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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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Interphase Corporation

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(INTERPHASE CORPORATION LOGO)(INTERPHASE LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 2, 20076, 2009
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 2, 20076, 2009 at 9:00 a.m. local time at the Embassy Suites Hotel at 7600 John Q. Hammons Drive, Frisco, Texas, for the following purposes:
 (a) to elect six directors of the Company to serve until the next annual meeting of shareholders or until their respective successors shall be elected and qualified; and
 
 (b) to transact such other business as may properly come before the meeting or any adjournment thereof.
          It is desirable that as large a proportion as possible of the shareholders’ interests be represented at the meeting. Whether or not you plan to be present at the meeting, you are requested to sign the enclosed proxy and return it promptly in the enclosed envelope.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 6, 2009. This Proxy Statement and Annual Report on Form 10-K are available online atwww.proxydoc.com/inph.
   
 
 By order of the Board of Directors

S. Thomas Thawley
Vice Chairman and Secretary
   
  S. Thomas Thawley
  Vice Chairman and Secretary
Plano, Texas
March 31, 200727, 2009

 

TABLE OF CONTENTS

PROXY STATEMENT
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
EXECUTIVE COMPENSATION
CERTAIN RELATED TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
SHAREHOLDERS’ PROPOSALS
SHAREHOLDER COMMUNICATIONS
MISCELLANEOUS

Interphase Corporation
Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 2, 20076, 2009
          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 2, 2007.6, 2009. 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, 2007.27, 2009. This proxy statement and the Company’s 2008 annual report are available atwww.proxydocs.com/inph.
PERSONS MAKING THE SOLICITATION
          The accompanying proxy is being solicited by the Board of Directors of the Company. The cost of soliciting the proxies and the annual meeting will be borne entirely by the Company. In addition to the use of the mail, proxies may be solicited by personal interview, telephone, and telegramfacsimile transmission by directors and officers and employees of the Company. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of shares of Common Stock, $.10 par value (“Common Stock”), held of record by such persons, and the Company may reimburse them for reasonable out-of-pocket expenses they incur in connection with forwarding the solicitation material.
OUTSTANDING CAPITAL STOCK AND RECORD DATE
          The record date for shareholders entitled to notice of and to vote at the annual meeting is March 8, 2007.13, 2009. At the close of business on that date, the Company had issued, outstanding and entitled to be voted at the meeting 6,157,4406,905,994 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 DirectorsDirectors””, and, in the discretion of the proxy holder, with respect to such other business as may properly come before the meeting.
          Where shareholders have appropriately specified how their proxies are to be voted, they will be voted accordingly. If any other matter or business is brought before the meeting, the proxy holders may vote the proxies at their discretion. The directors do not know of any such other matter or business.

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QUORUM AND VOTING
          The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the annual meeting. In deciding all questions, a holder of Common Stock is entitled to one vote, in person or by proxy, for each share held in his or its name on the record date. Abstentions will be included in vote totals and, as such, will have the same effect on each proposal other than the election of directors, if any, as a negative vote. Because the six nominees for director who receive the most votes will be elected, any abstention will not be included in vote totals. Broker non-votes, if any, will not be included in vote totals and will have no effect on any proposal at this meeting.
PRINCIPAL SHAREHOLDERS
          The following table sets forth certain information as to the number of shares of Common Stock of the Company beneficially owned as of March 8, 200713, 2009 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 Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class Beneficial Ownership Class
Gregory B. Kalush  613,367 (1)  9.1%  625,462 (1)  8.6%
S. Thomas Thawley  302,792 (1)  4.9%  298,626 (1)  4.3%
Felix V. Diaz  282,000 (1)  4.4%
Randall E. McComas  211,540 (1)  3.3%  238,940 (1)  3.4%
Deborah A. Shute  156,000 (1)  2.5%  176,050 (1)  2.5%
James W. Gragg  86,000 (1)  1.4%  109,800 (1)  1.6%
Thomas N. Tipton, Jr.  81,486 (1)  1.2%
Paul N. Hug  52,667 (1)  0.8%  58,501 (1)  0.8%
Thomas N. Tipton, Jr.  48,800 (1)  0.8%
Yoram Solomon  55,000   0.8%
Marc E. DeVinney  49,900   0.7%
Michael J. Myers  41,667 (1)  0.7%  47,501 (1)  0.7%
Kenneth V. Spenser  41,667 (1)  0.7%  47,501 (1)  0.7%
Prasad R. Kallur 27,000  0.4%
Christopher B. Strunk —  0.0%  9,167   0.1%
         
All executive officers and directors as a group (12 persons)  1,863,500 (2)  24.6%  1,797,934 (2)  22.7%
         
Royce & Associates, LLC
1414 Avenue of the Americas		 
New York, NY 10019  563,900 (3)  9.2%
Royce & Associates, LLC
1414 Avenue of the Americas
New York, NY 10019		  523,129 (3)  7.6%
        
Renaissance Technologies, LLC
800 Third Avenue
New York, NY 10022		  415,900 (3)  6.0%
 
(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, 563,700407,500 shares; Mr. Thawley, 55,000 shares; Mr. Diaz, 262,000 shares; Mr. McComas, 191,540 shares; Ms. Shute, 145,000 shares; Mr. Gragg, 75,000 shares; Mr. Hug, 45,000Tipton, 17,500 shares; Mr. Tipton, 17,500Hug, 45,000 shares; Mr. Myers, 35,000 shares; and Mr. Spenser, 35,000 shares.

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(2) Includes 1,424,7401,106,540 shares that may be acquired upon exercise of vested stock options.
 
(3) Based upon information contained in Schedule 13G filings made prior to March 8, 2007.10, 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 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, 50,52, was elected Chairman of the Board in May 2000. Mr. Kalush was appointed the Chief Executive Officer, President and Director of the Company in March 1999. He joined the Company in February 1998, as Chief Financial Officer, Vice President of Finance and Treasurer. Mr. Kalush is also the sole member of the New Employee and Retention Stock Award Committee of the Board of Directors. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
     Paul N. Hug, 63,65, was elected a director in 1984. He has been a certified public accountant engaged in public accounting practice as owner of Paul Hug & Co. CPAs since 1980. Mr. Hug is a member of the Compensation Committee, the Nominating and Governance Committee and is Chairman of the Audit Committee of the Board of Directors.
     Michael J. Myers, 60,62, was elected to the Board of Directorsa director in 2002. From 2002 until his retirement in 2006, Mr. Myers served as President and CEO of Coppercom Inc., a provider of networking equipment for telecommunications operators. Mr. Myers served as the President of the Broadband Systems Division of Alcatel from 2000 to 2002 and as Group Vice President for Alcatel’s Networking Systems Group from 1998 to 2000. Prior to 1998, Mr. Myers worked for DSC Communications Corporation, serving as its Executive Vice President and Chief Operating Officer from 1997 to 1998, at its DSC Denmark A/S subsidiary, and as a Group Vice President for its transmission business in 1997. Mr. Myers also had prior experience with Nortel Networks, NCR, and General Motors Corporation. Mr. Myers is Chairman of the Compensation Committee and a member of the Nominating and Governance Committee and the Audit Committee of the Board of Directors.
     Kenneth V. Spenser, 58,60, 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

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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

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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, 58, has been nominated by the Board of Directors for election as director.60, 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- SalesPresident-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, 66,68, 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 Award Committee. During 2006,2008, the Audit Committee was composed of Mr. Hug, Chairman, Mr. Myers, and Mr. Spenser. The Audit Committee met seven times during 2006.2008. The Audit Committee’s responsibilities are described in the Audit Committee Charter, andwhich is included as an exhibit to this proxy statement (See Exhibit A)available on the Company’s website atwww.interphase.com. During 2006,2008, the Compensation Committee was composed of Mr. Randall Ledford,Myers, Chairman, Mr. Hug, and Mr. Myers. Mr. Ledford, an executive with Emerson Electric, served on the Compensation Committee until he resigned from the board in August of 2006 due to potential conflicts resulting from the Emerson Electric acquisition of Artesyn Technologies. Mr. Myers assumed the position of Compensation Committee Chairman after Mr. Ledford’s resignation.Strunk. The Compensation Committee met twosix times during 20062008 and reviewed the executive compensation plan of the Company in light of industry practices and circumstances unique to the Company. The Compensation Committee has overall responsibility for our executive compensation policies as provided in a written charter adopted by the Board of Directors, which is available on the Company’s website atwww.interphase.com. During 2006,2008, the Nominating and Governance Committee was composed of Mr. Thawley, Chairman, Mr. Hug, Mr. Ledford (prior to his resignation),Myers, Mr. Myers,Spenser, 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.charter, which is available on the Company’s website atwww.interphase.com. The Nominating and Governance Committee met four times during 2006.2008. In 2006,2008, the New Employee and Retention Stock Award Committee was composed of one member, Mr. Kalush. The New Employee and Retention Stock Award Committee has the authority to grant stock options and restricted stock under the 2004 Long-Term Stock Incentive Plan to newly hired employees of the Company and, for retention purposes, to existing employees of the Company.
     The Board of Directors held seveneight meetings during the year ended December 31, 2006.2008. 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 20062008 annual meeting of shareholders.

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Compensation of Directors
          The following table sets forth the compensation amounts paid to our non-employee directors, who during 20062008 were Mr. Hug, Mr. Ledford, Mr. Myers, Mr. Spenser, Mr. Strunk, and Mr. Thawley.
                        
 Fees Earned or      Fees Earned or    
 Paid in Cash Stock Awards Total  Paid in Cash Stock Awards Total
Name ($) ($)(1) ($)  ($) ($)(1) ($)
Paul N. Hug 32,500 31,050 63,550  32,500 22,344 54,844 
 
Randall D. Ledford (2) 19,150 31,050 50,200 
 
Michael J. Myers 27,500 31,050 58,550  30,500 22,344 52,844 
 
Kenneth V. Spenser 25,200 31,050 56,250  25,200 22,344 47,544 
 
Christopher B. Strunk 22,300 15,960 38,260 
S. Thomas Thawley 23,000 31,050 54,050  23,000 22,344 45,344 
 
(1) In May 2006, each director was2008, all directors were granted a restricted stock awardsaward under the 2004 Long-Term Stock Incentive Plan. Each director wasMr. Hug, Mr. Myers, Mr. Spenser, and Mr. Thawley were each issued 5,0005,834 shares of restricted stock (an aggregatestock. Mr. Strunk was granted 4,167 shares of 25,000 shares). Theserestricted stock. All shares were granted at a price of $6.21$3.83 per share (fair market value on the date of grant) and will fully vest ratably over a three year period provided heeach remains a director of the Company until such award vests.
(2)Mr. Ledford resigned from the Board of Directors on August 29, 2006. As a result of his resignation, his stockrespective vesting dates. There were no other awards from 2006, which had not vested, were cancelled.granted to non-employee directors during 2008.
Each non-employee member of the Board of Directors received a quarterly cash retainer of $5,000 for his service. Each committee chairman, except the audit committee chair,Audit Committee Chairman, received an annual retainer fee of $3,000. The Audit Committee Chairman received an annual retainer fee of $5,000. Each non-employee directormember of the Compensation Committee, including the chairman, received an annual retainer of $2,300. Each non-employee directormember of the Audit Committee, including the chairman, received an annual retainer of $5,200. Non-employee directors are expected to receive the same compensation during 2007. All directors are reimbursed for their reasonable out-of-pocket expenses in serving on the Board of Directors or any committee of the Board of 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 is included as an exhibit to this proxy statement (See Exhibit A)available on the Company’s website atwww.interphase.com.
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 requirements of the Securities and Exchange Commission and the listing standards of the NASDAQ 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 1980, and as such, has participated in dealing with accounting, auditing, internal control, and risk management issues.
Report of Audit Committee
March 19, 200720, 2009
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, 2006.2008.
          We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication“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, 2006.2008.
   
 THE AUDIT COMMITTEE


Paul N. Hug, Chairman

Kenneth V. Spenser

Michael J. Myers
NOMINATING AND GOVERNANCE COMMITTEE
          The members of the Nominating and Governance Committee are Mr. Thawley, Chairman, Mr. Hug, Mr. Myers, Mr. Spenser and Mr. Spenser.Strunk. All members of the Committee meet the independence requirements of the NASDAQ Global Market.
          The responsibilities of the Nominating and Governance Committee are to identify individuals qualified to serve as Directors of the Company consistent with criteria developed by the Nominating and 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 Nominating and Governance Committee Charter, which is available on the Company’s website atwww.interphase.com.

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          The Nominating and Governance Committee proposes and the Board of Directors adopts guidelines for identifying and evaluating Director candidates. Under those guidelines, the Nominating and Governance Committee shall consider a number of factors when identifying potential nominees, including: applicable requirements of law and of the NASDAQ Global Market, independence from management, diversity, relevant business experience, good business judgment, specific expertise, strength of character, integrity and reputation, existing commitments to other businesses, potential conflicts of interest with other pursuits, legal restraints, corporate governance background, financial and accounting background and education, executive compensation background, and other factors deemed appropriate in adding value to the composition of the existing Board 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
b. as to the shareholder giving the notice:

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 i. the name and record address of the shareholder, and

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 ii. the class and number of shares of the Company beneficially owned by the shareholder.
          Any shareholder suggested candidates must be submitted no later than December 1, 200714, 2009 to be considered for election at the 20082010 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  50  Chairman of the Board,
Chief Executive Officer and President		  1998   52  Chairman of the Board, Chief Executive Officer and President  1998 
                    
Thomas N. Tipton, Jr.  32  Chief Financial Officer,
Vice President of Finance and Treasurer		  2005   34  Chief Financial Officer, Assistant Secretary, Vice President of Finance and Treasurer  2005 
                    
Felix V. Diaz  56  Vice President of Engineering and
Chief Technology Officer		  2002 
          
Randall E. McComas  57  Vice President of Global Sales and
Customer Support		  2002   59  Vice President of Global Sales and Customer Support  2002 
                    
Deborah A. Shute  44  Vice President of Human Resources and
Administration		  2002   46  Vice President of Human Resources and Administration  2002 
                    
James W. Gragg  55  Vice President of Operations and Fulfillment  2004   57  Vice President of Operations and Fulfillment  2004 
                    
Prasad R. Kallur  40  Vice President of Strategic Marketing  2005 
Marc E. DeVinney  47  Vice President of Engineering  2007 
          
Yoram Solomon  44  Vice President of Corporate Strategy and Business Development  2008 
          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 Award Committee of the Board of Directors. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
          Thomas N. Tipton, Jr.joined the Company in January 2000, as Financial Planning and Analysis Manager. In December 2000, Mr. Tipton became Corporate Controller and Director of Finance, a position

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he held until December 2005. In August 2005, Mr. Tipton began serving as interim Chief Financial Officer, Vice President of Finance and Treasurer until December 2005 when Mr. Tipton was promoted to Chief Financial Officer, Vice President of Finance and Treasurer. Prior to joining Interphase, Mr. Tipton served in various positions in the Assurance and Business Advisory practice of Arthur Anderson LLP.

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Felix V. Diazjoined the Company in May 1996, as Chief Technology Officer. In January 2001, Mr. Diaz became Vice President and General Manager, Telecom Products Group, a position he held until January 2004 when he returned to the position of Chief Technology 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, 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 January 1999, as Director of Human Resources. In November 1999, Ms. Shute became Vice President of Human Resources. In January 2001, Ms. Shute became Vice President of Human Resources and Administration. Prior to joining Interphase, Ms. Shute was Senior Director of Human Resources for Packard Bell NEC in Sacramento, California.
          James W. 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 held various technical leadership roles including Hardware Design Engineering Manager at Compaq Computer Corporation, Vice President of Engineering for MSD Systems and also Test Engineering Manager for Mostek Corporation. Mr. Gragg also had his own engineering consulting company, Emtech, Inc., for over 10 years.
          Prasad R. KallurMarc E. DeVinneyjoined the companyCompany in May 2005,August 2007, as Vice President of Strategic Marketing.Engineering. Prior to joining Interphase, Mr. Kallur wasDeVinney 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.
Yoram Solomonjoined the Company in November 2008, as Vice President of Product ManagementCorporate Strategy and Marketing at Continuous Computing Corporation, a position he held since 2003.Business Development. Prior to 2003,joining Interphase, Mr. KallurSolomon spent the last six years at Texas Instruments (TI) in Dallas serving in various capacities including, most recently as the Sr. Director of Technology Strategy and Industry Relations for the Chief Technology Officer’s office, and Sr. Director of Strategic Marketing, Industry & Standards. Mr. Solomon held additional roles at TI including Director, Strategic Business Development, and General Manager, Consumer Electronics Connectivity Business Unit. Prior to TI, Mr. Solomon served as Chief Strategy Officer for Intel Corporation’s Trillium Digital System division.Vice President and General Manager of PCTEL’s Advanced Communications Business Unit in San Jose, California from 2000 to 2002, and senior level management positions at Voyager Technologies, Israel’s Ministry of Industry and Trade, and Electronic Line, Ltd.
Employment Agreement Summaries
     Each executive officer has an employment agreement that defines the terms and conditions of his or her employment at the Company. In some cases, the employment agreement may be supplemented by certain 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 employment agreements and stock agreements. A summary of the Change in Control provisions contained in the employment agreements are described in

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the section entitled “Summary of Termination and Change in Control Arrangements” beginning on page 22.
          Gregory B. Kalush.The Board of Directors approved Mr. Kalush’s current amended and restated employment agreement, effective March 12, 2000,December 30, 2008, pursuant to which the Company employs Mr.

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Kalush as its Chief Executive Officer and President. This agreement provided forPresident, at a base salary from March 2000 until March 2003 of at least $250,000$325,000 per year. A new two-year term began in April 2005March 2009, and provided for the sameMr. Kalush’s current base salary.salary is $325,000 per year. The employment agreement will continue for successive two-year terms, unless either Mr. Kalush or the Company gives notice to the other more than 30 days prior to the expiration of the then-current term that the agreement will not be renewed. In addition, in accordance with his prior employment agreement, Mr. Kalush (i) received in March 2000, stock options to purchase 100,000 shares of common stock, and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
          If the Company elects not to renew Mr. Kalush’s employment agreement or terminates Mr. Kalush without cause,for other than overt misconduct or death or disability, and subject to Mr. Kalush’s execution of a general release of claims, then Mr. Kalush will be entitled to receive severance payments in the amount of three (3) years base salary, health coverage premiums for up to 18 months paid for Mr. Kalush and will be given an additionalhis dependents as long as they are qualified and eligible for COBRA coverage, and for vested stock options with a strike price greater than the fair market value on the date of termination, a exercise period of upequal to the shorter of three (3) years to exercise his options.from the date of termination or the original expiration date of the option. If Mr. Kalush dies or the Company terminates Mr. Kalush’s employment agreement by reason of disability, and subject to Mr. Kalush’s execution of a general release of claims, then Mr. Kalush will be entitled to receive (i) compensation in the amount of two (2) years base salary, (ii) payment of two (2) years of his annual bonus calculated based on the greater of the prior fiscal year’s Executive Bonus Plan payment or 100% of the Executive’s Bonus Plan target for the year in which Mr. Kalush’s employment terminates, and (iii) an additional period of up to three (3) years to exercise his vested stock options. If Mr. Kalush dies, then Mr. Kalush’s estate will be entitled to (i) a $1.0 million death benefit payable to Mr. Kalush’s designated beneficiary under a life insurance policy with company-paid premiums, and (ii) for vested stock options with a strike price greater than the fair market value on the date of his death, a exercise period of equal to the shorter of three (3) years from the date of termination or the original expiration date of the option. If Mr. Kalush becomes employed during the period he is eligible to receive post-employment payments, then payments made as a result of such employment shall reduce any remaining severance payments or other amounts or liability owed by the Company to Mr. Kalush. Additionally, Mr. Kalush’s employment agreement permits the Company to terminate Mr. Kalush without further compensation for overt misconduct.
          Thomas N. Tipton Jr.The Board of Directors approved Mr. Tipton’s current amended and restated employment agreement, effective December 19, 2005,30, 2008, pursuant to which the Company employs Mr. Tipton as its Chief Financial Officer and Vice President of Finance, at a base salary of at least $150,000$185,000 per year. His current base salary is $195,000. 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 currentthen-current term that the agreement will not be renewed, or Mr. Tipton is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Tipton (i) received in December 2005, 10,000 shares of Restricted Stockrestricted stock under the Company’s 2004 Long-Term Stock Incentive Plan, and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
          Mr. Tipton’s employment agreement permits the Company to terminate Mr. Tipton without further compensation for cause, which includes death or disability. If the Company terminates Mr. Tipton without cause or for non-renewal, Mr. Tipton will receive six (6) months severance pay at his base salary.
     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. His 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 his employment agreement, Mr. Diaz (i) received in May 1996 an incentive stock option for 10,000 shares of Common Stock, with a ten year term and with an exercise price of $17.69 per share, and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
     Mr. Diaz’s employment agreement permits the Company to terminate him due to death or disability and entitles him or his estate to receive a pro-rated bonus. If the Company terminates Mr. Diaz for no reason, he will receive three (3) months severance pay at his base salary provided he executes a general release of all claims against the Company.

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Randall E. McComas.The Board of Directors approved Mr. McComas’ current amended and restated employment agreement, effective February 15, 2002,December 30, 2008, 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$235,000 per year. His current base salary is $240,000. The employment agreement automatically renews for successive 12-monthsix month periods, unless either Mr. McComas or the Company gives written notice to the other 30 days prior to the expiration of the then currentthen-current term that the agreement will not be renewed or Mr. McComas is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. McComas (i) received in February 2002, a non-qualifiednon-

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qualified stock option for 40,597 shares of Common Stock, and an incentive stock option for 59,403 shares of Common Stock, all with a ten year term and with an exercise price of $5.05 per share, and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
     Mr. McComas’ employment agreement permits the Company to terminate him without further compensation for “cause” as defined in the employment agreement, which includes death and disability. If the Company terminates Mr. McComas without cause or for non-renewal, Mr. McComas will receive as severance pay up to nine (9) months base-salary compensation.
Deborah A. Shute.The Board of Directors approved Ms. Shute’s current amended and restated employment agreement, effective November 24, 1999,December 30, 2008, pursuant to which the Company employs Ms. Shute, as its Vice President of Human Resources, at a base salary of at least $130,000$158,000 per year. Her current base salary is $165,000. The employment agreement withautomatically renews for successive six month periods, unless either Ms. Shute or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed or Ms. Shute is at-will, and thus, either party may terminate the relationship at any timeterminated for any reason subject to a 30 day written notice.cause. In addition, in accordance with her prior employment agreement, Ms. Shute (i) received in November 1999, a non-qualified stock option for 10,000 shares of Common Stock, with a ten year term and an exercise price of $31.00 per share, and (ii) is entitled to an annual bonus based upon her annual bonus target established by the Compensation Committee.
     Ms. Shute’s employment agreement permits the Company to terminate her due to death or disability and entitles her to receive a pro-rated bonus. If the Company terminates Ms. Shute for reasons other than willful neglect, she will receive six (6) months severance pay at her base salary provided she executes a general release of all claims against the Company.
James W. Gragg.The Board of Directors approved Mr. Gragg’s current amended and restated employment agreement, effective November 1, 2004,December 30, 2008, 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$175,000 per year. His current base salary is $182,000. The employment agreement automatically renews for successive six month periods, unless either Mr. Gragg or the Company gives written notice to the other 30 days prior to the expiration of the then currentthen-current term that the agreement will not be renewed or Mr. Gragg is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Gragg (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 with a ten year term and with an exercise price of $7.20 per share, and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
     Mr. Gragg’s employment agreement permits the Company to terminate Mr. Gragg without further compensation for cause, which includes death and disability. If the Company terminates Mr. Gragg without cause or for non-renewal, Mr. Gragg will receive six (6) months severance pay at his base salary.
Marc E. DeVinney.The Board of Directors approved Mr. Kallur’sDeVinney’s current amended and restated employment agreement, effective May 23, 2005,December 30, 2008, pursuant to which the Company employs Mr. Kallur as its Vice President of Strategic Marketing,

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DeVinney, at a base salary of at least $175,000 per year. His current base salary is $182,000. The employment agreement automatically renews for successive six month periods, unless either Mr. KallurDeVinney or the Company gives written notice to the other 30 days prior to the expiration of the then currentthen-current term that the agreement will not be renewed or Mr. KallurDeVinney is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. KallurDeVinney (i) received in May 2005, 18,000August 2007, a grant of 10,000 shares of Restricted Stock under the Company’s 2004 Long-Term Stock Incentive Plan,restricted stock and (ii) received $60,000 for relocation and temporary living expenses, and (iii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
     Yoram Solomon.The Board of Directors approved Mr. Kallur’sSolomon’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Solomon, at a base salary of at least $185,000. His current base salary is $185,000. The employment agreement automatically renews for successive six month periods, unless either Mr. Solomon or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed or Mr. Solomon is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. Solomon (i) received in November 2008, a grant of 20,000 shares of restricted stock and (ii) is entitled to an annual bonus based upon his annual bonus target established by the Compensation Committee.
     With the exception of Mr. Kalush, all other named executives described above contain the following provisions in their respective employment agreements. The employment agreement permits the Company to terminate Mr. Kallurthe executive without further compensation for cause which includesor on account of death and or

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disability. If the Company terminates Mr. Kallurthe executive without cause or for non-renewal, Mr. Kallurthe executive will receive (i) the balance of base salary due under the employment agreement for the balance of its term, plus (ii) six (6) months severance pay at his then-current base salary.salary, subject to the executive’s execution of a general release of claims. If the executive becomes employed during the period he is eligible to receive post-employment payments, then payments made as a result of such employment shall reduce any remaining severance payments or other amounts or liabilities owed by the Company to the executive.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
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®, MicroTCA™ and AdvancedMC™ solutions to the marketplace.
Objectives and Philosophy of Our Compensation Programs
     Our executive compensation program is driven by our business environment and is designed to enable us to achieve our strategic priorities and adhere to Company values. The program’s objectives are to:
 • Attract, motivate, and retain a team of talented leadership who help ensure our future success;
 
 • Align executives’ interests with the interests of shareholders;
 
 • Reward success as a management team in supporting overall business objectives and in obtaining key financial metrics in a lean and flexible environment;
 
 • Provide a balance between short-term goals and long-term priorities to achieve immediate objectives while also focusedfocusing 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.
     CompensationOur compensation programs must be competitive with other programs for similarly placed executives at companies within the telecom orand general technology industry.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.

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     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:
 • Overall business performance and executive engagement;
 
 • Ability to attract and retain key executive talent;
 
 • Costs and business risks that are limitedseek to optimize return within acceptable levels that optimize risk and return;of risk; and
•Executive understanding and perceptions that ensure program value equals or exceeds program cost.

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Executive understanding and perceptions that ensure program value equals or exceeds program cost.
     All of our compensation and benefits for our executives described below have as a primary purposepurpose: the ability to attract, motivate, and retain highly talented individuals who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. We believe that the performance of our executives, considered in light of general economic and industry conditions, our company, and competitive conditions, should be another key basis for determining overall compensation. We also believe that compensation should not be based on the short-term performance of our stock, whether favorable or unfavorable, as we expect the price of our stock will, in the long-term, reflect our operating performance, and ultimately, the management by our executives. Beyond that, different elements are designed to engender different behaviors:
•Base Salary and Benefits are designed to attract and retain executives over time.
•Long-Term Incentives — Performance-based restricted stock and restricted stock under the shareholder approved 2004 Long-Term Stock Incentive Plan (“LTSIP”) focuses 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.
•Severance and Change in Control plans 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. Severance plans provide benefits to 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.
behaviors. In particular, in determining total compensation, we stress a compensation philosophy that is performance driven with relatively averagecompetitive base salaries, but high variability in incentives. Despite relatively average base salaries weWe believe that our total compensation is competitive with comparable positions at companies in our industry.

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Pay Elements of Our Compensation Programs
     To promote the objectives of our compensation programs, our compensation programs consist of the following principal elements:
     
Pay Element What the Pay Element
Pay ElementRewards Purpose of the Pay Element
     
Base Salary
 
•     Core competence in the executive role relative to skills, experience and contributions to the Company
 
•     To provide fixed compensation
based on competitive market practice
•     To attract and retain executives over time
     
Annual Cash Incentive
Incentives
 
•     Contributions toward the Company’s achievement of specified revenue, and net income/profitability metrics, and business plan priorities
 
•     To provide annual performance-based cash incentive compensation
•     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

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  Restricted Stock:What the Pay Element  
Pay ElementRewardsPurpose of the Pay Element
     
Long-Term
Incentives
 Restricted Stock:
•     Continued employment with the Company during a specified vesting period
Performance-based Restricted Stock:
•     Achievement by executives of key performance metrics for Company success
•     Continued employment with the Company during a specified vesting period
 
•     To attract and retain the best people for the Company
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
•     To align executives’ and shareholder interests
     
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 threatenedrumored change in control. The change in control agreements are described in more detail beginning on page 22 of
•     To facilitate the Company’s ability to attract executives as the Company competes for talented employees; this proxy statementprotection is commonly offered
Retirement Benefits, Additional Benefits and Perquisites
•     Tenure by executives
•     Assurance that benefits package is competitive to industry standards
•     To facilitate the Company’s ability to attract executives as the Company competes for talented employees

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     The use of these programs enables us to reinforce our “pay for performance” philosophy, as well as strengthenstrengthens 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.

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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, in February, 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. In determining compensation adjustments for our executives for fiscal year 2006,During 2007, the Compensation Committee considered one primary factor only;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 (the “comparison group”) was selected from publicly traded U.S. companies classified under the Global Industry Classification Standard (GICS) as Communications Equipment, Computer Storage and Peripherals and Electronic Manufacturing Services. The 21 companies included in the casecomparison 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 allthe independent compensation firm, there were (i) pay adjustments made to certain of our executives determinationin January and February 2008 where the findings showed that certain of an adjustment toour executives were not being compensated at competitive levels, and (ii) base salary was based on the Company achieving specific financial performance objectivesmerit increases granted for all of our executives in 2006. These objectives were not achieved in 2006, so there was no adjustment to base salaryJanuary 2008 and February 2009 consistent with industry standards and company practice for our executives. The Compensation Committee has adopted a similar analysis for fiscal year 2007.all eligible, non-executive employees.
     Annual Cash IncentivesIncentives..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. The actual payment of bonuses is primarily dependent upon Company profitabilitycompleted and the extentfourth quarter and full year financial results have been reported to which these Company-wide objectives are achieved.the public. For fiscal year 2006,2008, executive bonuses to executives were based upon the achievement of certain minimum revenue and net income/profitabilityincome targets. Each target is assigned a weighting of a pre-defined amount at the beginningThe revenue achievement accounts for 60% of the plan year to apply to any bonuses granted. Executives are not eligiblebonus calculation while the net income achievement accounts for bonuses if these targets are not met or exceeded. The actual bonus payment, if40%. A certain percentage achievement in the applicable minimum threshold numbers are met, is paid uponrevenue portion will result in a sliding scalespecified percentage payout of the target performance numbers actually achieved60% portion of the bonus and dollar limits established bylikewise for the Compensation Committee for each individual executive.net income portion. The Presidenttable below shows the percentage achievement and Chief Executive Officer has the discretion to recommend toresulting payout percentages based on the Compensation Committee to increase or decrease bonuses for all other executive officers, but any changes to the plan must be approved by the Compensation Committee. For fiscal year 2007, the Compensation Committee approved2008 bonus targets with increased revenue and net income/profitability goals.
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.plan.

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     For 2008, the Compensation Committee approved revenue and net income achievement targets at the 100% achievement levels that were higher than the actual revenue and net income achieved in 2007.
              
Revenue Net Income
Achievement % Payout % Achievement % Payout %
0.0 – 79.9   0   0.0 – 29.9   0 
80.0 – 89.9   38 – 67   30.0 – 74.9   10.0 – 54.9 
90.0 – 92.9   68 – 79   75.0 – 119.9   55.0 – 119.9 
93.0 – 94.9   80 – 84   120.0 – 139.9   130 – 160 
95.0 – 97.4   85 – 93   140.0 – 149.9   180 – 200 
97.5 – 100.9   94 – 100   150.0 +   250+ 
101.0 – 109.9   102 – 120         
110.0 – 119.9   130 – 160         
120.0 – 129.9   180 – 220         
130.0 +   250+         
     The maximum combined (revenue based and net income based) bonus payout is capped at 300% of the total bonus pool. The sliding scale of target performance is used by the Compensation Committee in determining bonuses to be paid to the executives; however the Compensation Committee has full and complete discretion in making its final bonus determinations for a portion (approximately 28%) of the bonus pool. As shown in the Summary Compensation Table, no executive bonuses were paid for 2008.
Long-Term Incentives.The Compensation Committee approves equity grants under the 2004 Long-Term Stock Incentive Plan that provide additional incentives and align the executives’ long-term interests with those of the shareholders of the Company by tying a portion of executive compensation to the long-term performance of the Company’s stock price. AnnualThe Compensation Committee believes equity grants for ourmore than base salary or annual cash incentives closely align the long-term interests of executives are reviewedwith those of shareholders and assist in February after the auditretention of full year financial results is substantially completed.key executives. 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 following principal following elements including, but not limited to:
 • President and Chief Executive Officer’s recommendation;
•Relevant and validated external market data on executive compensation;
 
 • Management role and contribution to the management team;
 
 • Job responsibilities and past performance;
 
 • Future anticipated contributions;
 
 • Corporate performance; and
 
 • Existing vested and unvested equity holdings, including relative to external and internal parity.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 grantinggranted stock options in recent years, but rather have been grantinggranted restricted stock and performance-based restricted stock. The Compensation Committee believes annual equity grants more closely align

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Change in Control and Termination Benefits.We provide change in control and termination benefits to our executives under certain conditions as provided for in their employment agreements. These benefits are designed to facilitate the long-term interests ofCompany’s ability to attract and retain executives with those of shareholders and assistas the Company competes for talented employees in the retentionmarketplace where such provisions are commonly offered. The benefits ease an executive’s transition due to an unexpected employment termination by the Company due to on-going changes in the Company’s employment needs. The Change in Control provisions encourage executives to remain focused on the Company’s business in the event of key executives.a rumored or actual fundamental corporate change.
     Retirement Benefits, WelfareAdditional 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 usthe 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$1.0 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.Directors, which is available on the Company’s website atwww.interphase.com. The Compensation Committee is empowered to review and approve the annual compensation and compensation procedures for our seven

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executives: the President and Chief Executive Officer, the Chief Financial Officer, the Chief Technology Officer, the Vice President of Global Sales &and Customer Support, the Vice President of Strategic Marketing,Engineering, the Vice President of Human Resources &and Administration, and the Vice President of Operations and Customer Fulfillment.Fulfillment, and the Vice President of Corporate Strategy and Business Development. The Compensation Committee does not delegate any of its functions to others in setting compensation.
     When establishing base salaries, cash bonuses and equity grants for each of the executives, the Compensation Committee considers 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 third partyan independent compensation consultants.firm.
     The Compensation Committee generally sets the compensation of the executives at levels that are competitive with similarly situated technology companies. When setting the compensation of each of the executives, the Compensation Committee considers all of the factors set forth above, but does not assign any specific weighting or apply any formula to these factors. The Compensation Committee gives consideration to the recommendations of the President and Chief Executive Officer and may accept or

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adjust those recommendations. The Compensation Committee also makes the sole determination of the compensation of the President and Chief Executive Officer.

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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 three other most highly paid executive officers during 2006 whose total annual salary and bonus for 2006 exceeded $100,000,at the end of 2008, whom we refer to in this proxy statement as the named executive officers.
                         
              Stock All Other  
Name and Principal             Awards Compensation Total
Position Year Salary ($) Bonus ($) ($) (1) ($) (2) ($)
Gregory B. Kalush
Chairman of the Board, Chief Executive Officer and President		  2006   250,000   204,600   166,050   8,220   628,870 
                         
Thomas N. Tipton Jr.
Chief Financial Officer, Treasurer and Vice President of Finance		  2006   150,000   40,700   195,100   4,500   390,300 
                         
Randall E. McComas
Vice President of Global Sales and Customer Support		  2006   225,000   102,300   40,500   6,596   374,396 
                         
Felix V. Diaz
Vice President of Engineering and Chief Technology Officer		  2006   195,000   61,400   40,500   5,850   302,750 
                         
Prasad R. Kallur
Vice President of Strategic Marketing		  2006   175,000   40,900   48,600   5,250   269,750 
                         
              Stock All Other  
Name and Principal             Awards Compensation Total
Position Year Salary ($) Bonus ($) ($) (1) ($) (2) ($)
Gregory B. Kalush  2008   319,039   —   67,244 (3)  7,922   394,205 
Chairman of the  2007   260,869   —   116,850 (4)  8,372   386,091 
Board, Chief Executive  2006   250,000   204,600   85,050 (5)  8,220   547,870 
Officer and President                        
                         
Thomas N. Tipton Jr.  2008   183,654   —   26,940 (3)  5,510   216,104 
Chief Financial  2007   150,000   —   34,710 (4)  4,500   189,210 
Officer, Treasurer and  2006   150,000   40,700   146,500 (5)  4,500   341,700 
Vice President of Finance                        
                         
Randall E. McComas  2008   234,615   —   21,552 (3)  6,300   262,467 
Vice President of  2007   225,000   —   28,925 (4)  6,750   260,675 
Global Sales and  2006   225,000   102,300   — (5)  6,596   333,896 
Customer Support                        
                         
Marc A. DeVinney  2008   174,818   —   21,552 (3)  —   196,370 
Vice President of  2007   56,230   —   94,900   —   151,130 
Engineering  2006   —   —   —   —   — 
                         
James W. Gragg  2008   174,039   —   21,552 (3)  5,221   200,812 
Vice President of  2007   150,000   —   23,140 (4)  4,500   177,640 
Operations and  2006   150,000   40,700   — (5)  4,500   195,200 
Fulfillment                        
 
(1)(1) All 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 have performance conditions tied to the award.
(2)“All other compensation” consists of matching payments by the Company pursuant to its 401(k) plan for all named executive officers and with respect to Mr. Kalush an additional amount of $1,622 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 January 2008, not included in the Summary Compensation Table, were performance based with a four year vesting period, and were cancelled in February 9, 2009 as the performance criteria was not satisfied. Mr. Kalush (15,000 shares or $134,700), Mr. Tipton (9,000 shares or $80,820), Mr. McComas (7,200 shares or $64,656), Mr. DeVinney (7,200 or $64,656) and Mr. Gragg (7,200 shares or $64,656) all had shares cancelled which had a grant date value of $8.98

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per share. Included in the Summary Compensation Table, Mr. Kalush received an additional grant (5,834 shares or $22,344) for his service on the board consistent with other board members’ equity compensation which had a grant date value of $3.83 with a three year vesting period.
(4)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), and Mr. Gragg (4,000 shares or $46,280) all had shares cancelled which had a grant date value of $11.57 per share.
(5)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), and Mr. Diaz (7,500Gragg (6,000 shares or $40,500)$32,400), and Mr. Kallur (9,000 shares or $48,600) all had shares cancelled which had a grant date value of $5.40 per share. Mr. Kalush received an additional grant of performance based restricted stock in February 2006, included in the Summary Compensation Table, of 10,000 shares at $5.40 where the performance criteria was achieved and therefore the restricted stock vested in February 2007. Unless otherwise stated, restricted stock awards vest over a four year period and do not have performance conditions tied toIncluded in the award.
(2)“All 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 toSummary Compensation Table, Mr. Kalush received an additional amountgrant (5,000 shares or $31,050) for his service on the board consistent with other board members’ equity compensation which had a grant date value of $1,622 for premium paid on$6.21 with a life insurance policy. The table doesthree year vesting period.

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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.
20062008 Grants of Plan-Based Awards Table
            The following table sets forth information on grants of plan-based awards in 20062008 to the named executive officers.
                                                  
 Closing Grant Date Closing Grant Date
 Estimated Future Payouts Under Price on Fair Estimated Future Payouts Under Price on Fair
 Equity Incentive Plan Awards Grant Value of Stock Equity Incentive Plan Awards Grant Value of Stock
 Grant Threshold Target Maximum Date and Option Grant Threshold Target Maximum All Other Date and Option
Name Date (#) (#) (#) ($ / Sh) Awards ($) Date (#) (#) (#) Stock Awards ($ / Sh) Awards ($)
Gregory B. Kalush  2/1/06(1) — 10,000 — 5.40 54,000  1/10/08  —   —   —   5,000   8.98   44,900 
  2/1/06(2) — 15,000 — 5.40 81,000  1/10/08 (1)  5,700   15,000   15,000   —   8.98   134,700 
  5/3/06(3) — 5,000 — 6.21 31,050    5/7/08 (2)  —   —   —   5,834   3.83   22,344 
                           
Thomas N. Tipton Jr.  2/1/06(2) — 9,000 — 5.40 48,600  1/10/08  —   —   —   3,000   8.98   26,940 
 10/10/06 — 10,000 — 14.65 146,500  1/10/08 (1)  3,420   9,000   9,000   —   8.98   80,820 
                           
Randall E. McComas  2/1/06(2) — 7,500 — 5.40 40,500  1/10/08  —   —   —   2,400   8.98   21,552 
  1/10/08 (1)  2,736   7,200   7,200   —   8.98   64,656 
Felix V. Diaz  2/1/06(2) — 7,500 — 5.40 40,500 
                           
Prasad R. Kallur  2/1/06(2) — 9,000 — 5.40 48,600 
Marc A. DeVinney 1/10/08  —   —   —   2,400   8.98   21,552 
 1/10/08 (1)  2,736   7,200   7,200   —   8.98   64,656 
                          
James W. Gragg 1/10/08  —   —   —   2,400   8.98   21,552 
 1/10/08 (1)  2,736   7,200   7,200   —   8.98   64,656 

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(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 2006, if the criteria was achieved the restricted stock would vest on February 8, 2007. The criteria was achieved based on 2006 results and accordingly the grant vested in February 2007.
(2)Restricted stock awards are valued at the fair market value on the date of grant. This grant was conditional based on performance criteria in 2006;2008; 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 2007.2009.
 
(3)(2) Restricted stock awards are valued at the fair market value on the date of grant. This grant was related to Mr. Kalush’s service on the board and is consistent with other board members’ equity compensation. This grant has a three year vesting period.
Narrative to Summary Compensation Table and 20062008 Grants of Plan-Based Awards Table
          See Compensation Discussion and Analysis as well as the Employment Agreement Summaries for a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and 20062008 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payment, including targets for payment of annual incentives, as well as performance criteria on which such payments were based.

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Outstanding Equity Awards at Year-End Table
The following table sets forth information as of December 31, 2008 regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to each award.
                            
 Option Awards Stock Awards 
 Equity                             
 Incentive  Option Awards Stock Awards
 Equity Incentive Plan Awards:  Equity Incentive  
 Plan Awards: Market or  Plan Awards: Equity Incentive
 Market Number of Payout Value  Market Number of Plan Awards:
 Number of Number of Value of Unearned of Unearned  Number of Number of Value of Unearned Market or Payout Value
 Securities Shares or Shares or Shares, Units Shares, Units  Securities Shares or Shares or Shares, Units of Unearned
 Underlying Units of Units of or Other or Other  Underlying Units of Units of or Other Shares, Units or Other
 Unexercised Option Stock That Stock That Rights That Rights That  Unexercised Option Stock That Stock That Rights That Rights That
 Options Exercise Option Have Not Have Not Have Not Have Not  Options Exercise Option Have Not Have Not Have Not Have Not
 (#) Price Expiration Vested Vested Vested Vested  (#) Price Expiration Vested Vested Vested Vested
Name Exercisable ($) Date (#) ($) (#) ($) (1)  Exercisable ($) Date (#) ($) (#) ($)
Gregory B. Kalush — — 5,000  41,450 (1) — —  — — 5,000  8,250 (1) — — 
 — — 10,000 — —  82,900 (1) — — — — 15,000  24,750 (1) (2)
 — — — — 15,000  124,350 (1) (2) — — 5,834  9,626 (1) — — 
 — — 16,200  134,298 (1) — —  — — 3,333  5,499 (1) — — 
 5,000 8.50 5/5/2014 — — — —  — — 3,750  6,188 (1) — — 
 50,000 11.45 3/16/2014 — — — —  — — 1,666  2,749 (1) — — 
 50,000 5.88 6/5/2013 — — — —  — — 7,200  11,880 (1) — — 
 10,000 5.61 5/7/2013 — — — —  5,000 8.50 5/5/2014 — — — — 
 10,000 4.60 5/1/2012 — — — —  50,000 11.45 3/16/2014 — — — — 
 50,000 4.83 1/16/2012 — — — —  50,000 5.88 6/5/2013 — — — — 
 10,000 7.53 5/2/2011 — — — —  10,000 5.61 5/7/2013 — — — — 
 62,500 8.00 3/2/2001 — — — —  10,000 4.60 5/1/2012 — — — — 
 100,000 13.88 5/30/2010 — — — —  50,000 4.83 1/16/2012 — — — — 
 10,000 17.81 5/3/2010 — — — —  10,000 7.53 5/2/2011 — — — — 
 50,000 23.00 10/20/2009 — — — —  62,500 8.00 3/2/2001 — — — — 
 100,000 7.31 3/12/2009 — — — —  100,000 13.88 5/30/2010 — — — — 
 46,200 6.50 9/1/2008 — — — —  10,000 17.81 5/3/2010 — — — — 
 10,000 6.00 8/26/2008 — — — —  50,000 23.00 10/20/2009 — — — — 
  100,000 7.31 3/12/2009 — — — — 
 
Thomas N. Tipton Jr. — — 10,000  82,900 (1) — —  — — 3,000  4,950 (1) — — 
 — — — — 9,000  14,850 (1) (2)
 — — 2,250  3,713 (1) — — 
 — — — — 9,000  74,610 (1) (2) — — 7,000  11,550 (1) — — 
 — — 9,000  74,610 (1) — —  — — 4,000  6,600 (1) — — 
 — — 2,070  17,160 (1) — —  — — 920  1,518 (1) — — 
 3,500 5.88 6/5/2013 — — — —  3,500 5.88 6/5/2013 — — — — 
 4,000 4.12 7/26/2011 — — — —  4,000 4.12 7/26/2011 — — — — 
 7,000 9.16 12/7/2010 — — — —  7,000 9.16 12/7/2010 — — — — 
 3,000 17.50 1/25/2010 — — — —  3,000 17.50 1/25/2010 — — — — 
  
Randall E. McComas — — — — 7,500  62,175 (1) (2) — — 2,400  3,960 (1) — — 
 — — 11,250  93,263 (1) — —  — — — — 7,200  11,880 (1) (2)
 50,000 11.45 3/16/2014 — — — —  — — 1,875  3,094 (1) — — 
 50,000 5.88 6/5/2013 — — — —  — — 5,000  8,250 (1) — — 
 91,540 5.05 2/15/2012 — — — —  50,000 11.45 3/16/2014 — — — — 
  50,000 5.88 6/5/2013 — — — — 
Felix V. Diaz — — — — 7,500  62,175 (1) (2)
 91,540 5.05 2/15/2012 — — — — 
 
Marc A. DeVinney — — 2,400  3,960 (1) — — 
 — — — — 7,200  11,880 (1) (2)
 7,500  12,375 (1) — — 
 
James W. Gragg — — 2,400  3,960 (1) — — 
 — — 11,250  93,263 (1) — —  — — — — 7,200  11,880 (1) (2)
 20,000 11.45 3/16/2014 — — — —  — — 1,500  2,475 (1) — — 
 30,000 5.88 6/5/2013 — — — —  — — 2,000  3,300 (1) — — 
 30,000 4.83 1/16/2012 — — — —  10,000 7.20 11/1/2014 — — — — 
 50,000 4.12 7/26/2001 — — — —  15,000 11.45 3/16/2014 — — — — 
 42,000 8.00 3/2/2011 — — — —  15,000 5.88 6/5/2013 — — — — 
 30,000 13.88 5/30/2010 — — — —  10,000 4.12 7/26/2011 — — — — 
 40,000 23.00 10/20/2009 — — — —  20,000 7.94 12/28/2010 — — — — 
 10,000 6.19 12/18/2007 — — — —  3,000 13.75 4/17/2010 — — — — 
  2,000 17.25 10/29/2009 — — — — 
Prasad R. Kallur — — — — 9,000  74,610 (1) (2)
 — — 16,200  134,298 (1) — — 

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(1) Restricted stock awards were valued at the fair market value of the Company common stock price on December 29, 200631, 2008 ($8.29)1.65).
 
(2) This grant was conditional based on performance criteria in 2006;2008; 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 2007.2009.
Option Exercises and Stock Vesting Table
          The following table sets forth the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during the latest fiscal year.
                        
 Option Awards Stock Awards  Stock Awards
 Number of Shares Value Realized Number of Shares Value Realized  Number of Shares Value Realized
 Acquired on Exercise on Exercise Acquired on Vesting on Vesting  Acquired on Vesting on Vesting
Name (#) ($) (#) ($)  (#) ($)
Gregory B. Kalush 3,800 34,920 3,467 22,626  9,984 41,715 
 
Thomas N. Tipton Jr. 1,000 10,824 1,230 9,707  6,440 19,736 
 
Randall E. McComas — — 1,250 8,188  4,375 18,881 
 
Felix V. Diaz — — 1,250 8,188 
Marc A. DeVinney 2,500 8,625 
 
Prasad R. Kallur — — 1,800 10,908 
James W. Gragg 2,000 9,510 
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 agreements and/or restricted stock agreements, and our other compensation programs. The descriptions set forth below are summaries of the terms of the respective employment agreement or stock agreement and are qualified by reference to the provisions of such agreements.
     Gregory B. KalushKalush.. Mr. Kalush’s employment agreement provides for the following 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 “TerminationResignation by the Executive (Resignation)”. If the Company elects not to renew Mr.

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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):Executive:If Mr. Kalush resigns or elects not to renew his employment agreement, he is entitled to exercise vested stock options for a period of 90 days following his resignation as an employee of the Company. For vested stock options granted for his service as a director of the Company, Mr. Kalush is entitled to exercise vested stock options for a period of ten years from the grant date of such options in a manner consistent with other directors.

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 • Termination due to DeathNon-Renewal of Employment Agreement or Termination for other than Overt Misconduct. The Company, or Mr. Kalush, can terminate the employment relationship by electing not to renew the employment agreement and giving the other party at least thirty (30) days written notice prior to the expiration of the then current term. If Mr. Kalush elects not to renew his employment agreement, it is treated as a resignation and handled as stated above under “Resignation by the Executive”. If the Company elects not to renew Mr. Kalush’s employment agreement, or terminates Mr. Kalush for other than overt misconduct (or death or disability), then Mr. Kalush will be entitled exclusively to the following termination payments and benefits:
1.Severance Payments. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush shall receive severance payments in the amount of three (3) years’ base salary, payable in bi-weekly installments at the current base salary rate at the time. Severance payments will be reduced by any compensation Mr. Kalush receives from other employment during the three (3) year severance period. In addition, if Mr. Kalush is eligible for severance payments and has executed a general release of claims, and provided Mr. Kalush is eligible for COBRA coverage, the Company will pay the premium cost for COBRA coverage for Mr. Kalush and his eligible beneficiaries for the 18-month period following termination of employment.
2.Incentive Stock Option Conversion to Non-Qualified Stock Options with Extended Exercise Period. The exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of his termination of employment (or date of non-renewal of his employment agreement) and specifically excluding any stock options granted to Mr. Kalush as a director shall be extended for a period equal to the shorter of (A) three (3) years or (B) the earlier of the latest date upon which the stock option could have expired by its original terms under any circumstances or the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock determined on the same date, Mr. Kalush’s vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to Mr. Kalush a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for a term of three (3) years.
•Termination due to 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. Subject to Mr. Kalush’s execution of a general release and covenant not to sue, Mr. Kalush will be paid severance payments in the amount of two (2) years’ base salary, payable in semi-monthlybi-weekly installments over a thirty-six (36) month period at the current base salary rate at the time of Mr. Kalush’s death ortermination due to disability. In addition, if Mr. Kalush is eligible for severance payments and has executed a general release of claims, and provided Mr. Kalush is eligible for COBRA coverage, the Company will pay the premium cost for COBRA coverage for

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Mr. Kalush and his eligible beneficiaries for the 18-month period following termination of employment.
 
 2. Bonus Payment. Subject to Mr. Kalush’s execution of a general release and covenant not to sue, Mr. Kalush will receive payment of two (2) years’years of his annual bonus.bonus based on the Company’s Executive Bonus Plan payable in bi-weekly installments over a thirty-six (36) month period following Mr. Kalush’s termination due to disability. The bonus amountpayment will be based on the greater of the prior fiscal year’s executive bonus paymentExecutive Bonus Plan 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.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

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of his death or disability will be extended three (3) years beginningMr. Kalush’s vested stock options that are outstanding on the date of Mr. Kalush’s death or disability.
•After Mr. Kalush’s death or disability, andhis termination of employment due to death or disability, if any(or date of non-renewal of his incentive stock options (specificallyemployment agreement) and specifically excluding any non-qualified stock options or stock options granted to Mr. Kalush as a director),director shall be extended for a period equal to the shorter of (A) three (3) years or (B) the earlier of the latest date upon which arethe stock option could have expired by its original terms under any circumstances or the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested are not exercised prior to theirstock options, if on the date of termination thenof employment, the exercise price of the vested stock option is greater than the fair market value of the underlying stock determined on the same date, Mr. Kalush’s vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant a fully vested non-qualified stock option to Mr. Kalush or his estate fora new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares not exercised at the same exercise prices, withprice but exercisable for a three-yearterm of three (3) years.
•Termination due to Death.In the event Mr. Kalush’s employment is terminated due to death, Mr. Kalush’s estate will be entitled to the following:
1.Extended Exercise Period for Non-Qualified Stock Options and Conversion of Incentive Stock Options to Non-Qualified Stock Options. The exercise period beginningof Mr. Kalush’s vested stock options that are outstanding on the date of his death and specifically excluding any stock options granted to Mr. Kalush as a director shall be extended for a period equal to the shorter of (A) three (3) years or (B) the earlier of the latest date upon which the stock option could have expired by its original terms under any circumstances or the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of death, or disability.the exercise price of the vested stock option is greater than the fair market value of the underlying stock determined on the same date, Mr. Kalush’s vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant to Mr. Kalush’s estate a new nonqualified stock option under substantially similar terms and conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for a term of three (3) years.
2.Life Insurance Policy. If Mr. Kalush dies then Mr. Kalush’s estate will be entitled to a $1.0 million death benefit payable to Mr. Kalush’s designated beneficiary under a life insurance policy with company-paid premiums.

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          If Mr. Kalush’s employment terminatesis terminated for any reason by the Company other than overt misconduct, he would be entitled to the following:
 • Outplacement Services.Services. Mr. Kalush will be entitled to reimbursement for any reasonable outplacement consulting fees and expenses up to a maximum of 15% of his then current base salary.
 
 • Gross Up Payment. If Mr. Kalush will be entitled to a gross up payment if he incurs anythe 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 athe result of the receipt of any payments under his agreement. Heagreement, then Mr. Kalush is entitled to receive a gross up payment such that the net amount retained by Mr. Kalush, isafter deduction of (i) any such excise tax upon any payments under his agreement and (ii) any federal, state and local income and employment taxes (together with penalties and interest) and excise tax upon the payments provided in his agreement shall be 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 or Group. If during the term of Mr. Kalush’s agreement one investor accumulates 20%person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the outstandingmost recent acquisition by such person or persons) ownership of the common stock of the Company (referredpossessing 30% or more of the total voting power of the stock of the Company and such acquisition constitutes a “change in the effective control of a corporation” for purposes of Section 409A of the Internal Revenue Code, then Mr. Kalush shall not be entitled to as an “Acquisition”), then in lieu ofreceive any severance or other severance programpay provided for in Mr. Kalush’s agreement and summarized above, but Mr. Kalush will receive immediately following the Acquisition the following:shall instead receive:
 o1. A lump sum payment in the amount of two (2) years’ base salary at the current base salary amount;amount payable within thirty (30) days of the acquisition, and,
 
 o2. An immediateA lump sum payment payable within thirty (30) days equal to two (2) years’ of hisMr. Kalush’s annual bonus.bonus based on the Company’s Executive Bonus Plan. The bonus amount will be the greater of the prior fiscal years’year’s executive bonus payment or 100% of Mr. Kalush’s bonus target for the year in which the Acquisition occurs;
oUpon 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;acquisition occurs, and,
 
 o3. If anyThe vesting of all of Mr. Kalush’s incentiveoutstanding stock options includingshall be accelerated on the options that fall withindate of the definitionacquisition and the exercise period of Mr. Kalush’s incentivevested stock options that are outstanding on the date of the acquisition and were granted to him as a result of his employment agreement and specifically excluding any stock options granted to Mr. Kalush as a director shall be extended for a period equal to the shorter of (A) three (3) years or (B) the earlier of the latest date upon which arethe stock option could have expired by its original terms under any circumstances or the 10th anniversary of the original grant date of the stock option; provided that for each of Mr. Kalush’s vested are not exercised prior to their termination, thenstock options, if on the date of acquisition, the exercise price of the vested stock option is greater than the fair market value of the underlying stock determined on the same date, Mr. Kalush’s vested stock option shall be cancelled (in lieu of the extension of exercise period described above) and the Company will grant a fully-vested non-qualified stock option to Mr. Kalush fora new nonqualified stock option under substantially similar terms and

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conditions as the cancelled option and with respect to the same number of vested shares not exercised and at the same exercise price withbut exercisable for a three-year exercise period beginning on the dateterm of Acquisition.three (3) years.
 
 o4. If at any time during the term of one of Mr. Kalush’s Restricted Stock Agreements an Acquisitionacquisition occurs whereby one investor accumulates 20% or more of the outstanding common stock, then, effective on the date of such Acquisition,acquisition, all of Mr.

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Kalush’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested.
 • Tender or Exchange Offer.
 o1. 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.
 
 o2. 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., Randall E. McComas, Marc E. DeVinney, and James W. Gragg.Mr. Tipton’sThese executives’ employment agreement providesagreements provide for the following termination and severance arrangements:
 • Termination Without Cause or Non-renewal.In the event the Company elects not to renew Mr. Tipton’sthe executive’s agreement and has provided thirty (30) days written notice of its intention not to renew his agreement, or if Mr. Tiptonthe executive is terminated during a term of his agreement without cause, he shall receive an amount(a) the balance of base salary due under his agreement for the balance of its term, and thereafter, (b) subject to the executive’s execution of a general release of claims and covenant not to sue, severance pay equal to six (6) months severance pay based on hismonths’ of base salary at the time of termination, payable in bi-monthly or bi-weekly installments, subject to reduction by any compensation Mr. Tiptonthe executive receives from other employment during the severance period. In addition, provided the executive is eligible for severance payments and has executed a release of claims, and provided the executive is eligible for COBRA coverage, the Company will pay the individual premium cost for COBRA coverage for the executive for the period during which he/she is receiving remaining term payments and severance payments.

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     Thomas N. Tipton, Jr.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,that if one investor accumulates 20% or more of the outstanding Common Stock of the Company, then, effective as of the date of such accumulation by that investor, all of Mr. Tipton’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested.
Randall E. McComas, Marc E. DeVinney, and James W. Gragg.These executive’s Restricted Stock Agreements provide thatif (i) one investor accumulates 20% or more of the outstanding Common Stock of the Company and, if, within 12 months thereafter, the executive’s employment with the Company is terminated either by the Company for reasons other than cause or by the executive for Good Reason, or (ii) one investor other than a reporting company under the 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 the executive’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 a term of this 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 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.

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     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.
Felix V. Diaz. Mr. Diaz’s employment agreement provides for the following termination and severance arrangements:
•Termination due to Death or Disability.In the event of termination due to death or disability, Mr. Diaz or his estate will be entitled to his pro-rated bonus, and to exercise vested stock options through the effective date of termination.
•Termination for without cause. The Company may terminate Mr. Diaz for any reason and no reason. If Mr. Diaz’s employment is terminated for any reason other than overt misconduct, he will be eligible for three (3) months’ severance pay at his base annual rate provided he signs a general release of claims against the Company.
     Mr. Diaz’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. Diaz’s employment with the Company is terminated either by the Company for reasons other than Cause or by Mr. Diaz 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. Diaz’s unvested shares of restricted stock will be released from the forfeiture restrictions and fully vested.
Prasad R. Kallur.Mr. Kallur’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. Kallur 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, subject to reduction by any compensation Mr. Kallur receives from other employment during the severance period.
     Mr. Kallur’s Restricted Stock Agreements provide for the following change in control arrangements:

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•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. Kallur’s employment with the Company is terminated either by the Company for reasons other than Cause or by Mr. Kallur 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. Kallur’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 for overt misconduct 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, 2006:2008:
                                        
 Termination        Termination        
 Without Cause Termination Death or Change in  Without Cause Termination Disability Death Change in
Name Benefit or for Non-Renewal ($) for Cause ($) Disability ($) Control ($)  Benefit or for Non-Renewal ($) for Cause ($) ($) ($) Control ($)
Gregory B. Kalush (1) Salary  750,000   —   500,000   500,000  Salary 975,000 — 650,000 — 650,000 
Chairman of the Board, Chief Bonus  —   —   409,200   409,200  Bonus — — 400,000 — 400,000 
Executive Officer and President Outplacement services  37,500   37,500   —   —  Outplacement services 48,750 — 48,750 — 48,750 
 Stock Vest Acceleration  —   —   —   382,998  Insurance Policy (2) — — — — — 
               Cobra Coverage 28,587 — — — — 
 Total Value  787,500   37,500   909,200   1,292,198  Extended Exercise Period 
                   for Stock Options 60,487 — 60,487 60,487 60,487 
 Stock Vest Acceleration — — — — 68,942 
             
 Total Value 1,112,824 — 1,159,237 60,487 1,228,179 
   
Thomas N. Tipton Jr. Salary  75,000   —   —   —  Salary 92,500 — — — — 
Chief Financial Officer, Treasurer Stock Vest Acceleration  —   —   —   232,120  Stock Vest Acceleration — — — — 43,181 
                           
and Vice President of Finance Total Value  75,000   —   —   232,120  Total Value 92,500 — — — 43,181 
                     
Randall E. McComas (2) Salary  168,750   —   —   — 
Randall E. McComas Salary 117,500 — — — — 
Vice President of Global Sales and Stock Vest Acceleration  —   —   —   155,438  Stock Vest Acceleration — — — — 27,184 
                           
Customer Support Total Value  168,750   —   —   155,438  Total Value 117,500 — — — 27,184 
                     
Felix V. Diaz (3) Salary  48,750   —   —   — 
Vice President of Engineering and Bonus  —   —   30,000   — 
Chief Technology Officer Stock Vest Acceleration  —   —   —   155,438 
Marc A. DeVinney Salary 87,500 — — — — 
Vice President of Engineering Stock Vest Acceleration — — — — 28,215 
                           
 Total Value  48,750   —   30,000   155,438  Total Value 87,500 — — — 28,215 
                     
Prasad R. Kallur Salary  87,500   —   —   — 
Vice President of Strategic Stock Vest Acceleration  —   —   —   208,908 
James W. Gragg Salary 87,500 — — — — 
Vice President of Operations and Stock Vest Acceleration — — — — 21,615 
                           
Marketing Total Value  87,500   —   —   208,908 
Fulfillment Total Value 87,500 — — — 21,615 
 
(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

27

the meaning of Section 280G(b)(1) of the Code as a result of the receipt of any payments under his agreement, heagreement. 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 thishis 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.
(3)Mr. Diaz will beKalush’s estate is entitled to a pro-rated bonusone-time $1,000,000 death benefit payable by the insurance provider under an insurance policy paid for by the year of his death or disability. The table above reflects a termination for death or disability as of June 30.Company.

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Report of the Compensation Committee
March 19, 200720, 2009
To the Board of Directors of Interphase Corporation:
We have reviewed and discussed with management the Company’s Compensation Discussion and Analysis.
Based on this review and these discussions, we recommend to the Board of Directors that the Compensation Discussion and Analysis be included in Interphase’s annual report on Form 10-K and proxy statement on Schedule 14A.
     
  THE COMPENSATION COMMITTEE
     
    Michael J. Myers, Chairman
    Paul N. Hug
Christopher B. Strunk
Compensation Committee Interlocks and Insider Participation
     During 2006,2008, the Compensation Committee was composed of Mr. Ledford who resigned from the Board of Directors on August 29, 2006 due to potential conflicts resulting from the Emerson Electric Co. acquisition of Artesyn Technologies,Myers, Chairman, Mr. Hug and Mr. Myers.Strunk. None of the Company’s executive officers served during the year ended December 31, 20062008 as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, whose executive officers served on our Board of Directors or Compensation Committee.
CERTAIN RELATED TRANSACTIONS
     During 2006,2008, the Company was not a party to any transactions that would require disclosure pursuant to Item 404 of Regulation S-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
     Section 16(a) of the 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

28

complied with all filing requirements applicable to them during the reporting period ended December 31, 2006 except for Mr. Kalush who made two late filings disclosing two transactions, Mr. Tipton who made one late filing disclosing one transaction, Mr. McComas who made one late filing disclosing one transaction, Mr. Kallur who made one late filing disclosing one transaction, Mr. Diaz who made one late filing disclosing one transaction, Mr. Gragg who made one late filing disclosing one transaction and Ms. Shute who made one late filing disclosing one transaction.2008.
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
     Grant Thornton LLP (“Grant Thornton”) served as the independent auditors of the Company for the years ended December 31, 20062008 and 2005.2007. 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 May 2007April 2009 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

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audit the Company’s financial statements for the year ending December 31, 2007,2009, which is expected to be Grant Thornton.
Audit Fees
     During 20062008 and 2005,2007, the Company retained its principal auditor, Grant Thornton, to provide services in the following categories and amounts:
                
 2006 2005  2008 2007
    
Audit Fees $144,375 $133,875  $169,600 $174,004 
Tax Fees 29,902 76,934 
Audit-Related Fees — 4,750  — 2,500 
Tax Fees 19,873 — 
All Other Fees — —  — — 
    
Total $164,248 $138,625  $199,502 $253,438 
     The Grant Thornton Audit Fees for the year ended December 31, 20062008 and 20052007 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, 20062008 were for the preparation of the Company’s 20052007 tax returns. 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 Audit-Related Fees for the year ended December 31, 20052007 were for consultations regarding acceleration of stock options and issuance of restricted stock and for professional services rendered in connection with an SEC comment letter and Company’s response.

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During 2006 and 2005, the Company paid its former auditor, PricewaterhouseCoopers LLP (“PwC”), to provide services in the following categories and amounts:
         
  2006  2005 
   
Audit Fees $7,000  $7,000 
Audit-Related Fees  —   — 
Tax Fees  —   — 
All Other Fees  —   — 
   
Total $7,000  $7,000 
     During 2006 and 2005, PwC provided services for the reissuanceinternal control reporting requirements under Section 404 of the 2003 audit report.Sarbanes-Oxley Act of 2002.
SHAREHOLDERS’ PROPOSALS
     Any proposals that shareholders of the Company desire to have presented at the 20082009 annual meeting of shareholders must be received by the Company at its principal executive offices no later than December 1, 2007,14, 2009, 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 20082010 annual meeting of shareholders without including the proposal in the Company’s proxy statement must give written notice of that proposal to the Company at its principal executive offices, by February 14, 2008.15, 2010. 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 for that meeting will be entitled to vote the proxy cardsproxies held by them regarding that proposal, if properly raised at the meeting, in their discretion.

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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 Secretary 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 2006,2008, 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 20062008Form 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 27, 2009

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(INTERPHASE LOGO)

(SCALE)
 By Order of the Board of Directors
S. THOMAS THAWLEY
Vice Chairman and Secretary
Plano, Texas
March 31, 2007

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EXHBIT A
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF
INTERPHASE CORPORATION
Effective February 7, 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.(BAR CODE)
 
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 agenda 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 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.
4.8Review the company’s code of conduct at least annually to ensure that it is adequate and up-to-date.
4.9Review 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 one has been reached.
Financial reporting
4.10Gain an understanding of the current areas of greatest financial risk and how these are being managed.
4.11Review with management and the independent auditor significant accounting and reporting issues, including the effect of any regulatory and accounting initiatives, as well as off-balances-sheet structures, if any, and understand their impact on financial reports.
4.12Oversee the periodic financial reporting process implemented by management and review the interim financial statements, annual financial statements and preliminary announcements prior to their release.

A-3

4.13Review 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).
4.14Inquire 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.
4.15Meet with management and the external auditors to review the financial statements, the key accounting policies and judgements, and the results of the audit.
4.16Ensure that significant adjustments, unadjusted differences, disagreements with management and critical accounting policies and practices are discussed with the external auditor.
4.17Review 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
4.18Review 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.
4.19Obtain 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.
4.20Be satisfied that all regulatory compliance matters, related to the business of the company, have been considered in the preparation of the financial statements.
4.21Review the findings of any examinations by regulatory agencies.
Working with auditors
External audit
4.22Review the professional qualification of the auditors (including background and experience of partner and auditing personnel).
4.23Consider the independence of the external auditor and any potential conflicts of interest.
4.24Review 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.
4.25Review 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.
4.26Discuss 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.
4.27Ensure that significant findings and recommendations made by the external auditors and management’s proposed response are received, discussed and appropriately acted on.

A-4

4.28Discuss with the external auditor the appropriateness of the accounting policies applied in the company’s financial reports and whether they are considered as aggressive, balanced or conservative.
4.29Meet 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.
4.30Review policies for the provision of non-audit services by the external auditor and the framework for pre-approval of non-audit services.
4.31Ensure the company has appropriate policies regarding the hiring of audit firm personnel for senior positions after they have left the audit firm.
4.32Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
Reporting responsibilities
4.33Regularly update the board about committee activities and make appropriate recommendations.
4.34Ensure the board is aware of matters that may significantly impact the financial condition or affairs of the business.
4.35Oversee 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
4.36Evaluate the committee’s own performance, both of individual members and collectively, on a regular basis.
4.37Assess the achievement of the duties specified in the charter and report the findings to the board.
Review of the committee charter
4.38Review 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 the board of directors.
4.39Ensure that the charter is approved or reapproved by the board.
Other
4.40The committee will perform such other functions as assigned by law, the company’s charter or bylaws, or the board of directors.

A-5

(INTERPHASE LOGO)
   
Using ablack ink pen, mark your votes with anXas shown in
this example. Please do not write outside the designated areas.
 x
Annual Meeting Proxy Card
6Annual Meeting Proxy CardPLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
     
6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
6
 
A
 Proposals — The Board of Directors recommends a voteFOR the listed nominees andFOR Proposal 2.
1. Election of Directors.
1.    Election of Directors:
ForWithholdForWithholdForWithhold+
                 
     01-Paul01 - Paul N. Hug For
o		 Withhold
o		      02-Gregory02 - Gregory B. Kalush For
o		 Withhold
o		      03-Michael03 - Michael J. Myers For
o		 Withhold
o
 04-Kenneth V. SpenserFor
o		Withhold
o		  05-Christopher B. StrunkFor
o		Withhold
o		  06-S. Thomas Thawley For
o		 Withhold
o

           
04 - Kenneth V. Spenser2.oo05 - Christopher B. Strunkoo06 - S. Thomas Thawleyoo
  
ForAgainstAbstain
2.    In the discretion of the Proxies, on any other matters matter
that may properly come before the meeting or any
adjournment thereof.
 For
o		 Against
o		 Abstain
o
  
B
 Non-Voting Items
Change of Address— Please print new address below.
  
 
 
C
 Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box.

/                 /

(BAR CODE)
     
          /    /<STOCK#>                               010UBA  
 

 

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
 
(INTERPHASE LOGO)
(INTERPHASE LOGO)
Proxy — INTERPHASE CORPORATION
 
Proxy — INTERPHASE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting of Shareholders of Interphase Corporation (the “Company”) to be held on May 2, 20076, 2009 at 9:00 a.m. local time at the Embassy Suites Hotel at 7600 John Q. Hammons Drive, Frisco, Texas 75034, and the Proxy Statement in connection therewith, and (b) appoints Gregory B. Kalush and S. Thomas Thawley, and each of them, the undersigned’s proxies with full power of substitution, for and in the name, place and stead of the undersigned, to vote upon and act with respect to which the undersigned is entitled to vote and act at said meeting or at any adjournment thereof, and the undersigned directs that this proxy be voted as follows:
If more than one of the proxies above shall be present in person or by substitute at the meeting or any adjournment thereof, both of said proxies so present and voting, either in person or by substitute, shall exercise all of the powers hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms all that said proxies, their substitutes, or any of them, may lawfully do by virtue hereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE MATTERS REFERRED TO ON THE REVERSE.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be dated and signed on the reverse side.)

(BAR CODE)
(INTERPHASE LOGO)
(BAR CODE)
Using ablack inkpen, mark your votes with anXas shown in
this example. Please do not write outside the designated areas.
x
Annual Meeting Proxy Card
6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
A
Proposals — The Board of Directors recommends a voteFOR the listed nominees andFOR Proposal 2.
1. Election of Directors:ForWithholdForWithholdForWithhold+
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 matter that may properly come before the meeting or any adjournment thereof.ooo
B
Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
       /       /
§1 U P X          0 2 1 3 5 9 2+
<STOCK#>                               010UCA

6PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
(INTERPHASE LOGO)
Proxy — INTERPHASE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting of Shareholders of Interphase Corporation (the “Company”) to be held on May 6, 2009 at 9:00 a.m. local time at the Embassy Suites Hotel at 7600 John Q. Hammons Drive, Frisco, Texas 75034, and the Proxy Statement in connection therewith, and (b) appoints Gregory B. Kalush and S. Thomas Thawley, and each of them, the undersigned’s proxies with full power of substitution, for and in the name, place and stead of the undersigned, to vote upon and act with respect to which the undersigned is entitled to vote and act at said meeting or at any adjournment thereof, and the undersigned directs that this proxy be voted as follows:
If more than one of the proxies above shall be present in person or by substitute at the meeting or any adjournment thereof, both of said proxies so present and voting, either in person or by substitute, shall exercise all of the powers hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms all that said proxies, their substitutes, or any of them, may lawfully do by virtue hereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF THE MATTERS REFERRED TO ON THE REVERSE.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be dated and signed on the reverse side.)