stock.
     Yoram Solomon. The Board of Directors approved Mr. Solomon’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Solomon, at a base salary of at least $185,000 and he is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee. His current base salary is $185,000. The employment agreement automatically renews for successive six month periods, unless either Mr. Solomon or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. Solomon is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Solomon received in November 2008, a grant of 20,000 shares of restricted stock.
     With the exception of Mr. Kalush, all other named executives described above contain the following provisions in their respective employment agreements. The employment agreement permits the Company to terminate the executive without further compensation for cause or on account of death or disability. If the Company terminates the executive without cause or for non-renewal, the executive will receive (i) the balance of base salary due under the employment agreement for the balance of its term, (ii) six (6) months severance pay at his then-current base salary, and (iii) employee health coverage premiums for up to six (6) months paid for as long as they are qualified and eligible for COBRA coverage, subject to the executive’s execution of a general release of claims. If the executive becomes employed during the period he is eligible to receive post-employment payments, then payments made as a result of such employment shall reduce any remaining severance payments or other amounts or liabilities owed by the Company to the executive.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Objectives and Philosophy of Our Compensation Programs
     Our executive compensation program is driven by our business environment and is designed to enable us to achieve our strategic priorities and adhere to Company values. The program’s objectives are to:
  •   Attract, motivate, and retain a team of talented leadership who help ensure our future success;
 
  •   Align executives’ interests with the interests of shareholders;
 
  •   Reward success as a management team in supporting overall business objectives and in obtaining key financial metrics in a lean and flexible environment;
 
  •   Provide a balance between short-term goals and long-term priorities to achieve immediate objectives while also focusing on increasing shareholder value over the long term; and
 

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  •   Provide incentives that will stimulate executive behavior such as high performance, integrity, teamwork, and loyalty to achieve defined plan priorities, financial goals, and strategic objectives intended to provide shareholders with a superior rate of return.
     Our compensation programs must be competitive with other programs for similarly placed executives at companies within the telecom and general technology industries. Independent compensation consultants are periodically retained for advice and guidance in assessing whether our executive compensation program is competitive. Executive compensation programs impact all employees by setting general levels of compensation and by helping to create an environment of strategic priorities, incentives, and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect executive compensation and incentive programs have on all of our employees.
     The guiding principles of our compensation programs are:
  •   Enabling a high-performance organization;
  •   Competitiveness in the marketplace in which we compete for talent;
 
  •   Optimization of the cost to us and value to our executives;
 
  •   Global consistency with business-driven flexibility; and
 
  •   Conscientious and thoughtful decision-making and execution delivery.
     To this end, we measure the success of our compensation programs by:
  •   Overall business performance and executive engagement;
 
  •   Ability to attract and retain key executive talent;
 
  •   Costs and business risks that seek to optimize return within acceptable levels of risk; and
 
  •   Executive understanding and perceptions that ensure program value equals or exceeds program cost.
     All of our compensation and benefits for our executives described below have as a primary purpose the ability to attract, motivate, and retain highly talented individuals who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. We believe that the performance of our executives, considered in light of general economic and industry conditions, our company, and competitive conditions, should be another key basis for determining overall compensation and should not be based on the short-term performance of our stock, whether favorable or unfavorable. Beyond that, different elements are designed to engender different behaviors emphasizing the short-term performance and long-term health of the Company. In particular, in determining total compensation, we stress a compensation philosophy that is performance driven with competitive base salaries, but high variability in incentives. We believe that our total compensation is competitive with comparable positions at companies in our industry.

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Pay Elements of Our Compensation Programs
     To promote the objectives of our compensation programs, our compensation programs consist of the following principal elements:
         
Pay Element   What the Pay Element Rewards   Purpose of the Pay Element
Base Salary
 
•   Core competence in the executive role relative to skills, experience and contributions to the Company
  
•    To provide fixed compensation based on competitive market practice
•    To attract and retain executives over time
 
Annual Cash Incentives
 
•   Contributions toward the Company’s achievement of specified performance metrics, and business plan priorities
  
•    To provide focus on meeting business and financial targets that lead to our long-term success
 
        
Long-Term Incentives
  Restricted Stock:
•   Continued employment with the Company during a specified vesting period
Performance-based Restricted Stock and Performance-based Stock Options:
•   Achievement by executives of key performance metrics for Company success
•   Continued employment with the Company during a specified vesting period
 
•    To attract and retain the best people for the Company
•    To provide stock ownership to executives
•    To increase the executives’ interest in the Company’s welfare
•    To promote the success of the Company’s business
•    To align executives’ and shareholder interests
•    To provide challenging performance objectives and motivate executives to achieve long-term shareholder value
 
        
Change in Control and Termination Benefits
 
•   Focused effort by our executives in the event of a rumored or actual fundamental corporate change
 
•    To facilitate the Company’s ability to attract executives as the Company competes for talented employees; this protection is commonly offered
 
        

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Pay Element   What the Pay Element Rewards   Purpose of the Pay Element
Retirement Benefits, Additional Benefits and Perquisites
 
•   Tenure by executives
•   Assurance that benefits package is competitive to industry standards
  
•    To facilitate the Company’s ability to attract executives as the Company competes for talented employees
     The use of these programs enables us to reinforce our “pay for performance” philosophy, as well as strengthens our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term shareholder value, and encourages executive recruitment and retention. Additionally, the Compensation Committee maintains flexibility, enabling management and the Board to make decisions regarding executive compensation based on the needs of the business and to recognize different levels of individual contribution.
How Each Pay Element is Determined
     The components of our compensation program are determined as follows:
     Base Salary. Base salaries are determined based on competitive market practice and our ability to attract, motivate, and retain executives. Base salaries for our executive officers are reviewed on an annual basis, and adjusted where appropriate. Salary ranges are established for each executive officer based on the marketplace data for that position and a salary is assigned to the executive within that range based on individual performance, prior experience and contribution to the financial goals and strategic objectives of the Company. During 2009, the Compensation Committee commissioned an independent compensation firm to conduct a comprehensive analysis of competitive companies. As a result of the firm’s findings, a comparison group of 18 companies (the “comparison group”) was selected from publicly traded U.S. companies classified under the Global Industry Classification Standard (GICS) as Communications Equipment, Computer Storage and Peripherals and Electronic Manufacturing Services. The 18 companies included in the comparison group were Airspan Networks, Communications Systems, Dataram, Ditech Networks, Endwave, Entorian Technologies, ISCO International, Lantronix, Livewire Mobile, Network Engines, PC TEL, Performance Technologies, Proxim Wireless, RF Industries, Radisys, Relm Wireless, Socket Communications, and Telknonet. Additionally, competitive comparisons were made against the following general industry surveys: 2009 Hewitt Total Compensation Measurement (TCM) survey, 2009/2010 Watson Wyatt Data services survey, 2009 Towers Perrin Executive Compensation survey, and 2009 Radford Executive survey. Based on this competitive comparison and the findings of the independent compensation firm, there was one base salary adjustment made to an executive in January 2010, where the findings showed that a base salary adjustment was warranted.
     Annual Cash Incentives. Executive bonuses are intended to link executive compensation with the attainment of defined Company goals. Each fiscal year during the annual planning process, the Compensation Committee, after consulting with management of the Company, establishes business and financial targets for the Company. Annual bonus targets are established based upon these business and

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financial targets. For 2009, executive bonuses were based upon the achievement of certain minimum revenue and net income targets. The revenue achievement accounts for 75% of the bonus calculation while the net income achievement accounts for 25%. A certain percentage achievement in the revenue portion will result in a specified percentage payout of the 75% portion of the bonus and likewise for the net income portion. The table below shows the percentage achievement and the resulting payout percentages based on the 2009 bonus plan.
     For 2009, the Compensation Committee approved revenue and net income achievement targets at the 100% achievement levels that were higher than the actual revenue and net income achieved in 2008.
                           
Revenue   Net Income
  Achievement %   Payout %   Achievement %   Payout %
 
0.0 — 89.9
     0.0       0.0 — 29.9       0.0  
 
90.0 — 93.9
     35.0 — 53.8       30.0 — 74.9       10.0 — 54.0  
 
94.0 — 99.9
     56.3 — 130.7       75.0 — 99.9       55.0 — 99.6  
 
100.0 — 109.9
     133.3 — 144.6       100.0 — 109.9       100.0 — 109.0  
 
110.0 — 119.9
     148.3 — 161.8       110.0 — 119.9       110.0 — 119.0  
 
120.0 — 129.9
     173.3 — 191.3       120.0 — 129.9       125.0 — 136.0  
 
130.0 — 139.9
     208.3 — 230.8       130.0 — 139.9       145.0 — 159.0  
 
140.0 — 149.9
     253.3 — 280.3       140.0 — 149.9       180.0 — 198.0  
 
150.0
+    333.3 +     150.0 +     250.0 +
     The maximum combined (revenue based and net income based) bonus payout is capped at 300% of the total bonus pool. The sliding scale of target performance is used by the Compensation Committee in determining bonuses to be paid to the executives; however the Compensation Committee has full and complete discretion in making its final bonus determinations for a portion (approximately 27%) of the bonus pool. As shown in the Summary Compensation Table, partial executive bonuses were paid based on individual achievements in 2009 at the discretion of the Compensation Committee.
     Long-Term Incentives. The Compensation Committee approves equity grants under the 2004 Long-Term Stock Incentive Plan that provide additional incentives and align the executives’ long-term interests with those of the shareholders of the Company by tying a portion of executive compensation to the long-term performance of the Company’s stock price. The Compensation Committee believes equity grants, more than base salary or annual cash incentives, closely align the long-term interests of executives with those of shareholders and assist in the retention of key executives. This is the Company’s principal long-term incentive to executives.
     The Compensation Committee determines equity to be granted to an executive with respect to restricted stock, performance-based restricted stock or performance-based stock options based on the following principal elements including, but not limited to:
  •   President and Chief Executive Officer’s recommendation;
 
  •   Relevant and validated external market data on executive compensation;
 
  •   Management role and contribution to the management team;
 
  •   Job responsibilities and past performance;
 
  •   Future anticipated contributions;
 
  •   Corporate performance;
 
  •   Existing vested and unvested equity holdings; and
 
  •   Compensation Committee discretion.

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     Determination of equity grant amounts is not made in accordance with a strict formula, but rather is based on objective data synthesized to competitive ranges and to internal policies and practices, including an overall review of both individual and corporate performance and the value of equity grants of comparable executives at comparable companies ascertained by outside executive compensation consultants hired by the Compensation Committee. Equity grants may also be made to new executives upon commencement of employment and, on occasion, to executives in connection with a significant change in job responsibility.
     Change in Control and Termination Benefits. We provide change in control and termination benefits to our executives under certain conditions as provided for in their employment agreements. These benefits are designed to facilitate the Company’s ability to attract and retain executives as the Company competes for talented employees in the marketplace where such benefits are commonly offered. The benefits ease an executive’s transition due to an unexpected employment termination by the Company due to on-going changes in the Company’s employment needs. The Change in Control provisions encourage executives to remain focused on the Company’s business in the event of a rumored or actual fundamental corporate change.
     Retirement Benefits, Additional Benefits and Perquisites. We provide standard employee benefit programs to our executives, including a 401(k) plan and welfare plans such as medical, dental and life insurance benefits, which are generally available to all employees. We are very mindful of the total cost of benefits and the impact they have on all employees. Therefore, with only one exception related to a life insurance premium of approximately $1,500 per year paid by the Company for the CEO, executives do not receive any benefit or perquisite which is different than the rest of our eligible employees, nor do they receive any benefit at a lower cost than the rest of our eligible employees.
Tax Deductibility Considerations
     At this time, based on our current executive compensation structure, we do not believe it is necessary to adopt a policy with respect to qualifying executive compensation in excess of $1.0 million for deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended, except with respect to compensation under the 2004 Long-Term Stock Incentive Plan.
Compensation Committee
     The Compensation Committee has overall responsibility for our executive compensation policies as provided in a written charter adopted by the Board of Directors, which is available on the Company’s website at www.interphase.com. The Compensation Committee is empowered to review and approve the annual compensation and compensation procedures for our seven executives: the President and Chief Executive Officer, the Chief Financial Officer, the Vice President of Global Sales and Customer Support, the Vice President of Engineering, the Vice President of Human Resources and Administration, the Vice President of Operations and Fulfillment, and the Vice President of Corporate Strategy and Business Development. The Compensation Committee does not delegate any of its functions to others in setting compensation.
     When establishing base salaries, cash bonuses and equity grants for each of the executives, the Compensation Committee considers, among other things, the recommendations of the President and Chief Executive Officer, the executive’s role and contribution to the management team, responsibilities and performance during the past year and future anticipated contributions, corporate performance, and

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the amount of total compensation paid to executives in similar positions at comparable companies as provided by an independent compensation firm.
     The Compensation Committee generally sets the compensation of the executives at levels that are competitive with similarly situated technology companies. When setting the compensation of each of the executives, the Compensation Committee considers all of the factors set forth above, but does not assign any specific weighting or apply any formula to these factors. The Compensation Committee gives consideration to the recommendations of the President and Chief Executive Officer and may accept or adjust those recommendations. The Compensation Committee makes the sole determination of the compensation of the President and Chief Executive Officer.
Summary Compensation Table
     A summary compensation table is provided below and includes individual compensation information on the Chief Executive Officer, Chief Financial Officer and our three other most highly paid executive officers at the end of 2009, whom we refer to in this proxy statement as the “named executive officers”.
                                                         
                            Stock   Option   All Other    
Name and Principal                           Awards   Awards   Compensation   Total
Position   Year   Salary ($)   Bonus ($)   ($) (1)   ($)   ($) (2)   ($)
Gregory B. Kalush
     2009       325,000       50,500       240,332 (3)(4)     48,750 (5)     7,798       672,380  
Chairman of the
     2008       319,039       —       67,244 (6)     —       7,922       394,205  
Board, Chief
     2007       260,869       —       116,850 (7)     —       8,372       386,091  
Executive Officer and
President
                                                        
 
                                                        
Thomas N. Tipton Jr.
     2009       194,038       16,000       53,082 (3)(4)     19,500 (5)     5,821       288,441  
Chief Financial
     2008       183,654       —       26,940 (6)     —       5,510       216,104  
Officer, Treasurer and
     2007       150,000       —       34,710 (7)     —       4,500       189,210  
Vice President of
Finance
                                                        
 
                                                        
Randall E. McComas
     2009       239,519       15,000       53,082 (3)(4)     19,500 (5)     6,300       333,401  
Vice President of
     2008       234,615       —       21,552 (6)     —       6,300       262,467  
Global Sales and
     2007       225,000       —       28,925 (7)     —       6,750       260,675  
Customer Support
                                                        
 
                                                        
Marc A. DeVinney
     2009       181,328       12,000       53,082 (3)(4)     19,500 (5)     —       265,910  
Vice President of
     2008       174,818       —       21,552 (6)     —       —       196,370  
Engineering
     2007       56,230       —       94,900       —       —       151,130  
 
                                                        
Yoram Solomon
     2009       185,001       10,500       48,532 (3)(4)     14,625 (5)     4,194       262,852  
Vice President of
     2008       21,346       —       46,200       —       —       67,546  
Corporate Strategy
and Business
Development
                                                        
 
(1)   All stock awards were in the form of restricted stock awards. All restricted stock are valued at the fair market value on the date of grant. Unless otherwise stated below, restricted stock awards vest over a four year period and do not have performance conditions tied to the award.
 
(2)   “All other compensation” consists of matching payments by the Company pursuant to its 401(k) plan for all named executive officers and, with respect to Mr. Kalush, an additional amount of $1,498 for premium paid on a life insurance policy. The table does not include the cost to the

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  Company of benefits furnished to named executive officers, including premiums for life and health insurance which benefits are also provided to employees.
 
(3)   Certain grants in January 2009, not included in the Summary Compensation Table, were performance based with a six year vesting period, and were cancelled February 4, 2010 as the performance criteria was not satisfied. Mr. Kalush (33,334 shares or $60,668), Mr. Tipton (8,334 shares or $15,168), Mr. McComas (8,334 shares or $15,168), Mr. DeVinney (8,334 or $15,168) and Mr. Solomon (8,334 shares or $15,168) all had grants cancelled, which had a grant date value of $1.82 per share.
 
(4)   Certain grants in January 2009 included in the Summary Compensation Table are subject to the achievement of certain performance conditions related to the Company’s financial results for 2010. If the performance conditions are met, the restricted stock will vest over a five year period. Mr. Kalush (33,333 shares or $60,666), Mr. Tipton (8,333 shares or $15,166), Mr. McComas (8,333 shares or $15,166), Mr. DeVinney (8,333 shares or $15,166) and Mr. Solomon (8,333 shares or $30,332) all have shares with a grant date fair value of $1.82 per share that are subject to these performance conditions. Also, included in the Summary Compensation Table are grants in January 2009 that are subject to the achievement of certain performance conditions related to the Company’s financial results for 2011. If the performance conditions are met, the restricted stock will vest over a four year period. Mr. Kalush (33,333 shares or $60,666 Mr. Tipton (8,333 shares or $15,166), Mr. McComas (8,333 shares or $15,166), Mr. DeVinney (8,333 shares or $15,166) and Mr. Solomon (8,333 shares or $30,332) all have shares with a grant date fair value of $1.82 per share that are subject to these performance conditions.
 
(5)   Options granted during 2009 included in the Summary Compensation Table are subject to the achievement of certain performance conditions. If the performance condition is met, the stock options vest over a three year period and expire 10 years from date of grant. The exercise price of these stock options is $2.55. Mr. Kalush (25,000 options or $48,750), Mr. Tipton (10,000 options or $19,500), Mr. McComas (10,000 options or $19,500), Mr. DeVinney (10,000 options or $19,500) and Mr. Solomon (7,500 options or $14,625) all had shares with a grant date fair value of $1.95 per share based on the Black-Scholes option pricing model. See the Company’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2009, in Note 9 in the accompanying Notes thereto for further discussion of the assumptions used to calculate the grant date fair value.
 
(6)   Certain grants in January 2008, not included in the Summary Compensation Table, were performance based with a four year vesting period, and were cancelled February 9, 2009 as the performance criteria was not satisfied. Mr. Kalush (15,000 shares or $134,700), Mr. Tipton (9,000 shares or $80,820), Mr. McComas (7,200 shares or $64,656) and Mr. DeVinney (7,200 or $64,656) all had grants cancelled, which had a grant date value of $8.98 per share. Included in the Summary Compensation Table, Mr. Kalush received an additional grant (5,834 shares or $22,344) for his service on the Board consistent with other Board members’ equity compensation, which had a grant date value of $3.83 with a three year vesting period.
 
(7)   Certain grants in February 2007, not included in the Summary Compensation Table, were performance based with a four year vesting period, and were cancelled on February 7, 2008 as the performance criteria was not satisfied. Mr. Kalush (10,000 shares or $115,700), Mr. Tipton (6,000 shares or $69,420) and Mr. McComas (5,000 shares or $57,850), all had grants cancelled, which had a grant date value of $11.57 per share.

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2009 Grants of Plan-Based Awards Table
         The following table sets forth information on grants of plan-based awards in 2009 to the named executive officers.
                                                         
                                                    Grant Date
                                            Closing   Fair
            Estimated Future Payouts Under           Price on   Value of
            Equity Incentive Plan Awards   All Other   Grant   Stock and
    Grant   Threshold   Target   Maximum   Stock   Date   Option
Name   Date   (#)   (#)   (#)   Awards   ($ / Sh)   Awards ($)
Gregory B. Kalush
     1/12/09       —       —       —       50,000       1.82       91,000  
 
     1/12/09 (1)     11,667       33,334       33,334       —       1.82       60,668  
 
     1/12/09 (2)     11,667       33,333       33,333       —       1.82       60,666  
 
     1/12/09 (3)     11,667       33,333       33,333       —       1.82       60,666  
 
     7/22/09       —       —       —       5,000       5.60       28,000  
 
     12/18/09 (4)     25,000       25,000       25,000       —       2.55       48,750  
 
                                                        
Thomas N. Tipton Jr.
     1/12/09       —       —       —       12,500       1.82       22,750  
 
     1/12/09 (1)     2,917       8,334       8,334       —       1.82       15,168  
 
     1/12/09 (2)     2,917       8,333       8,333       —       1.82       15,166  
 
     1/12/09 (3)     2,917       8,333       8,333       —       1.82       15,166  
 
     12/18/09 (4)     10,000       10,000       10,000       —       2.55       19,500  
 
                                                        
Randall E. McComas
     1/12/09       —       —       —       12,500       1.82       22,750  
 
     1/12/09 (1)     2,917       8,334       8,334       —       1.82       15,168  
 
     1/12/09 (2)     2,917       8,333       8,333       —       1.82       15,166  
 
     1/12/09 (3)     2,917       8,333       8,333       —       1.82       15,166  
 
     12/18/09 (4)     10,000       10,000       10,000       —       2.55       19,500  
 
                                                        
Marc A. DeVinney
     1/12/09       —       —       —       12,500       1.82       22,750  
 
     1/12/09 (1)     2,917       8,334       8,334       —       1.82       15,168  
 
     1/12/09 (2)     2,917       8,333       8,333       —       1.82       15,166  
 
     1/12/09 (3)     2,917       8,333       8,333       —       1.82       15,166  
 
     12/18/09 (4)     10,000       10,000       10,000       —       2.55       19,500  
 
                                                        
Yorom Solomon
     1/12/09       —       —       —       10,000       1.82       18,200  
 
     1/12/09 (1)     2,917       8,334       8,334       —       1.82       15,168  
 
     1/12/09 (2)     2,917       8,333       8,333       —       1.82       15,166  
 
     1/12/09 (3)     2,917       8,333       8,333       —       1.82       15,166  
 
     12/18/09 (4)     7,500       7,500       7,500       —       2.55       14,625  
 
(1)   Restricted stock awards are valued at the fair market value on the date of grant. This grant was conditional based on performance criteria in 2009; if the criteria was achieved there would be a resulting six year vesting period. The performance criteria was not achieved and therefore the grant was cancelled in February 2010.
 
(2)   Restricted stock awards are valued at the fair market value on the date of grant. This grant is conditional based on performance criteria in 2010.

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(3)   Restricted stock awards are valued at the fair market value on the date of grant. This grant is conditional based on performance criteria in 2011.
 
(4)   The exercise price of these stock options is $2.55 with a grant date fair value of $1.95 per share based on the Black-Scholes option pricing model. See the Company’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2009, in Note 9 in the accompanying Notes thereto for further discussion of the assumptions used to calculate the grant date fair value.
Narrative to Summary Compensation Table and 2009 Grants of Plan-Based Awards Table
     See Compensation Discussion and Analysis as well as the Employment Agreement Summaries for a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and 2009 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payment, including targets for payment of annual incentives, as well as performance criteria on which such payments were based.

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Outstanding Equity Awards at Year-End Table
The following table sets forth information as of December 31, 2009 regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to each award.
                                                                 
      Option Awards         Stock Awards  
            Equity                                     Equity Incentive     Equity Incentive  
            Incentive                                     Plan Awards:     Plan Awards:  
            Plan Awards:                             Market     Number of     Market or Payout  
    Number of     Number of                     Number of     Value of     Unearned     Value  
    Securities     Securities                     Shares or     Shares or     Shares, Units     of Unearned  
    Underlying     Underlying                     Units of     Units of     or Other     Shares, Units or Other  
    Unexercised     Unexercised     Option             Stock That     Stock That     Rights That     Rights That  
    Options     Unearned     Exercise     Option     Have Not     Have Not     Have Not     Have Not  
    (#)     Options     Price     Expiration     Vested     Vested     Vested     Vested  
Name   Exercisable     (#)     ($)     Date     (#)     ($)     (#)     ($)  
Gregory B. Kalush
     —       —       —               5,000       12,800 (1)     —       —  
 
     —       —       —               50,000       128,000 (1)     —       —  
 
     —       —       —               —       —       33,334       85,335 (1) (2)
 
     —       —       —               —       —       33,333       85,332 (1)
 
     —       —       —               —       —       33,333       85,332 (1)
 
     —       —       —               5,000       12,800 (1)     —       —  
 
     —       —       —               3,750       9,600 (1)     —       —  
 
     —       —       —               1,666       4,265 (1)     —       —  
 
     —       —       —               2,500       6,400 (1)     —       —  
 
     —       25,000       2.55       12/18/2019       —       —       —       —  
 
     5,000       —       8.50       5/5/2014       —       —       —       —  
 
     50,000       —       11.45       3/16/2014       —       —       —       —  
 
     50,000       —       5.88       6/5/2013       —       —       —       —  
 
     10,000       —       5.61       5/7/2013       —       —       —       —  
 
     10,000       —       4.60       5/1/2012       —       —       —       —  
 
     50,000       —       4.83       1/16/2012       —       —       —       —  
 
     10,000       —       7.53       5/2/2011       —       —       —       —  
 
     62,500       —       8.00       3/2/2011       —       —       —       —  
 
     100,000       —       13.88       5/30/2010       —       —       —       —  
 
     10,000       —       17.81       5/3/2010       —       —       —       —  
 
                                                                
Thomas N. Tipton Jr.
     —       —       —               12,500       32,000 (1)     —       —  
 
     —       —       —               —       —       8,334       21,335 (1) (2)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               2,250       5,760 (1)     —       —  
 
     —       —       —               1,500       3,840 (1)     —       —  
 
     —       —       —               4,000       10,240 (1)     —       —  
 
     —       10,000       2.55       12/18/2019       —       —       —       —  
 
     3,500       —       5.88       6/5/2013       —       —       —       —  
 
     4,000       —       4.12       7/26/2011       —       —       —       —  
 
     7,000       —       9.16       12/7/2010       —       —       —       —  
 
     3,000       —       17.50       1/25/2010       —       —       —       —  
 
                                                                
Randall E. McComas
     —       —       —               12,500       32,000 (1)     —       —  
 
     —       —       —               —       —       8,334       21,335 (1) (2)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               1,800       4,608 (1)     —       —  
 
     —       —       —               1,250       3,200 (1)     —       —  
 
     —       10,000       2.55       12/18/2019       —       —       —       —  
 
     50,000       —       11.45       3/16/2014       —       —       —       —  
 
     50,000       —       5.88       6/5/2013       —       —       —       —  
 
     91,540       —       5.05       2/15/2012       —       —       —       —  
 
                                                                
Marc A. DeVinney
     —       —       —               12,500       32,000 (1)     —       —  
 
     —       —       —               —       —       8,334       21,335 (1) (2)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               1,800       4,608 (1)     —       —  
 
     —       —       —               5,000       12,800 (1)     —       —  
 
     —       10,000       2.55       12/18/2019       —       —       —       —  
 
                                                                
Yorom Solomon
     —       —       —               10,000       25,600       —       —  
 
     —       —       —               —       —       8,334       21,335 (1) (2)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               —       —       8,333       21,332 (1)
 
     —       —       —               15,000       38,400 (1)     —       —  
 
     —       7,500       2.55       12/18/2019       —       —       —       —  

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(1)   Restricted stock awards were valued at the fair market value of the Company common stock on December 31, 2009 ($2.56).
 
(2)   This grant was conditional based on performance criteria in 2009; if the criteria was achieved there would be a resulting four year vesting period. The performance criteria was not achieved and therefore the grant was cancelled in February 2010.
Option Exercises and Stock Vesting Table
     The following table sets forth the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during 2009.
                 
    Stock Awards  
    Number of Shares     Value Realized  
    Acquired on Vesting     on Vesting  
Name   (# )     ($ )  
Gregory B. Kalush
     13,867       59,552  
 
                
Thomas N. Tipton Jr.
     9,420       30,331  
 
                
Randall E. McComas
     6,225       26,656  
 
                
Marc A. DeVinney
     3,100       11,800  
 
                
Yorom Solomon
     5,000       12,650  
Pension Benefits and Non-Qualified Defined Contribution Plans
     None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans or non-qualified defined contribution plans sponsored by us. The Compensation Committee, which is comprised solely of “outside directors” as defined for purposes of Section 162(m) of the Code, may elect to adopt qualified or non-qualified defined benefit or non-qualified defined contribution plans if the Compensation Committee determines that doing so is in our best interests.
Summary of Termination and Change in Control Arrangements
     The following summaries set forth potential payments payable to our named executive officers upon termination of employment or a change in control of the Company under their current employment agreements, certain current stock option agreements and/or restricted stock agreements, and our other compensation programs. The descriptions set forth below are summaries of the terms of the respective employment agreement or stock agreement and are qualified by reference to the provisions of such agreements.
     Gregory B. Kalush. Mr. Kalush’s employment agreement provides for the following termination and severance arrangements:
  •   Resignation by the Executive: If Mr. Kalush resigns or elects not to renew his employment agreement, he is entitled to exercise vested stock options for a period of 90 days following his resignation as an employee of the Company. For vested stock options granted for his service as a director of the Company, Mr. Kalush is entitled to exercise vested stock options

25

 

    for a period of ten years from the grant date of such options in a manner consistent with other directors.
•   Termination due to Non-Renewal of Employment Agreement or Termination for other than Overt Misconduct. The Company or Mr. Kalush can terminate the employment relationship by electing not to renew the employment agreement and giving the other party at least thirty (30) days written notice prior to the expiration of the then-current term. If Mr. Kalush elects not to renew his employment agreement, it is treated as a resignation and handled as stated above under “Resignation by the Executive”. If the Company elects not to renew Mr. Kalush’s employment agreement, or terminates Mr. Kalush for other than overt misconduct (or death or disability), then Mr. Kalush will be entitled exclusively to the following termination payments and benefits:
  1.   Severance Payments. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush shall receive severance payments in the amount of three (3) years’ base salary, payable in bi-weekly installments at the current base salary rate at the time. Severance payments will be reduced by any compensation Mr. Kalush receives from other employment during the three (3) year severance period. In addition, if Mr. Kalush is eligible for severance payments and has executed a general release of claims, and provided Mr. Kalush is eligible for COBRA coverage, the Company will pay the premium cost for COBRA coverage for Mr. Kalush and his eligible beneficiaries for the 18-month period following termination of employment.
  2.   Incentive Stock Option Conversion to Non-Qualified Stock Options with Extended Exercise Period. The exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of his termination of employment (or date of non-renewal of his employment agreement), but specifically excluding any stock options granted to Mr. Kalush as a director, shall be extended until the earlier of (A) three (3) years from termination or (B) the latest date upon which the stock option would have expired by its original terms under any circumstances, but not later than the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock on such date, such vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to Mr. Kalush a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for a term of the shorter of three (3) years from the date of termination or the original expiration date of the option.
•   Termination due to Disability. In the event Mr. Kalush’s employment is terminated due to disability, Mr. Kalush will be entitled to the following:
  1.   Severance Payments. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush will be paid severance payments in the amount of two (2) years’ base salary, payable in bi-weekly installments over a twenty-four (24) month period at the current base salary rate at the time of Mr. Kalush’s termination due to disability. In addition, if Mr. Kalush is eligible for

26

 

      severance payments and has executed a general release of claims, and provided Mr. Kalush is eligible for COBRA coverage, the Company will pay the premium cost for COBRA coverage for Mr. Kalush and his eligible beneficiaries for the 18-month period following termination of employment.
  2.   Bonus Payment. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush will receive payment of two (2) years of his annual bonus based on the Company’s Executive Bonus Plan payable in bi-weekly installments over a twenty-four (24) month period following Mr. Kalush’s termination due to disability. The bonus payment will be based on the greater of the prior fiscal year’s Executive Bonus Plan payment or 100% of Mr. Kalush’s bonus target for the year in which his employment terminates due to disability.
 
  3.   Incentive Stock Option Conversion to Non-Qualified Stock Options with Extended Exercise Period. The exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of his termination of employment (or date of non-renewal of his employment agreement),but specifically excluding any stock options granted to Mr. Kalush as a director, shall be extended until the earlier of (A) three (3) years from termination or (B) the latest date upon which the stock option would have expired by its original terms under any circumstances, but not later than the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock on such date, such vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to Mr. Kalush a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for a term of the shorter of three (3) years from the date of termination or the original expiration date of the option.
•   Termination due to Death. In the event Mr. Kalush’s employment is terminated due to death, Mr. Kalush’s estate will be entitled to the following:
  1.   Incentive Stock Option Conversion to Non-Qualified Stock Options with Extended Exercise Period. The exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of his death, but specifically excluding any stock options granted to Mr. Kalush as a director, shall be extended until the earlier of (A) three (3) years from termination or (B) the latest date upon which the stock option would have expired by its original terms under any circumstances, but not later than the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock on such date, such vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to Mr. Kalush’s estate a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for a term of the shorter of three (3) years from the date of termination or the original expiration date of the option.
 

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  2.   Life Insurance Policy. If Mr. Kalush dies then Mr. Kalush’s estate will be entitled to a $1.0 million death benefit payable to Mr. Kalush’s designated beneficiary under a life insurance policy with company-paid premiums.
     If Mr. Kalush’s employment is terminated for any reason by the Company other than overt misconduct, he would be entitled to the following:
  •   Outplacement Services. Mr. Kalush will be entitled to reimbursement for any reasonable outplacement consulting fees and expenses up to a maximum of 15% of his then-current base salary.
 
  •   Gross Up Payment. If Mr. Kalush incurs the excise tax imposed by Section 4999 of the Internal Revenue Code on “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code as the result of the receipt of any payments under his agreement, then he is entitled to receive a gross up payment such that the net amount retained by Mr. Kalush is equal to the amount of payments that Mr. Kalush is entitled to receive under his employment agreement..
     If a change in control occurs, Mr. Kalush is entitled to receive the following:
  •   Acquisition of Shares by One Investor or Group. If during the term of Mr. Kalush’s agreement one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of the common stock of the Company possessing 30% or more of the total voting power of the stock of the Company and such acquisition constitutes a “change in the effective control of a corporation” for purposes of Section 409A of the Internal Revenue Code, then Mr. Kalush shall not be entitled to receive any severance or other pay provided for above, but Mr. Kalush shall instead receive:
  1.   A lump sum payment in the amount of two (2) years’ base salary at the current base salary amount payable within thirty (30) days of the acquisition, and,
 
  2.   A lump sum payment payable within thirty (30) days equal to two (2) years’ of Mr. Kalush’s annual bonus based on the Company’s Executive Bonus Plan. The bonus amount will be the greater of the prior fiscal year’s executive bonus payment or 100% of Mr. Kalush’s bonus target for the year in which the acquisition occurs, and,
 
  3.   The vesting of all of Mr. Kalush’s outstanding stock options shall be accelerated on the date of the acquisition and the exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of the acquisition and were granted to him as a result of his employment agreement, but specifically excluding any stock options granted to Mr. Kalush as a director, shall be extended until the earlier of (A) three (3) years from termination or (B) the latest date upon which the stock option would have expired by its original terms under any circumstances, but not later than the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock on such date, such vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to

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      Mr. Kalush a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for the shorter of three (3) years from the date of termination or the original expiration date of the option.
  4.   If at any time during the term of one of Mr. Kalush’s Restricted Stock Agreements an acquisition occurs whereby one investor accumulates 20% or more of the outstanding common stock, then, effective on the date of such acquisition, all of Mr. Kalush’s unvested shares of restricted stock will be released from the forfeiture restrictions and become fully vested.
     Thomas N. Tipton, Jr., Randall E. McComas, Marc E. DeVinney, and James W. Gragg. These executives’ employment agreements provide that   in the event the Company elects not to renew the executive’s agreement and has provided thirty (30) days written notice of its intention not to renew his agreement, or if the executive is terminated during a term of his agreement without cause, he shall receive (a) the balance of base salary due under his agreement for the balance of its term, and thereafter, (b) subject to the executive’s execution of a general release of claims and covenant not to sue, severance pay equal to six (6) months’ of base salary at the time of termination, payable in bi-weekly installments, subject to reduction by any compensation the executive receives from other employment during the severance period. In addition, provided the executive is eligible for severance payments and has executed a release of claims, and provided the executive is eligible for COBRA coverage, the Company will pay the individual premium cost for COBRA coverage for the executive for the period during which he/she is receiving remaining term payments and severance payments.
     Thomas N. Tipton, Jr. Certain of Mr. Tipton’s Restricted Stock Agreements provide that if one investor accumulates 20% or more of the outstanding Common Stock of the Company, then, effective as of the date of such accumulation by that investor, all of Mr. Tipton’s unvested shares of restricted stock will be released from the forfeiture restrictions and become fully vested.
     Randall E. McComas, Marc E. DeVinney, and Yoram Solomon. These executive’s Restricted Stock Agreements provide that if (i) one investor accumulates 20% or more of the outstanding Common Stock of the Company and, if, within 12 months thereafter, the executive’s employment with the Company is terminated either by the Company for reasons other than cause or by the executive for Good Reason, or (ii) one investor other than a reporting company under the Securities Exchange Act of 1934 accumulates 50% or more of the outstanding Common Stock, then effective as of the date of such accumulation by that investor, all of the executive’s unvested shares of restricted stock will be released from the forfeiture restrictions and become fully vested.
     For each of these above named executive officers, if his employment with us terminates for any reason other than termination with cause then he will be entitled to receive the above severance and change in control benefits as described specifically for the executive in accordance with the terms and conditions of his employment agreements and with our established plans, policies and arrangements, and such other compensation or benefits from us as may be required by law (for example, COBRA coverage).
Potential Payments Upon Termination or Change in Control
     The following table sets forth potential payments payable to our named executive officers upon termination of employment or a change in control. Our Compensation Committee may at its discretion revise, amend or add to these benefits if it deems advisable, to the extent permitted pursuant to such

29

 

officers’ employment agreements. The table below reflects amounts payable to our named executive officers assuming a change in control and/or their employment was terminated on December 31, 2009:
                                             
        Termination                              
        Without Cause     Termination                     Change in  
        or for Non-     for Cause     Disability     Death     Control  
Name   Benefit   Renewal ($ )     ($ )     ($ )     ($ )     ($ )  
Gregory B. Kalush (1)
Chairman of the Board, Chief Executive Officer and President
   Salary     975,000       —       650,000       —       650,000  
 
   Bonus     —       —       400,000       —       400,000  
 
   Outplacement services     48,750       —       48,750       —       48,750  
 
   Insurance Policy (2)     —       —       —       —       —  
 
   Cobra Coverage     28,587       —       —       —       —  
 
   Extended Exercise Period for Stock Options     95,048       —       95,048       95,048       95,048  
 
   Stock Vest Acceleration     —       —       —       —       429,865  
 
                                  
 
   Total Value     1,147,385       —       1,193,798       95,048       1,623,663  
 
Thomas N. Tipton Jr.
Chief Financial Officer, Treasurer and Vice President of Finance
   Salary     97,500       —       —       —       —  
 
   Stock Vest Acceleration     —       —       —       —       115,840  
 
                                  
 
   Total Value     97,500       —       —       —       115,840  
 
Randall E. McComas
Vice President of Global Sales and Customer Support
   Salary     120,000       —       —       —       —  
 
   Stock Vest Acceleration     —       —       —       —       103,808  
 
                                  
 
   Total Value     120,000       —       —       —       103,808  
 
Marc A. DeVinney
Vice President of Engineering
   Salary     91,000       —       —       —       —  
 
   Stock Vest Acceleration     —       —       —       —       113,408  
 
                                  
 
   Total Value     91,000       —       —       —       113,408  
 
Yorom Solomon Vice President of Corporate Strategy and Business Development
   Salary     92,500       —       —       —       —  
 
   Stock Vest Acceleration     —       —       —       —       128,000  
 
                                  
 
   Total Value     92,500       —       —       —       128,000  
 
(1)   Mr. Kalush will be entitled to a gross up payment if he incurs any excise tax imposed by Section 4999 of the Internal Revenue Code on “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code as a result of the receipt of any payments under his agreement. He is entitled to receive a gross up payment such that the net amount retained by Mr. Kalush is equal to the amount of payments that Mr. Kalush is entitled to receive under his employment agreement.
 
(3)   Mr. Kalush’s estate is entitled to a one-time $1,000,000 death benefit payable by the insurance provider under an insurance policy paid for by the Company.

30

 

Report of the Compensation Committee
March 19, 2010
To the Board of Directors of Interphase Corporation:
We have reviewed and discussed with management the Company’s Compensation Discussion and Analysis.
Based on this review and these discussions, we recommend to the Board of Directors that the Compensation Discussion and Analysis be included in Interphase’s Annual Report on Form 10-K and proxy statement on Schedule 14A.
         
    THE COMPENSATION COMMITTEE
 
        
 
      Michael J. Myers, Chairman
Paul N. Hug
Christopher B. Strunk
Compensation Committee Interlocks and Insider Participation
     During 2009, the Compensation Committee was composed of Mr. Myers, Chairman, Mr. Hug and Mr. Strunk. None of the Company’s executive officers served during the year ended December 31, 2009 as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Board of Directors or Compensation Committee.
CERTAIN RELATED TRANSACTIONS
     During 2009, the Company was not a party to any transactions that would require disclosure pursuant to Item 404 of Regulation S-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
     Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of the Common Stock to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and furnish the Company with a copy. Based solely on the Company’s review of the copies of such forms it has received, the Company believes that all of its officers, directors, and greater than ten percent shareholders complied with all filing requirements applicable to them during the reporting period ended December 31, 2009.
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
     Grant Thornton LLP (“Grant Thornton”) served as the independent auditors of the Company for the years ended December 31, 2009 and 2008. The Company’s Audit Committee pre-approves all services performed by the Company’s principal auditor. A representative of Grant Thornton is expected to be present at the annual meeting and will have the opportunity to make a statement and will be available to answer appropriate shareholder questions. At its April 2010 meeting, the Audit Committee of the Board will conduct its review of the independent auditors’ performance, independence, qualifications and quality

31

 

controls and will make its formal decision as to the retention of the independent public auditors to audit the Company’s financial statements for the year ending December 31, 2010, which is expected to be Grant Thornton.
Audit Fees
     During 2009 and 2008, the Company retained Grant Thornton to provide services in the following categories and amounts:
                 
    2009     2008  
     
Audit Fees
   $ 159,000     $ 169,600  
Tax Fees
     46,694       29,902  
Audit-Related Fees
     —       —  
All Other Fees
     —       —  
     
Total
   $ 199,502     $ 199,502  
     The Grant Thornton Audit Fees for the year ended December 31, 2009 and 2008 were for professional services rendered for the audit of the consolidated financial statements of the Company, including quarterly reviews.
     The Grant Thornton Tax Fees for the year ended December 31, 2009 were for the preparation of the Company’s 2008 tax returns and consultations regarding the Company’s international taxes. The Grant Thornton Tax Fees for the year ended December 31, 2008 were for the preparation of the Company’s 2007 tax returns.
SHAREHOLDERS’ PROPOSALS
     Any proposals that shareholders of the Company desire to have presented at the 2011 annual meeting of shareholders must be received by the Company at its principal executive offices no later than December 13, 2010, whether or not the shareholder wishes to include the proposal in the Company’s proxy materials.
     A shareholder who wishes to make a proposal at the 2011 annual meeting of shareholders without including the proposal in the Company’s proxy statement must give written notice of that proposal to the Company at its principal executive offices by February 14, 2011. If a shareholder fails to timely give the notice, then the persons named as proxies in the proxy cards solicited by the Board for that meeting will be entitled to vote the proxies held by them regarding that proposal, if properly raised at the meeting, in their discretion.
SHAREHOLDER COMMUNICATIONS
     Shareholders wishing to communicate with the Board, the non-management directors, or with an individual Board member concerning the Company may do so by writing to the Board, to the non-management directors, or to the particular Board member, and mailing the correspondence to: Attn: Secretary, Interphase Corporation, Parkway Centre I, 2901 North Dallas Parkway, Suite 200, Plano, Texas 75093. The envelope should indicate that it contains a shareholder communication, and the correspondence must disclose the name of the shareholder submitting the communication and identify the number of shares of stock owned by him (or her) beneficially or of record. In general, all shareholder communications delivered to the secretary for forwarding to the Board or specified Board members will

32

 

be forwarded in accordance with the shareholder’s instructions. However, the Secretary reserves the right to not forward to Board members any abusive, threatening or otherwise inappropriate materials.
MISCELLANEOUS
     The Annual Report to Shareholders of the Company for 2009, which includes financial statements, accompanying this Proxy Statement, does not form any part of the material for the solicitation of proxies.
     A copy of the Company’s 2009 Form 10-K has been included with these proxy materials. Exhibits to the Form 10-K are available upon written request and upon payment of a reasonable charge to cover the Company’s cost in providing such exhibits. Written requests should be sent to Investor Relations, Interphase Corporation, Parkway Centre I, 2901 North Dallas Parkway, Suite 200, Plano, Texas, 75093.
         
  By Order of the Board of Directors


S. THOMAS THAWLEY
Vice Chairman and Secretary
 		  
     
     
     
 
Plano, Texas
March 26, 2010

33

 

(BAR CODE)                                                   
 

             
 
  (INTERPHASE LOGO)        
 
        000004  
(BAR CODE)
 
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6

(GRAPH)		        
     
(BAR CODE)      C123456789
 
000000000.000000 ext
  000000000.000000 ext      
000000000.000000 ext
  000000000.000000 ext     
000000000.000000 ext
  000000000.000000 ext     
 
    
 
    
 
    
 
    
 
    
 
    
 
    
 
    


     
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.

   x
      


 

Annual Meeting Proxy Card
 
6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
 
 A  Proposals — The Board of Directors recommends a vote FOR the listed nominees and FOR Proposal 2.
                                         
 
1.
  Election of Directors:   For   Withhold       For   Withhold       For   Withhold  
 
  01 - Paul N. Hug   o   o   02 - Gregory B. Kalush   o   o   03 - Michael J. Myers   o   o   +
 
                                        
 
  04 - Kenneth V. Spenser   o   o   05 - Christopher B. Strunk   o   o   06 - S. Thomas Thawley   o   o    
 
                                        
 
                                        

                 
        For   Against   Abstain
 
2.
  In the discretion of the Proxies, on any other matter that may properly come before the meeting or any adjournment thereof.   o   o   o
 
                
 
                
 
                
      


 B  Non-Voting Items
Change of Address — Please print new address below.
      
 C  Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
                 
Date (mm/dd/yyyy) — Please print date below.
    Signature 1 — Please keep signature within the box.     Signature 2 — Please keep signature within the box.  
 
 
             
 
       /       /
              
 
 
             
(BAR CODE)

 

 

6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
 
(INTERPHASE LOGO)
 
Proxy — INTERPHASE CORPORATION
 
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting of Shareholders of Interphase Corporation (the “Company”) to be held on May 5, 2010 at 9:00 a.m. local time at the Embassy Suites Hotel at 7600 John Q. Hammons Drive, Frisco, Texas 75034, and the Proxy Statement in connection therewith, and (b) appoints Gregory B. Kalush and S. Thomas Thawley, and each of them, the undersigned’s proxies with full power of substitution, for and in the name, place and stead of the undersigned, to vote upon and act with respect to which the undersigned is entitled to vote and act at said meeting or at any adjournment thereof, and the undersigned directs that this proxy be voted as follows:
If more than one of the proxies above shall be present in person or by substitute at the meeting or any adjournment thereof, both of said proxies so present and voting, either in person or by substitute, shall exercise all of the powers hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms all that said proxies, their substitutes, or any of them, may lawfully do by virtue hereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE MATTERS REFERRED TO ON THE REVERSE.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be dated and signed on the reverse side.)

 

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