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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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oPreliminary Proxy Statement
ooConfidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)14a-6(e)(2))
þþDefinitive Proxy Statement
ooDefinitive Additional Materials
ooSoliciting 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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oCheck 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.

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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.


(INTERPHASE LOGO)

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 4, 2005

  
 

To the Holders of Common Stock of
Interphase 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 Secretary

Plano, Texas
March 31, 2005


TABLE OF CONTENTS

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 7, 2008
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 7, 2008
PERSONS MAKING THE SOLICITATION
OUTSTANDING CAPITAL STOCK AND RECORD DATE
ACTION TO BE TAKEN AT THE MEETING
QUORUM AND VOTING
PRINCIPAL SHAREHOLDERS
ELECTION OF DIRECTORS
AUDIT COMMITTEE
NOMINATING AND GOVERNANCE COMMITTEE
EXECUTIVE OFFICERS
DEPARTURE OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
CERTAIN RELATED TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
SHAREHOLDERS’ PROPOSALS
SHAREHOLDER COMMUNICATIONS
MISCELLANEOUS


(INTERPHASE LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 7, 2008
To the Holders of Common Stock of
Interphase Corporation:
NOTICE IS HEREBY GIVENthat the annual meeting of shareholders of Interphase Corporation, a Texas corporation (the “Company”), will be held on May 7, 2008 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.
By order of the Board of Directors
S. Thomas Thawley
Vice Chairman and Secretary
Plano, Texas
April 4, 2008


Interphase Corporation
Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093

PROXY STATEMENT

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS

To be Held May 4, 20057, 2008

          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 4, 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.

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 telegram 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 10, 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.

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 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 as such, 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 10, 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 of
Beneficial OwnerBeneficial OwnershipClass
Gregory 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, 124,874

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Gragg, 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.

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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 the 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, 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.

          Paul N. Hug, 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.

          Michael J. Myers, 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.

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          Kenneth V. Spenser, 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.

Christopher B. Strunk, 59, was elected a director in 2007. Prior to his retirement in 2004, Mr. Strunk served as Senior Vice President, North American Sales for Alcatel, a leading worldwide provider of communications infrastructure, 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.
          S.Thomas Thawley, 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.

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 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.

          The Board of Directors held 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.

          The Company encourages board members and nominees for director to attend the annual meeting of shareholders. All current board members attended the Company’s 20042007 annual meeting of shareholders.

Compensation of Directors

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Compensation of Directors

Cash Compensation

          The Company 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.
Each non-employee member of the 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.

AUDIT COMMITTEE

          The Audit Committee of the Board of Directors 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 wasis included as an exhibit to the Company’sthis proxy statement for the 2004 annual meeting.

(See Exhibit A).

Audit Committee Member Independence

          The Board of Directors has made the determination that all members of the Audit Committee are independent as defined in the applicable listing standards of the Nasdaq NationalNASDAQ Global Market.

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Financial Expert

          The Board of Directors 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 1988,1980, and as such, has participated in dealing with accounting, auditing, internal control, and risk management issues.

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Report of Audit Committee

March 31, 2005

24, 2008

To the Board of Directors of Interphase Corporation:

          We have reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2004.

2007.

          We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, 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, 2004.2007.
THE AUDIT COMMITTEE
Paul N. Hug, Chairman
Kenneth V. Spenser
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. Ledford,Myers, Mr. MyersSpenser and Mr. Spenser.Strunk. All members of the Committee meet the independence requirements of the Nasdaq NationalNASDAQ 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 Governance Committee and approved by the Board. The Nominating and Governance Committee shall recommend that the Board select the Director nominees for the next annual meeting of shareholders; develop and recommend to the Board corporate governance principles applicable to the Company; and oversee the evaluation of the Board and the Company by the Directors. The Company has adopted a

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Nominating and Governance Committee Charter, which is available on the Company’s website at www.interphase.com.

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 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, potential

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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.

          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 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

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b. as to the shareholder giving the notice:

 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.

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          Any shareholder suggested candidates must be submitted no later than December 2, 200515, 2008 to be considered for election at the 20062009 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 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 

          Gregory B. Kalushjoined 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 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

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Financial Officer, Vice President of Finance and Treasurer. Prior to joining Interphase, from 1997 to 1999 Mr. KovacTipton served as Chief Operating Officerin various positions in the Assurance and Chief Financial Officer for TPN Inc., a satellite television network. From 1989 to 1997 Mr. Kovac was the Regional Vice PresidentBusiness Advisory practice of Finance and Chief Financial Officer for AT&T Wireless Services, McCaw Cellular Communications and LIN Cellular Communications. From 1988 to 1989, Mr. Kovac was Vice President of Finance and Administration for BBL Industries, a manufacturer of paging terminals and voice messaging equipment.

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

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Arthur Anderson LLP.


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.

          Deborah A. Shutejoined the Company in FebruaryJanuary 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. Graggjoined 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 was Manager,held various technical leadership roles including Hardware Design Engineering Manager at Compaq Computer Corporation, a position he held since 1998. Prior to 1998,Vice President of Engineering for MSD Systems and also Test Engineering Manager for Mostek Corporation. Mr. Gragg ownedalso had his own engineering consulting company, Emtech, Inc., for over 10 years.
Marc E. DeVinneyjoined 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. Most recently Mr. DeVinney served as Director, Mobile Solutions Circuit Core from 2005 to 2006 and as Program Manager, CTO Product Engineering from 2001 to 2005.

EXECUTIVE COMPENSATION

ReportEmployment Agreement Summaries
          Each executive 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 current 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 Compensation Committeeemployment agreements and stock agreements. A summary of the
Board of Directors on 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

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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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Control Arrangements”.


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, Chairman
Paul N. Hug
Michael 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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In addition, in accordance with his employment agreement, Mr. Kalush is entitled to (i) an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with his “annualannual bonus target” beingtarget established by the Compensation Committee, and (ii) certain benefits available to officers of the Company generally.

     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.

          If the Company elects not to renew Mr. Kalush’s employment agreement or terminates Mr. Kalush without cause, then Mr. Kalush will be entitled to receive severance payments in the amount of three (3) years base salary and will be given an additional period of up to three (3) years to exercise his options. However, following a “change in control” (as defined below), heIf Mr. Kalush dies or the Company terminates Mr. Kalush’s employment agreement by reason of disability, then Mr. Kalush will be entitled to receive (i) severance compensation in the amount of two (2) years base salary, (ii) receive an immediate payment equal toof two (2) years of his annual bonus, under the Company’s Executive Bonus Plan and (iii) allan additional period of up to three (3) years to exercise his options. Mr. Kalush’s employment agreement permits the stock options (the “Executive Stock Options”) which have been grantedCompany to him shall be exercisable on the date of the “change in control”. A “change in control” under these arrangements occurs when one investor, including its affiliates, accumulates 20% or more of the outstanding Common Stock of the Company.

terminate Mr. Kalush without further compensation for overt misconduct.

Thomas N. Tipton Jr.The Board of Directors approved Mr. Kovac’sTipton’s current employment agreement, effective May 11, 1999,December 19, 2005, pursuant to which the Company employs Mr. KovacTipton as its Chief Financial Officer and Vice President of Finance, at a base salary of at least $175,000$150,000 per year.year, his current base salary is $185,000. 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 employment agreement, Mr. KovacTipton (i) received in May 1999 a non-qualified stock option for 64,180December 2005, 10,000 shares of Commonrestricted stock under the Company’s 2004 Long-Term Stock Incentive Plan, and an incentive stock option for 35,820 shares of Common Stock, all for a ten year term and with an exercise price of $8.375 per share, (ii) is entitled to an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with his “annualannual bonus target” being

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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.

          Mr. Kovac’sTipton’s employment agreement permits the Company to terminate Mr. KovacTipton without further compensation for willful neglect of his duties.cause, which includes death or disability. If the Company terminates Mr. KovacTipton without cause or for any reason other than willful neglect,non-renewal, Mr. KovacTipton will receive (i) ninesix (6) months severance pay at his base salary, and (ii) a pro rata payment of his bonus for the year in which he is terminated if and only if 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, all outstanding stock options granted to Mr. Kovac will become exercisable, subject to certain restrictions.

     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.

Randall E. McComas. The Board of Directors approved Mr. McComas’ current employment agreement, effective February 15, 2002, pursuant to which the Company employs Mr. McComas, as its Vice President of Global Sales and Marketing, at a base salary of at least $225,000 per year.year, his current base salary is $235,000. The employment agreement automatically renews for successive 12-month periods, unless either Mr. McComas or the Company gives written notice to the other party 30 days prior to the expiration of the then current term that the agreement will not be renewed.renewed or Mr. McComas is terminated for cause. In addition, in accordance with his employment agreement, Mr. McComas (i) 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 forwith a ten year term and with an exercise price of $5.05 per share, and (ii) is entitled to an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with his “annualannual bonus target” beingtarget established by the Compensation Committee, and (iii) is entitled to certain benefits available to officers of the Company generally.

Committee.

          Mr. McComas’ employment agreement permits the Company to terminate Mr. McComashim without further compensation for cause.“cause” as defined in the employment agreement, which includes death and disability. If the Company terminates Mr. McComas for any reason other thanwithout cause or nonrenewal,for non-renewal, Mr. McComas will receive no less than 6as severance pay up to nine (9) months and no greater than 9 months base-salarybase salary compensation. In the event of a “change in control” of the Company, as defined above, and if, within 12 months thereafter, Mr. McComas’ employment with the Company is terminated either by the Company, except for overt misconduct, or by Mr. McComas for Good Reason, as defined in the agreement, or one investor other than a reporting company under the Securities Exchange Act of 1934

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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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exercise price of $31.00 per share, and (ii) is entitled to an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with her “annualannual bonus target” beingtarget established by the Compensation Committee, and (iii) is entitled to certain benefits available to officers of the Company generally.

Committee.

          Ms. Shute’s employment agreement permits the Company to terminate Ms. Shute without further compensation for willful neglect of her duties.due to death or disability and entitles her to receive a pro-rated bonus. If the Company terminates Ms. Shute for any reasonreasons other than willful neglect, Ms. Shuteshe will receive (i) six (6) months severance pay at her base salary and (ii) a pro rata payment of her bonus for the year in which she is terminated if and only ifprovided she 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, Ms. Shute’s employment with the Company is terminated either by the Company except for overt misconduct or by Ms. Shute 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 Ms. Shute will become exercisable, subject to certain restrictions.

James W. Gragg.The Board of Directors approved Mr. Gragg’s current employment agreement, effective November 1, 2004, pursuant to which the Company employs Mr. Gragg, as its Vice President of Operations and Fulfillment, at a base salary of at least $150,000 per year.year, his current base salary is $175,000. The employment agreement automatically renews for successive 6-monthsix month periods, unless either Mr. Gragg or the Company gives written notice to the other party 30 days prior to the expiration of the then current term that the agreement will not be renewed.renewed or Mr. Gragg is terminated for cause. In addition, in accordance with his employment agreement, Mr. Gragg (i) 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 forwith a ten year term and with an exercise price of $7.20 per share, and (ii) is entitled to an annual bonus based upon the guidelines contained in the Company’s Executive Bonus Plan, with his “annualannual bonus target” beingtarget established by the Compensation Committee, and (iii) is entitled to certain benefits available to officers of the Company generally.

Committee.

          Mr. Gragg’s employment agreement permits the Company to terminate Mr. Gragg without further compensation for willful neglect of his duties.cause, which includes death and disability. If the Company terminates Mr. Gragg without cause or for any reason other than willful neglect,non-renewal, Mr. Gragg will receive (i) six (6) months severance pay at his base salary. In
Marc E. DeVinney.The Board of Directors approved Mr. DeVinney’s current employment agreement, effective August 31, 2007, pursuant to which the eventCompany employs Mr. DeVinney, at a base salary of a “change in control”at least $170,000 per year, his current base salary is $175,000. 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 employment agreement, Mr. DeVinney (i) received a grant of 10,000 shares of restricted stock and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
          Mr. DeVinney’s employment agreement permits the Company as defined above,to terminate Mr. DeVinney without further compensation for cause, which includes death and if, within 12disability. If the Company terminates Mr. DeVinney without cause or for non-renewal, Mr. DeVinney will receive six (6) months thereafter, Mr. Gragg’sseverance pay at his base salary.
DEPARTURE OF EXECUTIVE OFFICERS
     Effective March 27, 2008, Prasad R. Kallur’s employment with the Company is terminated either byas Vice President of Strategic Marketing ended. Despite Mr. Kallur’s departure from the Company, excepthe will be included in several tables and sections within this proxy statement as he was a named executive officer for overt misconduct or2007 in accordance with Securities and Exchange Commission (“SEC”) rules. Pursuant to his employment agreement, Mr. Kallur will receive compensation for a thirty (30) day notice period required to terminate his employment, as well as, compensation for the remainder of his successor term, which is approximately twenty-five (25) days. In addition, Mr. Kallur will receive six (6) month severance pay at his then-current base salary of $184,000 per year.
     Felix V. Diaz retired from the Company as Vice President of Engineering and Chief Technology Officer, effective September 28, 2007. Despite Mr. Diaz’s departure from the Company, he will be

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included in several tables and sections within this proxy statement as he was a named executive officer for 2007 in accordance with SEC rules.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Interphase’s Business Environment —Interphase Corporation is a leading provider of robust building blocks, highly integrated subsystems and innovative gateway appliances for the converged communications network. Building on a 30-year history of providing advanced I/O solutions for telecom and enterprise applications, and addressing the need for high speed connectivity, Interphase has established a key leadership role in delivering next generation AdvancedTCA® and AdvancedMC solutions to the marketplace.
Objectives and Philosophy of Our Compensation Programs
          Our executive compensation program is driven by Mr. Graggour 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
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 Good Reason,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 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 will measure the success of our programs by:

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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.
          All of our compensation and benefits for our executives described below have as defineda primary purpose the ability to attract, motivate, and retain highly talented individuals who will engage in the agreement,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. We also believe that compensation should not be based on the short-term performance of our stock, whether favorable or one investor other than a reporting company underunfavorable, as we expect the Securities Exchange Actprice of 1934 accumulates 50% or more ofour stock will, in the outstanding stock oflong-term, reflect our operating performance, and ultimately, the Company, then all outstanding stock options grantedmanagement by our executives. Beyond that, different elements are designed to Mr. Gragg will become exercisable, subject to certain restrictions.

engender different behaviors:
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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          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.
Pay Elements of Our Compensation Programs
          To promote the objectives of our compensation programs, our compensation programs consist of the following principal elements:
Pay ElementWhat the Pay Element RewardsPurpose 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 ElementWhat the Pay Element RewardsPurpose 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
          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 median 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. With the exception of Mr. Kalush who received a base salary adjustment in July 2007 and Ms. Shute who received a base salary adjustment in November 2004, executive base salaries had not been adjusted since 2000 except for promotion-related increases. During 2007, 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 21 companies (“comparison group”) was selected from publicly traded U.S. companies classified under the Global Industry Classification System (GICS) as Communications Equipment, Computer Storage and Peripherals and Electronic Manufacturing Services. The 21 companies included in the comparison group were Airspan Networks, Avici Systems, Communications Systems, Dataram, Ditech Networks, Endwave, Isco International, Lantronix, Network Engines, NMS Communications, Packeteer, PC TTEL, Performance Technologies, Proxim Wireless, RF Industries, Radisys, Relm Wireless, Socket Communications, Staktek Holdings, Telknonet and Verso Technologies. Based on this comparison group and the findings of the independent firm, there was an adjustment made to base salaries in the first quarter 2008 for our executives.
Annual Cash Incentives.Executive bonuses are intended to link executive compensation with the attainment of defined Company goals on an annual basis. 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 financial targets. Annual bonuses for our executives are reviewed and paid in February after the audit of the Company’s financial results is substantially completed. For 2007, executive bonuses were

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based upon the achievement of certain minimum revenue and net income targets. The revenue achievement accounts for 60% of the bonus calculation while the net income achievement accounts for 40%. A certain percentage achievement in the revenue portion will result in a specified percentage payout of the 60% 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 2007 bonus plan. For 2007, the Compensation Committee approved revenue and net income achievement targets at the 100% achievement levels were higher than the actual revenue and net income achieved in 2006.
       
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    
The revenue accelerators apply only to the achievement in excess of 100%, therefore a 101% revenue achievement equals a 102% revenue payout. The maximum bonus payout is capped at 200% 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 20%) of the bonus pool. As shown in the Summary Compensation Table, no executive bonuses were paid for 2007.
Long-Term Incentives.We had regularly granted stock options to our executives since 1998 under the shareholder approved Amended and Restated Stock Option Plan. Beginning in 2004, a new program was adopted under the 2004 Long-Term Stock Incentive Plan, which was also approved by shareholders, in response to emerging best practices in the competitive marketplace. This program, which in addition to incentive stock options and non-qualified stock options allows for grants of stock appreciation rights and phantom stock, restricted stock, and performance shares, replaced the traditional stock option program under the Amended and Restated Stock Option Plan.
          The Compensation Committee approves 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. Annual equity grants for our executives are reviewed in February after the audit of full year financial results is substantially completed. This is the Company’s principal long-term incentive to executives.
          The Compensation Committee recommends equity to be granted to an executive with respect to restricted stock or performance-based restricted stock based on the principal following elements including, but not limited to:
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.
          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 performed 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. We have not been granting stock options in recent years, but rather have been granting restricted stock and performance-based restricted stock. The Compensation Committee believes annual equity grants more closely align the long-term interests of executives with those of shareholders and assist in the retention of key executives.
Retirement Benefits, Welfare Benefits, and Additional Benefit 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 $1,600 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 million for deductibility under Section 162(m) of the Internal Revenue Code, except with respect to 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 Strategic Marketing, the Vice President of Human Resources and Administration, and the Vice President of Operations and Fulfillment. 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 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 the amount of total compensation paid to executives in similar positions at comparable companies as provided by an independent compensation firm.

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          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 also makes the sole determination of the compensation of the President and Chief Executive Officer.
Summary Compensation Table
          A summary compensation table has been provided below and includes individual compensation information on the Chief Executive Officer, Chief Financial Officer and our fivefour other most highly paid executive officers other thanat the chiefend of 2007, as well as one of our executive officer (collectively,officers who retired prior to December 31, 2007, whose total compensation for 2007 exceeded $100,000, whom we refer to in this proxy statement as the “Named Executive Officers”) during 2004.named executive officers.
                     
              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                        

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(1) The table doesAll stock awards were in the form of restricted stock awards. All restricted stock awards are valued at the fair market value on the date of grant. Unless otherwise stated, restricted stock awards vest over a four year period and do not include the costhave performance conditions tied to the Company of benefits furnished to certain officers, including premiums for life and health insurance which benefits are also provided to employees. None of the Named Executive Officers received other compensation in excess of the lesser of $50,000 or 10% of such officers’ salary and bonus compensation.award.
 
(2) “All Other Compensation”other compensation” consists of accrued matching and discretionary (as defined) payments by the Company pursuant to its 401(k) plan for all named executive officers and with respect to Mr. McComas,Kalush an additional amount of $7,200$1,622 for premium paid on a life insurance policy. The table does not include the cost to the 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 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 car allowance.grant date value of $5.40 per share. Mr. Kalush received an additional grant of performance based restricted stock in February 2006 of 10,000 shares at $5.40 where the performance criteria was achieved and therefore the restricted stock vested in February 2007.
(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

2007 Grants in Last Fiscal Year

of Plan-Based Awards

          The following table providessets forth information with respect to stock options/SARs grantedon grants of plan-based awards in 2007 to the Named Executive Officers duringnamed executive officers.
                             
      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.
Narrative to Summary Compensation Table and 2007 Grants of Plan-Based Awards
          See Compensation Discussion and Analysis as well as the year ended December 31, 2004. The potential realizable value reported below assumes compoundedEmployment Agreement Summaries for a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and 2007 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payment, including targets for payment of annual rates of return over the term of the options.
                         
  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 
incentives, as well as performance criteria on which such payments were based.

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Aggregated Option/SAR Exercises in Last Fiscal Year
    and Fiscal Year End Option/SAR ValuesOutstanding Equity Awards at Year-End

The following table discloses incentivesets forth information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to each award.
                             
  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)                      

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(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 Exercises and Stock Vesting
          The following table sets forth the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during the latest fiscal year.
                 
  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.
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 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 exercisesagreements and/or restricted stock agreements, and our other compensation programs. The descriptions set forth below are summaries of the terms of the respective

23


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 Named Executive Officersfollowing termination and severance arrangements:
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.

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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.
          If Mr. Kalush’s employment terminates for any reason other than overt misconduct, he would be entitled to the fiscal year endedfollowing:
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.
          If a tender offer or change in control occurs, Mr. Kalush is entitled to receive the following:
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:
A payment in the amount of two (2) years’ base salary at the current base salary amount;

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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.
Thomas N. Tipton, Jr.Mr. Tipton’s employment agreement provides for the following termination and severance arrangements:
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.

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     Certain of Mr. Tipton’s Restricted Stock Agreements provide for the following change in control arrangements:
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.
Randall E. McComas. Mr. McComas’ employment agreement provides for the following termination and severance arrangements:
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.
     Mr. McComas’ Restricted Stock Agreements provide for the following change in control arrangements:
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.
Marc E. DeVinney.Mr. DeVinney’s employment agreement provides for the following termination and severance arrangements:
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.
     Mr. DeVinney’s Restricted Stock Agreements provide for the following change in control arrangements:
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.
Deborah A. Shute.Ms. Shute’s employment agreement provides for the following termination and severance arrangements:
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.
     Ms. Shute’s Restricted Stock Agreements provide for the following change in control arrangements:
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.
James W. Gragg.Mr. Gragg’s employment agreement provides for the following termination and severance arrangements:
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

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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.
     Mr. Gragg’s Restricted Stock Agreements provide for the following change in control arrangements:
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.
     For each of these above named executive officers, if their employment with us terminates for any reason other than termination with cause then they 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 their individual 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).

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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 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, 2004. In addition,2007:
                     
      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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Report of the numberCompensation Committee
March 27, 2008
To the Board of Directors of Interphase Corporation:
We have reviewed and valuediscussed with management the Company’s Compensation Discussion and Analysis.
Based on this review and these discussions, we recommend to the Board of unexercised options/SARsDirectors that were outstanding at December 31, 2004 are summarizedthe Compensation Discussion and Analysis be included in the table. A distinction is made between options/SARs that were exercisable (vested) at December 31, 2004Interphase’s annual report on Form 10-K and those options/SARs that were not exercisable at December 31, 2004.proxy statement on Schedule 14A.
                           
        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 
THE COMPENSATION COMMITTEE

Michael J. Myers, Chairman
Paul N. Hug
Christopher B. Strunk
Compensation Committee Interlocks and Insider Participation

          During 2004,2007, the Compensation Committee was composed of Mr. Ledford,Myers, Mr. Hug and Mr. Myers.Strunk. None of the Company’s executive officers served during the year ended December 31, 20042007 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.

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 

(PERFORMANCE GRAPH)

18


CERTAIN RELATED TRANSACTIONS

     David H. Segrest served as the Assistant Secretary and a director of

          During 2007, the Company through May 4, 2004. Mr. Segrest didwas not sit for re-election in 2004. Mr. Segrest is also a partnerparty to any transactions that would require disclosure pursuant to Item 404 of Gardere Wynne Sewell LLP, the Company’s general counsel. Mr. Segrest and others at Gardere Wynne Sewell LLP provide legal services to the Company and are typically compensated at prevailing hourly rates. During 2004, the Company paid Gardere Wynne Sewell LLP approximately $104,000 for services provided.

Regulation S-K.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

          Section 16(a) of the Securities Exchange Act of 1934 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, 2004 except for Ms. Shute, Mr. McComas, Mr. Kovac, Mr. Diaz, Mr. Kalush and Mr. Gragg, each of whom made one late filing disclosing one transaction.

2007.

RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS

          Grant Thornton LLP (“Grant Thornton”) served as the independent auditors of the Company for the yearyears ended December 31, 2004.2007 and 2006. 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 August 2005May 2008 meeting, the Audit Committee of the Board of Directors will conduct its review of the independent auditors’ performance, independence, qualifications and quality controls and will make its formal decision as to the retention of the independent public auditors to audit the

31


Company’s financial statements for the year ending December 31, 2005,2008, which is expected to be Grant Thornton.

     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.

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     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

          During 2004,2007 and 2006, the Company retained its principal auditor, Grant Thornton, to provide services in the following categories and amounts:
        
 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 

          The Grant Thornton Audit Fees for the year ended December 31, 20042007 and 2006 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, 2007 were for the preparation of the Company’s 2006 tax returns and consultations regarding the Company’s sales and use tax practices. The Grant Thornton Tax Fees for the year ended December 31, 2006 were for the preparation of the Company’s 2005 tax returns.
          The Grant Thornton Audit-Related Fees for the year ended December 31, 20042007 were for consultations regarding internal control reporting requirements under Section 404 of the Sarbanes-Oxley Act of 2002.

During 2004, PwC provided services for2006, the Company from January 1, 2004 through September 7, 2004 in the following categories and amounts:
     
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.

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     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

          During 2006, PwC provided services for the year ended December 31, 2003 were for professional services rendered for the auditreissuance of the consolidated financial statements of the Company.2003 audit report.

SHAREHOLDERS’ PROPOSALS

          Any proposals that shareholders of the Company desire to have presented at the 20062009 annual meeting of shareholders must be received by the Company at its principal executive offices no later than December 2, 2005,15, 2008, 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 2009 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 16, 2009. If a shareholder fails to timely give the notice, then the persons named as proxies in the proxy cards solicited by the Company’s Board of Directors

32


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 of Directors, 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 be forwarded in accordance with the shareholder’s instructions. However, the secretarySecretary reserves the right to not forward to Board members any abusive, threatening or otherwise inappropriate materials.

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MISCELLANEOUS

          The Annual Report to Shareholders of the Company for 2004,2007, 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 20042007 Form 10-K has been included with these proxy materials. Exhibits to theForm 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 31, 2005

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 + 

(INTERPHASE LOGO)







By Order of the Board of Directors

S. THOMAS THAWLEY
Vice Chairman and Secretary

   
o Mark this box
Plano, Texas
April 4, 2008

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EXHIBIT A
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF
INTERPHASE CORPORATION
Effective December 10, 2007
CHARTER
1. Overall purpose and objectives
The audit committee is appointed by the board of directors to assist the board in discharging its oversight responsibilities. The audit committee will oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information. The audit committee will also review: the effectiveness of the company’s internal financial control and risk management system; the independent audit process including appointing and assessing the performance of the external auditor; the company’s process for monitoring compliance with laws and regulations affecting financial reporting; and its code of business conduct.
In performing its duties, the committee will maintain effective working relationships with the board of directors, management, and the external auditors. To perform his or her role effectively, each committee member will develop and maintain his or her skills and knowledge, including an understanding of the committee’s responsibilities and of the company’s business, operations and risks.
2. Authority
The board authorizes the audit committee, within the scope of its responsibilities, to:
2.1Perform activities within the scope of its charter.
2.2Engage independent counsel and other advisers as it deems necessary to carry out its duties.
2.3Ensure the attendance of company officers at meetings as appropriate.
2.4Have unrestricted access to members of management, employees, third parties and relevant information.
2.5Establish procedures for dealing with concerns of employees regarding accounting, internal control or auditing matters.
2.6Establish procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters.
2.7Be directly responsible for the appointment, compensation, retention, and oversight of the work of, the external auditor.
2.8Approve 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.
2.9Approve the public release of quarterly and annual financial results.
2.10Approve all “related-party” transactions.

A-1


3. Organization
Membership
3.1The board of directors will select the audit committee members and the chairman of the audit committee.
3.2The audit committee will comprise at least three members and all members shall be independent non-executive directors of the company.
3.3A quorum of any meeting will be two thirds of the members.
3.4Each member shall have skills and experience appropriate to the company’s business.
3.5Each member shall be financially literate; at least one member shall be designated as a financial expert.
3.6Members will be appointed for a one year term of office.
3.7The chairman of the audit committee will function as its secretary.
Meetings
3.8Only 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.
3.9The external auditors should be invited to make presentations to the audit committee as appropriate.
3.10Meetings shall be held not less than five times a year, including once each quarter to review financial results.
3.11Special meetings may be convened as required. The chairman will convene a meeting if requested by the external auditors.
3.12The 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 Xagenda for the ensuing year and circulate it to the committee during the fourth quarter so that a finalized topical agenda is published before the first day of the ensuing year.
3.13The chairman of the committee shall circulate the minutes of meetings to members of the board and members of the committee.
3.14Members of the audit committee should attend every meeting of the committee.
3.15The committee will meet with outside legal counsel at least annually without management present.
3.16The committee will meet with the external auditors at least quarterly without management present.
3.17The committee will meet individually and privately with the chief executive officer, chief financial officer and corporate controller at least annually.

A-2


4. Roles and responsibilities
The Audit Committee will:
Internal control
4.1Evaluate whether management is setting the appropriate ‘control culture’ by communicating the importance of internal control and management of risk.
4.2Understand the internal control systems implemented by management for the approval of transactions and the recording and processing of financial data.
4.3Understand 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.
4.4Evaluate 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.
4.5Consider 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.
4.6Inquire 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.
4.7Review 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.
4.8Review 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.
4.9Review the company’s code of conduct at least annually to ensure that it is adequate and up-to-date.
4.10Review 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 youone has been reached.
Financial reporting
4.11Gain an understanding of the current areas of greatest financial risk and how these are being managed.
4.12Review 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.
4.13Oversee 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.
4.14Review 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).
4.15Inquire 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.
4.16Meet with management and the external auditors to review the financial statements, the key accounting policies and judgements, and the results of the audit.
4.17Ensure that significant adjustments, unadjusted differences, disagreements with management and critical accounting policies and practices are discussed with the external auditor.
4.18Review 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.
Compliance with laws and regulations
4.19Review 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.
4.20Obtain 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.
4.21Be satisfied that all regulatory compliance matters, related to the business of the company, have been considered in the preparation of the financial statements.
4.22Review the findings of any examinations by regulatory agencies.
Working with auditors
External audit
4.23Review the professional qualification of the auditors (including background and experience of partner and auditing personnel).
4.24Consider the independence of the external auditor and any potential conflicts of interest.
4.25Review 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.
4.26Review 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.
4.27Discuss 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.
4.28Ensure that significant findings and recommendations made by the external auditors and management’s proposed response are received, discussed and appropriately acted on.
4.29Discuss with the external auditor the appropriateness of the accounting policies applied in the

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company’s financial reports and whether they are considered as aggressive, balanced or conservative.
4.30Meet 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.
4.31Review policies for the provision of non-audit services by the external auditor and the framework for pre-approval of non-audit services.
4.32Consider, with management, the rationale for employing audit firms other than the principal independent auditors.
4.33Ensure the company has appropriate policies regarding the hiring of audit firm personnel for senior positions after they have left the audit firm.
4.34Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
Reporting responsibilities
4.35Regularly update the board about committee activities and make appropriate recommendations.
4.36Ensure the board is aware of matters that may significantly impact the financial condition or affairs of the business.
4.37Oversee 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.
Evaluating performance
4.38Evaluate the committee’s own performance, both of individual members and collectively, on a regular basis.
4.39Assess the achievement of the duties specified in the charter and report the findings to the board.
Review of the committee charter
4.40Review 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 your namethe board of directors.
4.41Ensure that the charter is approved or address details above.reapproved by the board.

Other


Annual Meeting Proxy Card

AElection of Directors

1.  4.42The committee will perform such other functions as assigned by law, the company’s charter or bylaws, or the board of directors.

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(INTERPHASE LOGO) 









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
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
AProposals — The Board of Directors recommends a voteFOR the listed nominees.nominees andFORProposal 2.
                 
1.Election of Directors: For Withhold   For Withhold   ForWithhold+
01 - Paul N. Hugoo02 - Gregory B. Kalushoo03 - Michael J. Myersoo
04 - Kenneth V. Spenseroo05 - Christopher B. Strunkoo06 - S. Thomas Thawleyoo
ForAgainstAbstain
2.In the discretion of the Proxies , on any other matters that
may properly come before the meeting or any adjournment
thereof.
ooo  
                 
01 — Paul N. Hugoo04 — Michael J. Myersoo 
                 
02 — Gregory B. Kalush
 o
B Non-Voting Items
 o
Change of Address —Please print new address below.
 05


C
Authorized SignaturesKenneth V. SpenserThis section must be completed for your vote to be counted. — Date and Sign Belowoo
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executors, administrators, 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.
03 — Randall D. Ledfordoo06 — S. Thomas Thawleyoo /       /             

BProposal

The Board of Directors recommends a vote FOR the following proposal.

ForAgainstAbstain
         
2. In the discretion of the Proxies, on any other matters that may properly come before the meeting or any adjournment thereof.(BAR CODE) ooo

CAuthorized Signatures — Sign Here — This section must be completed for your instructions to be executed.

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.

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.

SignatureC 1234567890            J N T
6 1 A V      0 1 6 7 9 6 1 — Please keep signature within the box
  


 + 

Signature 2 — Please keep signature within the box
Date (mm/dd/yyyy)
nn
/
nn
/
nnnn


1 U P X


PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
(INTERPHASE LOGO)
Proxy – INTERPHASE CORPORATION

THIS PROXY IS SOLICTEDSOLICITED 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 4, 20057, 2008 at 10:9:00 a.m. local time at the Sockwell CenterEmbassy Suites Hotel at 6301 Chapel Hill Blvd., Plano,7600 John Q. Hammons Drive, Frisco, Texas 75093,75034, and the Proxyproxy 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.)