2 3 4 5 (See Exhibit A). 6 Report of Audit Committee 24, 2008 2007. 7 www.interphase.com. 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 of Directors and its size and structure. 8 Any shareholder suggested candidates must be submitted no later than December 9
SECURITIES AND EXCHANGE COMMISSION
Exchange Act of 1934 (Amendment No. )
Filed by a Party other than the Registrantoo Filed by the Registrant þFiled by a Party other than the Registrant oCheck the appropriate box:oPreliminary Proxy Statemento oConfidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)14a-6(e)(2))þ þDefinitive Proxy Statement o oDefinitive Additional Materials o oSoliciting Material Pursuant to §240.14a-12
(Name of Registrant as Specified In Its Charter)þ þNo fee required.o oFee computed on table below per Exchange Act Rules 14a-6(i) (4)(1) and 0-11. 1) (1)Title of each class of securities to which transaction applies: 2) (2) Aggregate number of securities to which transaction applies: 3) (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): 4) (4) Proposed maximum aggregate value of transaction: 5) (5) Total fee paid: o Fee paid previously with preliminary materials. o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: 1) Amount Previously Paid: 2) (2)Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed:SEC 1913 (11-01)Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.NOTICE OF ANNUAL MEETING OF SHAREHOLDERSTo Be Held May 4, 2005 To the Holders of Common Stock ofInterphase Corporation:NOTICE IS HEREBY GIVENthat the annual meeting of shareholders of Interphase Corporation, a Texas corporation (the “Company”), will be held on May 4, 2005 at 10:00 a.m. local time at the Sockwell Center at 6301 Chapel Hill Blvd., Plano, Texas, for the following purposes: (a) (3)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; andFiling Party: (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. (4) By order of the Board of DirectorsDate Filed: S. Thomas Thawley Vice Chairman and SecretaryPlano, TexasMarch 31, 2005
To Be Held May 7, 2008
Interphase Corporation:(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.
Vice Chairman and Secretary
April 4, 2008
Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 4, 20057, 20084, 2005.7, 2008. 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 31, 2005.April 4, 2008.2005.2008. At the close of business on that date, the Company had issued, outstanding and entitled to be voted at the meeting 5,750,8246,547,994 shares of Common Stock.as such, will have no effect on any proposal at this meeting.20052008 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 and nominee for 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 582,167 (1) 8.2 % S. Thomas Thawley 302,792 (1) 4.6 % Randall E. McComas 216,140 (1) 3.2 % Deborah A. Shute 161,600 (1) 2.4 % James W. Gragg 91,600 (1) 1.4 % Felix V. Diaz 83,540 (2) 1.3 % Paul N. Hug 52,667 (1) 0.8 % Thomas N. Tipton, Jr. 54,800 (1) 0.8 % Michael J. Myers 41,667 (1) 0.6 % Kenneth V. Spenser 41,667 (1) 0.6 % Prasad R. Kallur 30,600 (3) 0.5 % Marc E. DeVinney 19,600 0.3 % Christopher B. Strunk 5,000 0.1 % All executive officers and directors as a group (13 persons) 1,683,840 (4) 22.0 % Royce & Associates, LLC
1414 Avenue of the Americas
New York, NY 10019 549,600 (5) 8.4 % Renaissance Technologies, LLC
800 Third Avenue
New York, NY 10022 362,500 (5) 5.5 % Name and address ofAmount and Nature ofPercent ofBeneficial OwnerBeneficial OwnershipClassGregory B. Kalush500,834 (1)8.0%S. Thomas Thawley296,125 (1)5.1%Felix V. Diaz230,000 (1)3.8%Steven P. Kovac223,334 (1)3.7%Deborah A. Shute125,000 (1)2.1%Randall E. McComas124,874 (1)2.1%Paul N. Hug58,000 (1)1.0%Randall D. Ledford45,000 (1)0.8%James W. Gragg45,000 (1)0.8%Michael J. Myers35,000 (1)0.6%Kenneth V. Spenser35,000 (1)0.6%All executive officers and directors as a group (11 persons)1,718,167 (2)23.8%Royce & Associates, LLC 1414 Avenue of the Americas New York, NY 10019550,200 (3)9.6%(1) Includes vested options to purchase Common Stock with exercise prices ranging from $4.12-$31.00 per share (fair market value on the respective dates of grant) as follows: Mr. Kalush, 500,834517,500 shares; Mr. Thawley, 55,000 shares; Mr. Diaz, 230,000 shares; Mr. Kovac, 223,334McComas, 191,540 shares; Ms. Shute, 125,000145,000 shares; Mr. McComas, 124,874Gragg, 75,000 shares; Mr. Hug, 45,000 shares; Mr. Ledford, 45,000 shares; Mr. Gragg, 45,000Tipton, 17,500 shares; Mr. Myers, 35,000 sharesshares; and Mr. Spenser, 35,000 shares. (2) Mr. Diaz retired from the Company, effective September 28, 2007. (3) Mr. Kallur’s employment with the Company ended, effective March 27, 2008. (4) Includes 1,464,0421,116,540 shares that may be acquired upon exercise of vested stock options. (3)(5) Based upon information contained in Schedule 13G filings made prior to March 15, 2005.10, 2008.3the shareholders or until their successors are elected and qualified.48,51, 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 OptionAward 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.61,64, 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 1988.1980. 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.Randall D. Ledford, 55, was elected to the Board of Directors in 2001. Mr. Ledford is currently Senior Vice President and Chief Technology Officer for Emerson Electric Co., a position he has held since 1997. He is also the President of Emerson Ventures Inc., an Emerson subsidiary that invests in technology venture companies. He serves on several CTO boards and forums both in the U.S. and abroad. Mr. Ledford is a member of the Nominating and Governance Committee and is Chairman of the Compensation Committee of the Board of Directors.58,61, was elected to the Board of Directors in 2002. From 2002 until his retirement in 2006, Mr. Myers is currentlyserved as President CEO and a member of the Board of DirectorsCEO 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 a memberChairman of the Compensation Committee and a member of the Nominating and Governance Committee and the Audit Committee of the Board of Directors.56,59, 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 Think & Do Software in 1997by orthopedic surgeons, exercise physiologists and merged it with Steeplechase Software in 2001rehabilitation specialists to create Entivity, Inc.assist patients of total joint replacements. Prior to founding Think & Do Software,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.64,67, is a co-founder of the Company and has served as Secretary and a director of the Company since its inception 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.OptionAward Committee. During 2004,2007, the Audit Committee was composed of Mr. Hug, Chairman, Mr. Myers, and Mr. Spenser. The Audit Committee met fiveseven times during 2004.2007. The Audit Committee’s responsibilities are described in the Audit Committee Charter, (includedwhich is included as an exhibit to the Company’sthis proxy statement for the 2004 annual meeting)(See Exhibit A). During 2004,2007, the Compensation Committee was composed of Mr. Ledford,Myers, Chairman, Mr. Hug and Mr. Myers.Strunk. The Compensation Committee met twofour times during 20042007 and reviewed the executive compensation plan of the Company in light of industry practices and circumstances unique to the Company. During 2004,2007, the Nominating and Governance Committee was composed of Mr. Thawley, Chairman, Mr. Hug, Mr. Ledford,Myers, Mr. MyersSpenser and Mr. Spenser.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. The Nominating and Governance Committee met two times during 2004.2007. In 2004,2007, the New Employee and Retention Stock OptionAward Committee was composed of one member, Mr. Kalush. The New Employee and Retention Stock OptionAward 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.sixseven meetings during the year ended December 31, 2004.2007. None of the directors attended fewer than 75% of the meetings of the Board of Directors and its committees on which such director served.20042007 annual meeting of shareholders.Compensation of DirectorsCash CompensationCompany compensates itsfollowing table sets forth the compensation amounts paid to our non-employee directors, who during 20042007 were Mr. Hug, Mr. Ledford, Mr. Myers, Mr. Spenser, Mr. Strunk and Mr. Thawley, based upon an estimated number of meetingsThawley. Fees Earned or Paid in Cash Stock Awards Total Name ($) ($)(1) ($) Paul N. Hug 32,500 32,500 Michael J. Myers 30,500 30,500 Kenneth V. Spenser 25,200 25,200 Christopher B. Strunk (2) 22,300 49,550 71,850 S. Thomas Thawley 23,000 23,000 (1) In May 2007, Mr. Strunk was granted a restricted stock award under the 2004 Long-Term Stock Incentive Plan. He was issued 5,000 shares of restricted stock. These shares were granted at a price of $9.91 per share (fair market value on the date of grant) and will vest ratably over a three year period provided he remains a director of the Company until the respective vesting dates. There were no other awards granted to non-employee directors during 2007. (2) Mr. Strunk was a newly elected board member in 2007 and as such received a one time payment of $5,000 for his election to the board. board and committees on which such director serves, plusBoard of Directors received a quarterly cash retainer of $5,000 for his service. Each committee chairman, except the audit committee chair, received an annual retainer. This amount is reasonably estimatedretainer fee of $3,000. The Audit Committee Chairman received an annual retainer fee of $5,000. Each non-employee director of the Compensation Committee, including the chairman, received an annual retainer of $2,300. Each non-employee director of the Audit Committee, including the chairman, received an annual retainer of $5,200. Non-employee directors are expected to be approximately $27,000 per year, per director. Mr. Kalush does not receive cashthe same compensation as a director.Directors Stock Options In May 2004, each director was granted an option under the 2004 Long-Term Stock Incentive Planduring 2008. All directors are reimbursed for 5,000 shares of Common Stock (an aggregate of 30,000 shares). These options have an exercise price of $8.50 per share (fair market valuetheir reasonable out-of-pocket expenses in serving on the dateBoard of grant) and will fully vest at 5 p.m. onDirectors or any committee of the day preceding the 2005 Annual MeetingBoard of Shareholders and have an expiration date of May 5, 2014.Directors.wasis included as an exhibit to the Company’sthis proxy statement for the 2004 annual meeting.Nasdaq NationalNASDAQ Global Market.1988,1980, and as such, has participated in dealing with accounting, auditing, internal control, and risk management issues.631, 20052004.2004.2007.THE AUDIT COMMITTEEPaul N. Hug, ChairmanKenneth V. SpenserTHE AUDIT COMMITTEE
Kenneth V. Spenser
Michael J. MyersLedford,Myers, Mr. MyersSpenser and Mr. Spenser.Strunk. All members of the Committee meet the independence requirements of the Nasdaq NationalNASDAQ Global Market. www.interphase.com.Nasdaq NationalNASDAQ 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, potential7 i. the name, age, business address and residence of such person, ii. the principal occupation or employment of such person, iii. the class and 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 Committee listed above, 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 i. the name and record address of the shareholder, and ii. the class and number of shares of the Company beneficially owned by the shareholder. 82, 200515, 2008 to be considered for election at the 20062009 annual meeting of shareholders. Executive Executive Officers of Officer of the Company the Company Name Age Position(s) Held with the Company Since Age Position(s) Held with the Company Since Gregory B. Kalush 48 Chairman of the Board, 1998 51 Chairman of the Board,
Chief Executive Officer and President 1998 Chief Executive Officer and President Steven P. Kovac 49 Chief Financial Officer, Treasurer and 1999 Vice President of Finance Felix V. Diaz 54 Vice President of Engineering and 2002 Chief Technical Officer Thomas N. Tipton, Jr. 33 Chief Financial Officer,
Vice President of Finance and Treasurer 2005 Randall E. McComas 55 Vice President of Global Sales and Marketing 2002 58 Vice President of Global Sales and
Customer Support 2002 Deborah A. Shute 42 Vice President of Human Resources and 2002 45 Vice President of Human Resources and
Administration 2002 Administration James W. Gragg 56 Vice President of Operations and Fulfillment 2004 James W. Gragg 53 Vice President of Operations and Fulfillment 2004 Marc E. DeVinney 46 Vice President of Engineering 2007 OptionAward 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.Steven P. KovacThomas N. Tipton, Jr.joined the Company in May 1999January 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
Felix V. Diazjoined the Company in May 1996, as Chief Technical Officer. In January 2001, Mr. Diaz became Vice President and General Manager, Telecom Products Group, a position he held until
9
January 2004 when he returned to the position of Chief Technical Officer and Vice President of Engineering. Prior to joining Interphase, Mr. Diaz was Director of Systems Architecture and Engineering at DSC Corporation where he was responsible for the Company’s Asynchronous Transfer Mode switching product line.
Randall E. McComasjoined the Company in February 2002, as Vice President of Global Sales and Marketing.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.
EXECUTIVE COMPENSATION
The Compensation Committee (under this caption, the “Committee”) is responsible for structuring and monitoring the Company’s executive compensation program. The Committee is currently composed of three members of the Board of Directors: Mr. Ledford, Chairman, Mr. Hug and Mr. Myers. Recommendations of the Committee are ultimately reviewed, considered and approved by the Board of Directors; however, after the executive compensation program has been approved by the Board of Directors, the Committee performs ministerial functions effecting and implementing aspects of the program on behalf of the Board of Directors.
The Committee views its primary objective to be the structuring of a compensation strategy designed to align the interests of executives with the interests of shareholders by creating incentives which are performance-based and tied to the attainment of overall Company goals. The markets Change in which the Company competes are highly competitive, and to succeed in them over the long term, the Company must be able to attract, motivate and retain executives with extraordinary qualifications and talents. The Committee evaluates the compensation strategy and compensation plans accordingly.
Salient components of the executive compensation program include annual salary, annual bonus plan and stock incentive grants.
At this time, based on the Company’s current executive compensation structure, the Company does not believe it is necessary to adopt a policy with respect to qualifying executive compensation in
10
excess of $1 million for deductibility under Section 162(m) of the Internal Revenue Code, except with respect to the 2004 Long-Term Stock Incentive Plan.
Annual Salary
The Committee attempts to establish annual salary levels that are appropriate with regard to (i) competitive salary levels, (ii) qualifications and experience, and (iii) the longevity, performance and responsibility of the executive. At least annually, the Committee reviews executive salaries and recommends adjustments where appropriate.
Executive Bonus Plan
The executive bonus plan is intended to link executive compensation with the attainment of defined Company goals on an annual basis.
Each fiscal year, the Committee, after consulting with management of the Company, establishes business and financial targets for the Company. Annual bonus amounts are established based upon these targets. The actual payment of bonuses is primarily dependent upon the extent to which these Company-wide objectives are achieved. Some financial targets for 2004 were achieved, thus some executive bonuses were paid.
Stock Option Grants
Through the granting of stock options, the Company intends to align the executives’ long-term interests with those of the shareholders of the Company by tying executive compensation to the long-term performance of the Company’s stock price. This is the Company’s principal long-term incentive to executives.
The Committee recommends the number of shares to be granted to an executive based upon several factors including, but not limited to, management’s recommendation, the executive’s salary level, performance, position, contribution to the management team, and contribution to the overall success of the Company.
Chief Executive Officer Compensation
In keeping with the general compensation philosophy outlined above, Mr. Kalush’s base salary is established to place emphasis on incentive compensation while remaining competitive with othersControl provisions contained in the Company’s industry. Mr. Kalush’s target annual bonus amount is established based upon annual financial targets foremployment agreements are described in the Company developed by the Committee. The actual paymentsection entitled “Summary of a bonus is primarily dependent upon the extent to which these objectives are achieved. The amount of stock options granted to Mr. Kalush is based upon several factors including, but not limited to, base salary level, performance, positionTermination and contribution to the overall success of the Company. The Compensation Committee believes that the total compensation paid to Mr. Kalush is commensurate with the compensation paid to the chief executive officers of corporationsChange in similar lines of business after adjustment to compensate for differences in size, business mix and geographic area.
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Summary
The Compensation Committee, in its judgment, has established executive compensation levels which reflect the Committee’s desire to reward executives for individual contribution to the attainment of the Company’s goals while linking each executive’s financial opportunity with increased value to the shareholders.
THE COMPENSATION COMMITTEE
Randall D. Ledford, ChairmanPaul N. HugMichael J. Myers
Employment Agreements
Gregory B. Kalush.The Board of Directors approved Mr. Kalush’s current employment agreement, effective March 12, 2000, pursuant to which the Company employs Mr. Kalush as its Chief Executive Officer and President. This agreement provided for a base salary from March 2000 until March 2003 of at least $250,000 per year. A new two-year term began in April 20032007 and provided for the same base salary. As of April 2008 his current base salary is $325,000. The employment agreement will continue for successive two-year terms, unless either Mr. Kalush or the Company gives notice to the other party more than 30 days prior to the expiration of the then-current term that the agreement will not be renewed.
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Mr. Kalush’s employment agreement permits the Company to terminate Mr. Kalush without further compensation for overt misconduct. If Mr. Kalush dies or the Company terminates Mr. Kalush’s employment agreement by reason of disability, then Mr. Kalush will be entitled to (i) receive severance compensation in the amount of two years base salary, and (ii) receive payment of two years of his annual bonus under the Company’s Executive Bonus Plan.Committee.
terminate Mr. Kalush without further compensation for overt misconduct.
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target established by the Compensation Committee, and (iii) is entitled to certain benefits available to officers of the Company generally.
Committee.
The Board of Directors approved Mr. Diaz’s current employment agreement, effective May 22, 1996, pursuant to which the Company employs Mr. Diaz at a base salary of, at least, $120,000 per year. In addition, in accordance with his employment agreement, Mr. Diaz (i) received in May 1996 an incentive stock option for 10,000 shares of Common Stock, for a ten year term and with an exercise price of $17.69 per share, (ii) is entitled to an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with his “annual bonus target” being established by the Compensation Committee and (iii) is entitled to certain benefits available to officers of the Company generally.
Mr. Diaz’s employment agreement permits the Company to terminate Mr. Diaz without further compensation for overt misconduct. If the Company terminates Mr. Diaz for any reason other than overt misconduct, Mr. Diaz will receive (i) three months severance pay at his base salary provided he executes a general release of all claims against the Company. In the event of a “change in control” of the Company, as defined above, and if, within 12 months thereafter, Mr. Diaz’s employment with the Company is terminated either by the Company, except for overt misconduct, or by Mr. Diaz for Good Reason, as defined in the agreement, or one investor other than a reporting company under the Securities Exchange Act of 1934 accumulates 50% or more of the outstanding stock of the Company, then all outstanding stock options granted to Mr. Diaz will become exercisable, subject to certain restrictions.
salary.
Committee.
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accumulates 50% or more of the outstanding stock of the Company, then all outstanding stock options granted to Mr. McComas will become exercisable, subject to certain restrictions.
Deborah A. Shute.The Board of Directors approved Ms. Shute’s current employment agreement, effective November 24, 1999, pursuant to which the Company employs Ms. Shute, as its Vice President of Human Resources, at a base salary of at least $130,000 per year.year, her current base salary is $158,000. The employment agreement is at-will, and thus, either party may terminate the relationship at any time for any reason subject to a 30 day written notice. In addition, in accordance with her employment agreement, Ms. Shute (i) received in November 1999, a non-qualified stock option for 10,000 shares of Common Stock, forwith a ten year term and an
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Committee.
Committee.
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• | 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 | ||
• | 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. |
• | 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. |
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• | Overall business performance and executive engagement; | ||
• | Ability to attract and retain key executive talent; | ||
• | Costs and business risks that are limited to levels that optimize risk and return; and | ||
• | Executive understanding and perceptions that ensure program value equals or exceeds program cost. |
• | Base Salaries are designed to attract and retain executives over time. | ||
• | Long-Term Incentives, generally performance-based restricted stock and restricted stock under the shareholder approved 2004 Long-Term Stock Incentive Plan (“LTSIP”), focus executives’ efforts on the behaviors within the recipient’s control that we believe are necessary to ensure the long-term success of the Company, as reflected in increases to the Company’s stock prices over a period of several years, growth in its earnings per share, and other elements. | ||
• | Annual Cash Incentives are designed to focus executives on the objectives listed in the Company’s plan priorities for a particular year, and other metrics as may be determined during the annual operating plan process. | ||
• | Change in Control and Termination 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 protections are commonly offered. These 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. |
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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 | ||
Annual Cash Incentive | • Contributions toward the Company’s achievement of specified revenue and net income/profitability metrics | • To provide focus on meeting annual goals that lead to our long-term success | ||
• To provide annual performance-based cash incentive compensation | ||||
• To motivate achievement of critical annual performance metrics | ||||
Restricted Stock: | ||||
• Continued employment with the Company during a specified vesting period | • To attract and retain the best people for the Company | |||
Long-Term Incentives | Performance-based Restricted Stock: | • To provide stock ownership to executives | ||
• Achievement by executives of key performance metrics for Company success | • To increase the executives’ interest in the Company’s welfare | |||
• Continued employment with the Company during a specified vesting period | • To promote the success of the Company’s business | |||
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Pay Element | What the Pay Element Rewards | Purpose of the Pay Element | ||
Change in Control and Termination Benefits | • Focused effort by our executives in the event of a rumored or actual fundamental corporate change | • To retain executives and provide continuity of management in the event of an actual or threatened change in control |
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Revenue | Net Income | |||||
Achievement % | Payout % | Achievement % | Payout % | |||
0.0 — 87.9 | 0 | 0.0 — 29.9 | 0 | |||
88.0 — 88.9 | 10 — 20 | 30.0 — 74.9 | 10 — 54 | |||
90.0 — 92.9 | 20 — 35 | 75.0 — 100.0 | 56 — 100 | |||
95.0 — 97.4 | 50 — 75 | 100.1 + | 100.1 + | |||
97.5 — 100.0 | 75 — 100 | |||||
100.1 — 109.0 | 100 + 2X | |||||
Accelerator | ||||||
109.1 — | 100 + 3X | |||||
Accelerator |
• | President and Chief Executive Officer’s recommendation; | ||
• | Relevant and validated external market data on executive compensation; |
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• | Management role and contribution to the management team; | ||
• | Job responsibilities and past performance; | ||
• | Future anticipated contributions; | ||
• | Corporate performance; and | ||
• | Existing vested and unvested equity holdings. |
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Long-term | ||||||||||||||||||||
Annual Compensation (1) | Compensation | |||||||||||||||||||
Securities | ||||||||||||||||||||
Underlying | All Other | |||||||||||||||||||
Salary | Bonus | Options/SARs | Compensation (2) | |||||||||||||||||
Year | ($) | ($) | (#) | ($) | ||||||||||||||||
Gregory B. Kalush | 2004 | $ | 258,656 | $ | 26,650 | 55,000 | $ | 6,150 | ||||||||||||
Chairman of the Board, | 2003 | $ | 247,000 | $ | 8,272 | 60,000 | $ | 6,000 | ||||||||||||
Chief Executive Officer | 2002 | $ | 250,000 | $ | 2,404 | 60,000 | $ | 5,500 | ||||||||||||
and President | ||||||||||||||||||||
Steven P. Kovac | 2004 | $ | 206,920 | $ | 6,700 | 20,000 | $ | 4,369 | ||||||||||||
Chief Financial Officer, | 2003 | $ | 200,000 | $ | 4,323 | 20,000 | $ | 4,038 | ||||||||||||
Treasurer and Vice | 2002 | $ | 200,000 | $ | 1,923 | 30,000 | $ | 4,269 | ||||||||||||
President of Finance | ||||||||||||||||||||
Felix V. Diaz | 2004 | $ | 201,747 | $ | 8,000 | 30,000 | $ | 6,052 | ||||||||||||
Vice President of Engineering | 2003 | $ | 195,000 | $ | 4,500 | 30,000 | $ | 5,850 | ||||||||||||
and Chief Technical Officer | 2002 | $ | 195,000 | $ | 1,875 | 30,000 | $ | 5,500 | ||||||||||||
Randall E. McComas | 2004 | $ | 232,785 | $ | 13,250 | 50,000 | $ | 12,811 | ||||||||||||
Vice President of Global | 2003 | $ | 225,000 | $ | 6,313 | 50,000 | $ | 12,351 | ||||||||||||
Sales and Marketing | 2002 | $ | 191,250 | $ | 32,163 | 100,000 | $ | 10,558 | ||||||||||||
Deborah A. Shute | 2004 | $ | 146,569 | $ | 5,400 | 15,000 | $ | 4,397 | ||||||||||||
Vice President of Human | 2003 | $ | 140,000 | $ | 4,022 | 15,000 | $ | 4,200 | ||||||||||||
Resources and Administration | 2002 | $ | 140,000 | $ | 6,346 | 25,000 | $ | 4,200 | ||||||||||||
James W. Gragg | 2004 | $ | 134,823 | $ | 3,500 | 25,000 | $ | 4,045 | ||||||||||||
Vice President of | 2003 | $ | 116,923 | $ | 3,304 | 15,000 | $ | 3,508 | ||||||||||||
Operations and Fulfillment | 2002 | $ | 115,000 | $ | 2,106 | — | $ | 3,450 |
Stock | All Other | |||||||||||||||||||||||
Name and Principal | Awards | Compensation | Total | |||||||||||||||||||||
Position | Year | Salary ($) | Bonus ($) | ($) (1) | ($) (2) | ($) | ||||||||||||||||||
Gregory B. Kalush | 2007 | 260,869 | — | 116,850 | (3) | 8,372 | 386,091 | |||||||||||||||||
Chairman of the Board, | 2006 | 250,000 | 204,600 | 85,050 | (4) | 8,220 | 547,870 | |||||||||||||||||
Chief Executive Officer and President | ||||||||||||||||||||||||
Thomas N. Tipton Jr. | 2007 | 150,000 | — | 34,710 | (3) | 4,500 | 189,210 | |||||||||||||||||
Chief Financial Officer, | 2006 | 150,000 | 40,700 | 146,500 | (4) | 4,500 | 341,700 | |||||||||||||||||
Treasurer and Vice President of Finance | ||||||||||||||||||||||||
Randall E. McComas | 2007 | 225,000 | — | 28,925 | (3) | 6,750 | 260,675 | |||||||||||||||||
Vice President of | 2006 | 225,000 | 102,300 | — | (4) | 6,596 | 333,896 | |||||||||||||||||
Global Sales and Customer Support | ||||||||||||||||||||||||
Prasad R. Kallur (5) | 2007 | 175,000 | — | 34,710 | (3) | 5,250 | 214,960 | |||||||||||||||||
Vice President of | 2006 | 175,000 | 40,900 | — | (4) | 5,250 | 221,150 | |||||||||||||||||
Strategic Marketing | ||||||||||||||||||||||||
James W. Gragg | 2007 | 150,000 | — | 23,140 | (3) | 4,500 | 177,640 | |||||||||||||||||
Vice President of | 2006 | 150,000 | 40,700 | — | (4) | 4,500 | 195,200 | |||||||||||||||||
Operations and Fulfillment | ||||||||||||||||||||||||
Deborah A. Shute | 2007 | 150,000 | — | 23,140 | (3) | 4,500 | 177,640 | |||||||||||||||||
Vice President of | 2006 | 144,869 | 40,900 | — | (4) | 4,346 | 190,115 | |||||||||||||||||
Human Resources and Administration | ||||||||||||||||||||||||
Felix V. Diaz (6) | 2007 | 146,250 | — | 86,775 | — | 233,025 | ||||||||||||||||||
Former Vice President | 2006 | 195,000 | 61,400 | — | (4) | 5,850 | 262,250 | |||||||||||||||||
of Engineering and Chief Technology Officer |
19
(1) | ||
(2) | “All | |
(3) | 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), Mr. McComas (5,000 shares or $57,850), Mr. Kallur (6,000 shares or $69,420), Mr. Gragg (4,000 shares or $46,280) and Ms. Shute (4,000 shares or $46,280) all had shares cancelled which had a grant date value of $11.57 per share. | |
(4) | Certain grants in February 2006, not included in the Summary Compensation Table, were performance based with a four year vesting period, and were cancelled on February 8, 2007 as the performance criteria was not satisfied. Mr. Kalush (15,000 shares or $81,000), Mr. Tipton (9,000 shares or $48,600), Mr. McComas (7,500 shares or $40,500), Mr. Kallur (9,000 shares or $48,600), Mr. Gragg (6,000 shares or $32,400), Ms. Shute (6,000 shares or $32,400), and Mr. Diaz (7,500 shares or $40,500), all had shares cancelled which had a | |
(5) | Mr. Kallur’s employment with the Company ended, effective March 27, 2008. | |
(6) | Mr. Diaz retired from the Company, effective September 28, 2007. As a result of his retirement he did not achieve the vesting requirement for his 2007 grants and they were all cancelled. |
1520
Option/SAR
of Plan-Based Awards
Estimated Future Payouts Under | Closing | Grant Date | ||||||||||||||||||||||||||
Equity Incentive Plan Awards | Price on | Fair | ||||||||||||||||||||||||||
Grant | Value of Stock | |||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | All Other | Date | and Option | ||||||||||||||||||||||
Name | Date | (#) | (#) | (#) | Stock Awards | ($ / Sh) | Awards ($) | |||||||||||||||||||||
Gregory B. Kalush | 2/7/07 | — | — | — | 5,000 | 11.57 | 57,850 | |||||||||||||||||||||
2/7/07 | (1) | — | 10,000 | — | — | 11.57 | 115,700 | |||||||||||||||||||||
7/25/07 | — | — | — | 5,000 | 11.80 | 59,000 | ||||||||||||||||||||||
Thomas N. Tipton Jr. | 2/7/07 | — | — | — | 3,000 | 11.57 | 34,710 | |||||||||||||||||||||
2/7/07 | (1) | — | 6,000 | — | — | 11.57 | 69,420 | |||||||||||||||||||||
Randall E. McComas | 2/7/07 | — | — | — | 2,500 | 11.57 | 28,925 | |||||||||||||||||||||
2/7/07 | (1) | — | 5,000 | — | — | 11.57 | 57,850 | |||||||||||||||||||||
Prasad R. Kallur (2) | 2/7/07 | — | — | — | 3,000 | 11.57 | 34,710 | |||||||||||||||||||||
2/7/07 | (1) | — | 6,000 | — | — | 11.57 | 69,420 | |||||||||||||||||||||
James W. Gragg | 2/7/07 | — | — | — | 2,000 | 11.57 | 23,140 | |||||||||||||||||||||
2/7/07 | (1) | — | 4,000 | — | — | 11.57 | 46,280 | |||||||||||||||||||||
Deborah A. Shute | 2/7/07 | — | — | — | 2,000 | 11.57 | 23,140 | |||||||||||||||||||||
2/7/07 | (1) | — | 4,000 | — | — | 11.57 | 46,280 | |||||||||||||||||||||
Felix V. Diaz (3) | 2/7/07 | — | — | — | 2,500 | 11.57 | 28,925 | |||||||||||||||||||||
2/7/07 | — | 5,000 | — | — | 11.57 | 57,850 |
(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 2007; 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 2008. | |
(2) | Mr. Kallur’s employment with the Company ended, effective March 27, 2008. | |
(3) | Mr. Diaz retired from the Company effective September 28, 2007; as such he did not meet the required service term for vesting and all of his 2007 grants were cancelled. |
Number of | Total Options/ | Appreciation at | ||||||||||||||||||||||
Securities | SARs Granted | Assumed Annual | ||||||||||||||||||||||
Underlying | to Employees | Rates of Stock Price | ||||||||||||||||||||||
Options/SARs | in Fiscal | Exercise | for Option Term | |||||||||||||||||||||
Granted | Year | Price | Expiration | 5 Percent | 10 Percent | |||||||||||||||||||
Name | (#) | (%) | ($) | Date | ($) | ($) | ||||||||||||||||||
Gregory B. Kalush | 50,000 | 23.2 | % | $ | 11.45 | 3/16/2014 | $ | 360,042 | $ | 912,418 | ||||||||||||||
5,000 | 2.3 | % | $ | 8.50 | 5/5/2014 | $ | 26,728 | $ | 67,734 | |||||||||||||||
Steven P. Kovac | 20,000 | 9.3 | % | $ | 11.45 | 3/16/2014 | $ | 144,017 | $ | 364,967 | ||||||||||||||
Felix V. Diaz | 30,000 | 13.9 | % | $ | 11.45 | 3/16/2014 | $ | 216,025 | $ | 547,451 | ||||||||||||||
Randall E. McComas | 50,000 | 23.2 | % | $ | 11.45 | 3/16/2014 | $ | 360,042 | $ | 912,418 | ||||||||||||||
Deborah A. Shute | 15,000 | 7.0 | % | $ | 11.45 | 3/16/2014 | $ | 108,013 | $ | 273,725 | ||||||||||||||
James W. Gragg | 15,000 | 7.0 | % | $ | 11.45 | 3/16/2014 | $ | 108,013 | $ | 273,725 | ||||||||||||||
10,000 | 4.6 | % | $ | 7.20 | 11/01/2014 | $ | 45,280 | $ | 114,749 |
1621
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Equity Incentive | ||||||||||||||||||||||||||||
Plan Awards: | Equity Incentive | |||||||||||||||||||||||||||
Market | Number of | Plan Awards: | ||||||||||||||||||||||||||
Number of | Number of | Value of | Unearned | Market or Payout Value | ||||||||||||||||||||||||
Securities | Shares or | Shares or | Shares, Units | of Unearned | ||||||||||||||||||||||||
Underlying | Units of | Units of | or Other | Shares, Units or Other | ||||||||||||||||||||||||
Unexercised | Option | Stock That | Stock That | Rights That | Rights That | |||||||||||||||||||||||
Options | Exercise | Option | Have Not | Have Not | Have Not | Have Not | ||||||||||||||||||||||
(#) | Price | Expiration | Vested | Vested | Vested | Vested | ||||||||||||||||||||||
Name | Exercisable | ($) | Date | (#) | ($) | (#) | ($) | |||||||||||||||||||||
Gregory B. Kalush | — | — | 5,000 | 51,600 | (1) | — | — | |||||||||||||||||||||
— | — | — | — | 10,000 | 103,200 | (1) (2) | ||||||||||||||||||||||
— | — | 5,000 | 51,600 | (1) | — | — | ||||||||||||||||||||||
— | — | 3,333 | 34,397 | (1) | — | — | ||||||||||||||||||||||
— | — | 12,600 | 130,032 | (1) | — | — | ||||||||||||||||||||||
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 | 3/2/2001 | — | — | — | — | ||||||||||||||||||||||
100,000 | 13.88 | 5/30/2010 | — | — | — | — | ||||||||||||||||||||||
10,000 | 17.81 | 5/3/2010 | — | — | — | — | ||||||||||||||||||||||
50,000 | 23.00 | 10/20/2009 | — | — | — | — | ||||||||||||||||||||||
100,000 | 7.31 | 3/12/2009 | — | — | — | — | ||||||||||||||||||||||
10,000 | 6.00 | 8/26/2008 | — | — | — | — | ||||||||||||||||||||||
Thomas N. Tipton Jr. | — | — | 3,000 | 30,960 | (1) | — | — | |||||||||||||||||||||
— | — | — | — | 6,000 | 61,920 | (1) (2) | ||||||||||||||||||||||
— | — | 9,000 | 92,880 | (1) | — | — | ||||||||||||||||||||||
— | — | 7,000 | 72,240 | (1) | — | — | ||||||||||||||||||||||
— | — | 1,610 | 16,615 | (1) | — | — | ||||||||||||||||||||||
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 | — | — | 2,500 | 25,800 | (1) | — | — | |||||||||||||||||||||
— | — | — | — | 5,000 | 51,600 | (1) (2) | ||||||||||||||||||||||
— | — | 8,750 | 90,300 | (1) | — | — | ||||||||||||||||||||||
50,000 | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||
50,000 | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||
91,540 | 5.05 | 2/15/2012 | — | — | — | — | ||||||||||||||||||||||
Prasad R. Kallur (3) | — | — | 3,000 | 30,960 | (1) | — | — | |||||||||||||||||||||
— | — | — | — | 6,000 | 61,920 | (1) (2) | ||||||||||||||||||||||
12,600 | 130,032 | (1) | — | — | ||||||||||||||||||||||||
James W. Gragg | — | — | 2,000 | 20,640 | (1) | — | — | |||||||||||||||||||||
— | — | — | — | 4,000 | 41,280 | (1) (2) | ||||||||||||||||||||||
— | — | 3,500 | 36,120 | (1) | — | — | ||||||||||||||||||||||
Deborah A. Shute | — | — | 2,000 | 20,640 | (1) | — | — | |||||||||||||||||||||
— | — | 4,000 | 41,280 | (1) (2) | ||||||||||||||||||||||||
— | — | 3,500 | 36,120 | (1) | — | — | ||||||||||||||||||||||
Felix V. Diaz (4) | — | — | — | — | — | — |
22
(1) | Restricted stock awards were valued at the fair market value of the Company common stock price on December 31, 2007 ($10.32). | |
(2) | This grant was conditional based on performance criteria in 2007; if the criteria was achieved there would be a resulting four year vesting period. The performance criteria was not achieved and therefore the grant was cancelled in February 2008. | |
(3) | Mr. Kallur’s employment with the Company ended, effective March 27, 2008. | |
(4) | Mr. Diaz retired from the Company, effective September 28, 2007. |
Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Value Realized | Number of Shares | Value Realized | |||||||||||||
Acquired on Exercise | on Exercise | Acquired on Vesting | on Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||
Gregory B. Kalush | 46,200 | 188,305 | 15,267 | 150,527 | ||||||||||||
Thomas N. Tipton Jr. | — | — | 3,460 | 34,676 | ||||||||||||
Randall E. McComas | — | — | 2,500 | 23,350 | ||||||||||||
Prasad R. Kallur (1) | — | — | 3,600 | 33,084 | ||||||||||||
James W. Gragg | — | — | 1,000 | 9,340 | ||||||||||||
Deborah A. Shute | — | — | 1,000 | 9,340 | ||||||||||||
Felix V. Diaz (2) | 162,000 | 733,462 | 2,500 | 23,350 |
(1) | Mr. Kallur’s employment with the Company ended, effective March 27, 2008. | |
(2) | Mr. Diaz retired from the Company, effective September 28, 2007. |
23
• | Termination due to Non-Renewal of Employment Agreement or Termination Without Cause. 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 below under “Termination by the Executive (Resignation)”. If the Company elects not to renew Mr. Kalush’s employment agreement, or terminates Mr. Kalush without cause, then Mr. Kalush will be entitled exclusively to the following severance arrangements: |
1. | Severance Payments. Mr. Kalush will be paid severance in the amount of three (3) years’ base salary, payable in semi-monthly 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. | ||
2. | Incentive Stock Option Conversion to Non-Qualified Stock Options with Extended Exercise Period. If Mr. Kalush has any vested but non-exercised and non-expired Incentive Stock Options at that time (specifically excluding any non-qualified stock options or stock options granted to Mr. Kalush as a director), then the Company will grant a fully-vested non-qualified stock option to Mr. Kalush for the same number of vested shares not exercised and at the same exercise price, with a three-year exercise period beginning on that date. | ||
3. | Non-Qualified Stock Options Provided with an Extended Exercise Period. The exercise period of all non-qualified stock options which have been granted to Mr. Kalush (specifically excluding Mr. Kalush’s incentive stock options and stock options he may have received as a director), which are vested on the date of his termination will be extended three (3) years beginning on the date of Mr. Kalush’s termination. |
• | Termination by the Executive (Resignation):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 for a period of ten years from the grant date of such options in a manner consistent with other directors. |
• | Termination due to Death or Disability.In the event Mr. Kalush’s employment is terminated due to death or disability, Mr. Kalush will be entitled to the following: |
1. | Severance Payments. Mr. Kalush will be paid severance payments in the amount of two (2) years’ base salary, payable in semi-monthly installments at the current base salary rate at the time of Mr. Kalush’s death or disability. |
24
2. | Bonus Payment. Mr. Kalush will receive payment of two (2) years’ of his annual bonus. 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 his employment terminates due to death or disability. | ||
3. | Extended Exercise Period for Non-Qualified Stock Options and Conversion of Incentive Stock Options to Non-Qualified Stock Options. |
• | The exercise period of all non-qualified stock options which have been granted to Mr. Kalush (specifically excluding Mr. Kalush’s incentive stock options and stock options he may have received as a director), which are vested on the date of his death or disability will be extended three (3) years beginning on the date of Mr. Kalush’s death or disability. | ||
• | After Mr. Kalush’s death or disability, and termination of employment due to death or disability, if any of his incentive stock options (specifically excluding any non-qualified stock options or stock options granted to Mr. Kalush as a director), which are vested are not exercised prior to their termination, then the Company will grant a fully vested non-qualified stock option to Mr. Kalush or his estate for the same number of shares not exercised at the same exercise prices, with a three-year exercise period beginning on the date of Mr. Kalush’s death or disability. |
• | Outplacement Services. Mr. Kalush will be entitled to reimbursement for outplacement consulting fees and expenses up to a maximum of 15% of his then current salary. | ||
• | Gross Up Payment. 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 of 1986, as amended 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 agreement. |
• | Acquisition of Shares by One Investor. If during the term of Mr. Kalush’s agreement one investor accumulates 20% or more of the outstanding common stock of the Company (referred to as an “Acquisition”), then in lieu of any other severance program provided for in Mr. Kalush’s agreement and summarized above, Mr. Kalush will receive immediately following the Acquisition the following: |
25
• | An immediate payment equal to two (2) years’ of his annual bonus. The bonus amount will be the greater of the prior fiscal years’ bonus payment or 100% of Mr. Kalush’s bonus target for the year in which the Acquisition occurs; | ||
• | Upon the date of the Acquisition, the exercise period of Mr. Kalush’s non-qualified Stock Options that are vested at that time (specifically excluding Mr. Kalush’s incentive stock options and stock options he may have received as a director) will be extended for three (3) years, beginning on the date of Mr. Kalush’s termination; and | ||
• | If any of Mr. Kalush’s incentive stock options, including the options that fall within the definition of Mr. Kalush’s incentive stock options, which are vested are not exercised prior to their termination, then the Company will grant a fully-vested non-qualified stock option to Mr. Kalush for the same number of vested shares not exercised and at the same exercise price, with a three-year exercise period beginning on the date of Acquisition. | ||
• | If at any time during the term of one of Mr. Kalush’s Restricted Stock Agreements an Acquisition occurs, 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 fully vested. |
• | Tender or Exchange Offer. |
• | If any person or entity makes a tender offer or exchange offer for the common stock of the Company whereby such person or entity would own more than 20% of the outstanding Common Stock of the Company (referred to as the “Tender Offer”), then immediately upon making the Tender Offer, all of Mr. Kalush’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested. | ||
• | The unvested shares that are accelerated and released are referred to as “Accelerated Shares”. Any Accelerated Shares are subject to the following restrictions: |
1. | the Accelerated Shares shall be tendered to the tender offeror pursuant to the Tender Offer; | ||
2. | if the Tender Offer is not completed, then Mr. Kalush will transfer the Accelerated Shares back to the Company, the acceleration of the Accelerated Shares will be rescinded, Mr. Kalush will be placed in the same position with respect to the Accelerated Shares as he would have been had the Tender Offer never been made and the acceleration had never occurred; and | ||
3. | any assignee or transferee of the Accelerated Shares by will or by law of descent and distribution or otherwise will be subject to the restrictions described in the agreement. |
• | Termination Without Cause or Non-renewal.In the event the Company elects not to renew Mr. Tipton’s agreement, or if Mr. Tipton is terminated without cause, he shall receive an amount equal to six (6) months severance pay based on his base salary at the time of termination, payable in bi-monthly or bi-weekly installments, subject to reduction by any compensation Mr. Tipton receives from other employment during the severance period. |
26
• | Change in Control. If at any time during the term of the Restricted Stock Agreement, 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 fully vested. |
• | Termination Without Cause or Non-renewal. In the event the Company does not renew his agreement, or if Mr. McComas is terminated without cause, he shall receive: (i) the balance of base-salary due under his agreement for the balance of its term on the regular pay dates of the Company; and (ii) severance pay for a period of up to nine (9) months base-salary compensation. Any post-employment payments received by Mr. McComas would be subject to reduction by the amount of any compensation Mr. McComas receives from other employment during the severance period. |
• | Change in Control.If at any time during the term of the Restricted Stock Agreements (i) one investor accumulates 20% or more of the outstanding Common Stock of the Company and, if, within 12 months thereafter, Mr. McComas’ employment with the Company is terminated either by the Company for reasons other than Cause or by Mr. McComas for Good Reason, or (ii) one investor other than a reporting company under the Exchange Act accumulates 50% or more of the outstanding Common Stock, then effective as of the date of such accumulation by that investor, all of Mr. McComas’ unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested. |
• | Termination Without Cause or Non-renewal.In the event the Company elects not to renew a term of his agreement, or if Mr. DeVinney is terminated without cause after the expiration of the initial term, he shall receive an amount equal to six (6) months’ severance pay based on his base salary at the time of termination, payable in bi-monthly or bi-weekly installments, subject to reduction by any compensation Mr. DeVinney receives from other employment during the severance period. |
• | Change in Control. If at any time during the term of the Restricted Stock Agreements (i) one investor accumulates 20% or more of the outstanding Common Stock of the Company and, if, within 12 months thereafter, Mr. DeVinney’s employment with the Company is terminated either by the Company for reasons other than Cause or by Mr. DeVinney for Good Reason, or (ii) one investor other than a reporting company under the Exchange Act accumulates 50% or more of the outstanding Common Stock, then effective as of the date of such accumulation by |
27
that investor, all of Mr. DeVinney’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested. |
• | Termination Upon Death.In the event of termination due to death, Ms. Shute is entitled to earned, but unpaid salary, pro-rata bonus, and vested stock options. | ||
• | Termination Upon Disability.Ms. Shute’s employment may be terminated in the event of her disability. In the event of termination due to disability, Ms. Shute is entitled to earned, but unpaid salary, pro-rata bonus, and vested stock options. |
• | Termination by Executive (Resignation).Ms. Shute may resign her employment at any time upon thirty (30) days written notice to the Chief Executive Officer. Upon resignation by Ms. Shute, she will be entitled to her earned, but unpaid salary and vested stock options. | ||
• | Termination due to Willful Neglect.The Company may terminate Ms. Shute immediately for Willful Neglect of her duties and responsibilities; provided that before a termination occurs, the Board of Directors have given her written notice and thirty (30) days to cure a violation or failure that is considered “Willful Neglect” in her employment agreement. If terminated for Willful Neglect, Ms. Shute will be entitled to her earned, but unpaid salary and vested stock options. | ||
• | Termination for Other than Willful Neglect.The Company may terminate Ms. Shute for any reason or no reason upon thirty (30) days written notice to her. In the event the Company terminates Ms. Shute’s employment for any reason other than Willful Neglect, Ms. Shute will be eligible for six (6) months’ of severance pay at her base salary, payable in bi-weekly installments, provided she executes a general release of claims against the Company. To the extent possible, Ms. Shute will be required to mitigate the amount of any severance payment by seeking other employment. If terminated for any reason other than Willful Neglect, Ms. Shute will also be eligible for pro-rated bonus, vested stock options, and accrued vacation. |
• | Change in Control. If at any time during the term of the Restricted Stock Agreements (i) one investor accumulates 20% or more of the outstanding Common Stock and, if, within 12 months thereafter, Ms. Shute’s employment with the Company is terminated either by the Company for reasons other than Cause or by Ms. Shute for Good Reason, or (ii) one investor other than a reporting company under the Exchange Act accumulates 50% or more of the outstanding Common Stock, then effective as of the date of such accumulation by that investor, all of Ms. Shute’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested. |
• | Termination Without Cause or Non-renewal.In the event the Company elects not to renew a term of his agreement by providing him with thirty (30) days written notice, or if Mr. Gragg is terminated without cause after the expiration of the initial term, he shall receive an amount equal |
28
to six (6) months’ severance pay based on his base salary at the time of termination, payable in bi-monthly or bi-weekly installments, subject to reduction by any compensation Mr. Gragg receives from other employment during the severance period. |
• | Change in Control. If at any time during the term of the Restricted Stock Agreements (i) one investor accumulates 20% or more of the outstanding Common Stock and, if, within 12 months thereafter, Mr. Gragg’s employment with the Company is terminated either by the Company for reasons other than Cause or by Mr. Gragg for Good Reason, or (ii) one investor other than a reporting company under the Exchange Act accumulates 50% or more of the outstanding Common Stock, then effective as of the date of such accumulation by that investor, all of Mr. Gragg’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested. |
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Termination | ||||||||||||||||||||
Without Cause | Termination | Death or | Change in | |||||||||||||||||
Name | Benefit | or for Non-Renewal ($) | for Cause ($) | Disability ($) | Control ($) | |||||||||||||||
Gregory B. Kalush (1) | Salary | 825,000 | — | 550,000 | 550,000 | |||||||||||||||
Chairman of the Board, Chief | Bonus | — | — | 409,200 | 409,200 | |||||||||||||||
Executive Officer and President | Outplacement services | 41,250 | 41,250 | — | — | |||||||||||||||
Stock Vest Acceleration | — | — | — | 370,829 | ||||||||||||||||
Total Value | 866,250 | 41,250 | 959,200 | 1,330,029 | ||||||||||||||||
Thomas N. Tipton Jr. | Salary | 75,000 | — | — | — | |||||||||||||||
Chief Financial Officer, Treasurer | Stock Vest Acceleration | — | — | — | 274,615 | |||||||||||||||
and Vice President of Finance | Total Value | 75,000 | — | — | 274,615 | |||||||||||||||
Randall E. McComas (2) | Salary | 168,750 | — | — | — | |||||||||||||||
Vice President of Global Sales and | Stock Vest Acceleration | — | — | — | 167,700 | |||||||||||||||
Customer Support | Total Value | 168,750 | — | — | 167,700 | |||||||||||||||
James W. Gragg | Salary | 75,000 | — | — | — | |||||||||||||||
Vice President of Operations and | Bonus | — | — | — | — | |||||||||||||||
Fulfillment | Stock Vest Acceleration | — | — | — | 98,040 | |||||||||||||||
Total Value | 75,000 | — | — | 98,040 | ||||||||||||||||
Deborah A. Shute | Salary | 75,000 | — | — | — | |||||||||||||||
Vice President of Human Resources | Bonus | — | — | — | — | |||||||||||||||
and Administration | Stock Vest Acceleration | — | — | — | 98,040 | |||||||||||||||
Total Value | 75,000 | — | — | 98,040 |
(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 of 1986, as amended 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. | |
(2) | The table above reflects nine months salary for Mr. McComas. His agreement permits up to nine months of his salary be paid in severance. |
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Number of Securities | Value of Unexercised | |||||||||||||||||||||||||
Underlying Unexercised | In-The-Money | |||||||||||||||||||||||||
Shares | Options/SARs | Options/SARs | ||||||||||||||||||||||||
Acquired | Value | at fiscal Year End | at fiscal Year End | |||||||||||||||||||||||
On Exercise | Realized | Exercisable/Unexercisable | Exercisable/Unexercisable | |||||||||||||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||||||||||||
Gregory B. Kalush | — | $ | — | 462,501 | / | 104,999 | $ | 485,212 | / | $ | 142,963 | |||||||||||||||
Steven P. Kovac | — | $ | — | 206,667 | / | 43,333 | $ | 104,994 | / | $ | 69,046 | |||||||||||||||
Felix V. Diaz | — | $ | — | 210,000 | / | 60,000 | $ | 365,785 | / | $ | 85,780 | |||||||||||||||
Randall E. McComas | 8,460 | $ | 47,741 | 74,874 | / | 116,666 | $ | 236,246 | / | $ | 194,998 | |||||||||||||||
Deborah A. Shute | — | $ | — | 111,667 | / | 33,333 | $ | 87,451 | / | $ | 54,749 | |||||||||||||||
James W. Gragg | — | $ | — | 40,000 | / | 35,000 | $ | 64,290 | / | $ | 37,000 |
17
Stock Performance Graph
The following chart compares the cumulative total shareholder return on Common Stock during the years ended December 31, 2004, 2003, 2002, 2001 and 2000 with the cumulative total return on the NASDAQ market index and a peer group index. The peer group consists of companies in the same four-digit SIC code (3577). The Company relied upon information provided by another firm with respect to the peer group stock performance. The Company did not attempt to validate the information supplied to it other than review it for reasonableness. The comparison assumes $100 was invested on December 31, 1999 in the Common Stock and in each of the foregoing indices and assumes reinvestment of dividends.
Cumulative Return | ||||||||||||||||||||||||
12/99 | 12/00 | 12/01 | 12/02 | 12/03 | 12/04 | |||||||||||||||||||
Interphase Corporation | 100 | 42 | 26 | 17 | 61 | 40 | ||||||||||||||||||
Peer Group (SIC Code 3577) | 100 | 69 | 49 | 39 | 55 | 52 | ||||||||||||||||||
NASDAQ | 100 | 60 | 45 | 26 | 39 | 41 |
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CERTAIN RELATED TRANSACTIONS
David H. Segrest served as the Assistant Secretary and a director of
Regulation S-K.
2007.
31
In September 2004, the Audit Committee of the Board of Directors authorized (1) the engagement of Grant Thornton as the independent auditors for the Company for the calendar year 2004 and (2) the dismissal of Interphase’s existing independent auditors, PricewaterhouseCoopers LLP (“PwC”).
During the two fiscal years ended December 31, 2003, and the subsequent interim period through September 7, 2004, the date of the dismissal of PwC, (1) there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of PwC, would have caused PwC to make reference in connection with its report to the subject matter of the disagreement and (2) PwC has not advised the Company of any reportable events as defined in paragraphs (A) through (D) of Regulation S-K Item 304 (a)(1)(v).
The accountant’s report of PwC on the consolidated financial statements of the Company and its subsidiaries as of and for the years ended December 31, 2003 and 2002 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.
19
During the two fiscal years ended December 31, 2003, and the subsequent interim period through September 7, 2004, Grant Thornton has not been consulted by the Company, or by anyone on the Company’s behalf, regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of the Company.
Audit Fees
2007 | 2006 | |||||||||||
Audit Fees | $ | 121,420 | $ | 174,004 | $ | 144,375 | ||||||
Audit-Related Fees | 1,200 | 2,500 | — | |||||||||
Tax Fees | — | 76,934 | 19,873 | |||||||||
All Other Fees | — | — | — | |||||||||
Total | $ | 122,620 | $ | 253,438 | $ | 164,248 |
Audit Fees | $ | 40,350 | ||
Audit-Related Fees | 1,450 | |||
Tax Fees | — | |||
All Other Fees | 7,500 | |||
Total | $ | 49,300 |
The PwC Audit Fees for the year ended December 31, 2004 were for professional services rendered for quarterly reviews.
The PwC Audit-Related Fees for the year ended December 31, 2004 were for consultations regarding internal control reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
The PwC All Other Fees for the year ended December 31, 2004 were for the filing of the Form 8-K relating to the change in auditors and the successor auditor workpaper review.
20
During 2003, the Company retainedpaid its principalformer auditor, PricewaterhouseCoopers LLP (“PwC”), to provide services in the following categories and amounts:
2006 | ||||||||
Audit Fees | $ | 128,000 | $ | 7,000 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | — | — | ||||||
Total | $ | 128,000 | $ | 7,000 |
The Audit fees
32
21
By Order of the Board of Directors
S. THOMAS THAWLEYVice Chairman and Secretary
Plano, TexasMarch 31, 2005
22
+
By Order of the Board of Directors S. THOMAS THAWLEY Vice Chairman and Secretary | ||||
33
2.1 | Perform activities within the scope of its charter. | |
2.2 | Engage independent counsel and other advisers as it deems necessary to carry out its duties. | |
2.3 | Ensure the attendance of company officers at meetings as appropriate. | |
2.4 | Have unrestricted access to members of management, employees, third parties and relevant information. | |
2.5 | Establish procedures for dealing with concerns of employees regarding accounting, internal control or auditing matters. | |
2.6 | Establish procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters. | |
2.7 | Be directly responsible for the appointment, compensation, retention, and oversight of the work of, the external auditor. | |
2.8 | Approve all audit engagement fees and terms as well as reviewing policies for the provision of non-audit services by the external auditors and the framework for pre-approval of such services. | |
2.9 | Approve the public release of quarterly and annual financial results. | |
2.10 | Approve all “related-party” transactions. |
A-1
3.1 | The board of directors will select the audit committee members and the chairman of the audit committee. | |
3.2 | The audit committee will comprise at least three members and all members shall be independent non-executive directors of the company. | |
3.3 | A quorum of any meeting will be two thirds of the members. | |
3.4 | Each member shall have skills and experience appropriate to the company’s business. | |
3.5 | Each member shall be financially literate; at least one member shall be designated as a financial expert. | |
3.6 | Members will be appointed for a one year term of office. | |
3.7 | The chairman of the audit committee will function as its secretary. |
3.8 | Only committee members are entitled to attend meetings. The audit committee may invite such other persons (e.g., the chief executive officer, chief financial officer, corporate controller, external audit engagement partner) to its meetings, as it deems necessary. | |
3.9 | The external auditors should be invited to make presentations to the audit committee as appropriate. | |
3.10 | Meetings shall be held not less than five times a year, including once each quarter to review financial results. | |
3.11 | Special meetings may be convened as required. The chairman will convene a meeting if requested by the external auditors. | |
3.12 | The chairman shall circulate the agenda and supporting documentation to the audit committee members a reasonable period in advance of each meeting. The chairman shall also create an | |
3.13 | The chairman of the committee shall circulate the minutes of meetings to members of the board and members of the committee. | |
3.14 | Members of the audit committee should attend every meeting of the committee. | |
3.15 | The committee will meet with outside legal counsel at least annually without management present. | |
3.16 | The committee will meet with the external auditors at least quarterly without management present. | |
3.17 | The committee will meet individually and privately with the chief executive officer, chief financial officer and corporate controller at least annually. |
A-2
4.1 | Evaluate whether management is setting the appropriate ‘control culture’ by communicating the importance of internal control and management of risk. | |
4.2 | Understand the internal control systems implemented by management for the approval of transactions and the recording and processing of financial data. | |
4.3 | Understand the controls and processes implemented by management to ensure that the financial statements derived from the underlying financial systems, comply with relevant standards and requirements, and are subject to appropriate management review. | |
4.4 | Evaluate the overall effectiveness of the internal control and risk management frameworks and consider whether recommendations made by the external auditors have been implemented by management. | |
4.5 | Consider how management is held to account for the security of computer systems and applications, and the contingency plans for processing financial information in the event of a systems breakdown or to protect against computer fraud or misuse. | |
4.6 | Inquire of management and the independent auditors about significant risks or exposures facing the company; assess the steps management has taken or proposes to take to minimize such risks to the company; and periodically review compliance with such steps. | |
4.7 | Review with management the company’s anti-fraud program, as well as the annual fraud risk assessment, including the mitigating controls management has put in place to minimize such risks to the company. | |
4.8 | Review with management the policies and procedures with respect to officers’ expense accounts and perquisites, including their use of corporate assets, and consider the results of any review of these areas by the independent auditors. Review a comparison of actual compensation to compensation approved by the compensation committee, including stock based compensation. | |
4.9 | Review the company’s code of conduct at least annually to ensure that it is adequate and up-to-date. | |
4.10 | Review the procedures for the receipt, retention, and treatment of complaints received by the company regarding accounting, internal accounting controls, or auditing matters that may be submitted by any party internal or external to the organization at least annually. Additionally, at each meeting, review any complaints that might have been received, current status, and resolution if |
4.11 | Gain an understanding of the current areas of greatest financial risk and how these are being managed. | |
4.12 | Review with management and the independent auditor significant accounting and reporting issues, including the effect of any regulatory and accounting initiatives, as well as off-balance-sheet structures, if any, and understand their impact on financial reports. | |
4.13 | Oversee the periodic financial reporting process implemented by management and review the interim financial statements, annual financial statements and preliminary announcements |
A-3
prior to their release. | ||
4.14 | Review management’s process for ensuring that information contained in analyst briefings and press announcements is consistent with published financial information, balanced and transparent (particulary regarding GAAP vs non-GAAP data). | |
4.15 | Inquire of the chief executive officer and chief financial officer regarding the “quality of earnings” of the company from a subjective as well as an objective standpoint. | |
4.16 | Meet with management and the external auditors to review the financial statements, the key accounting policies and judgements, and the results of the audit. | |
4.17 | Ensure that significant adjustments, unadjusted differences, disagreements with management and critical accounting policies and practices are discussed with the external auditor. | |
4.18 | Review the other sections of the annual report before its release and consider whether the information is understandable and consistent with members’ knowledge about the company and its operations and lacks bias. |
4.19 | Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any fraudulent acts or noncompliance. | |
4.20 | Obtain regular updates from management and company’s legal counsel regarding compliance matters that may have a material impact on the company’s financial statements or compliance policies. | |
4.21 | Be satisfied that all regulatory compliance matters, related to the business of the company, have been considered in the preparation of the financial statements. | |
4.22 | Review the findings of any examinations by regulatory agencies. |
4.23 | Review the professional qualification of the auditors (including background and experience of partner and auditing personnel). | |
4.24 | Consider the independence of the external auditor and any potential conflicts of interest. | |
4.25 | Review on an annual basis the performance of the external auditors and make recommendations to the board for the appointment, reappointment or termination of the appointment of the external auditors. | |
4.26 | Review the external auditors’ proposed audit scope and approach for the current year in the light of the company’s present circumstances and changes in regulatory and other requirements. | |
4.27 | Discuss with the external auditor any audit problems encountered in the normal course of audit work, including any restriction on audit scope or access to information. | |
4.28 | Ensure that significant findings and recommendations made by the external auditors and management’s proposed response are received, discussed and appropriately acted on. | |
4.29 | Discuss with the external auditor the appropriateness of the accounting policies applied in the |
A-4
company’s financial reports and whether they are considered as aggressive, balanced or conservative. | ||
4.30 | Meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately. Ensure the auditors have access to the chairman of the audit committee when required. | |
4.31 | Review policies for the provision of non-audit services by the external auditor and the framework for pre-approval of non-audit services. | |
4.32 | Consider, with management, the rationale for employing audit firms other than the principal independent auditors. | |
4.33 | Ensure the company has appropriate policies regarding the hiring of audit firm personnel for senior positions after they have left the audit firm. | |
4.34 | Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. |
4.35 | Regularly update the board about committee activities and make appropriate recommendations. | |
4.36 | Ensure the board is aware of matters that may significantly impact the financial condition or affairs of the business. | |
4.37 | Oversee the preparation of an annual report of the committee as required by the rules of the SEC and the annual affirmation required by the appropriate listing exchange, if necessary. Include in the annual proxy statement for the company a report of the committee in accordance with the proxy rules promulgated by the SEC. |
4.38 | Evaluate the committee’s own performance, both of individual members and collectively, on a regular basis. | |
4.39 | Assess the achievement of the duties specified in the charter and report the findings to the board. |
4.40 | Review the audit committee charter annually, reassess the adequacy of the charter considering changes that are necessary as a result of new laws or regulations and recommend any proposed changes to | |
4.41 | Ensure that the charter is approved or |
Annual Meeting Proxy Card
AElection of Directors
The committee will perform such other functions as assigned by law, the company’s charter or bylaws, or the board of directors. |
A-5
Using ablack ink pen, mark your votes with anX as shown in this example. Please do not write outside the designated areas. | x |
Annual Meeting Proxy Card | |||
AProposals — The Board of Directors recommends a voteFOR the listed |
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 matters 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 — |
Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||||||||||
/ / |
BProposal
CAuthorized Signatures — Sign Here — This section must be completed for your instructions to be executed.
Please date the proxy and sign your name exactly as it appears hereon. Where there is more than one owner, each should sign. When signing as an attorney, administrator, executor, guardian or trustee, please add your title as such. If executed by a corporation, the proxy should be signed by a duly authorized officer. Please date and sign the proxy and return it promptly whether or not you expect to attend the meeting. You may nevertheless vote in person if you do attend.
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1 U P X