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
(Amendment No. )
Filed by the Registrantþx
Filed by a Party other than the Registranto¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement | |||
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule | |||
| x | Definitive Proxy Statement | |||
| ¨ | Definitive Additional Materials | |||
| ¨ | Soliciting Material | |||
| Interphase Corporation | ||||
| (Name of registrant as specified in its charter) | ||||
| (Name of person(s) filing proxy statement, if other than the registrant) | ||||
| Payment of Filing Fee (Check the appropriate box): | ||||
| x | No fee required. | |||
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i) | |||
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| (2) | Aggregate number of securities to which transaction applies: | |||
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| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||
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To Be Held May 6, 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 6, 20092, 2012 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; | ||
| (b) | to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2012; and |
| (c) | 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 requestedurged 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, 2009.2, 2012: This Proxy Statement and the Annual Report on Form 10-K are available online atwww.proxydoc.com/www.proxydocs.com/inph.
| By order of the Board of Directors | ||||
| Thomas N. Tipton, Jr. | ||||
Chief Financial Officer, Secretary, Vice President of Finance and Treasurer | ||||
Plano, Texas
March 27, 2009
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Parkway Centre I
2901 North Dallas Parkway, Suite 200
Plano, Texas 75093
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 6, 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 (the “Board of Directors” or the “Board”) for use at the annual meeting of shareholders to be held on May 6, 2009.2, 2012. 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 27, 2009.2012. This proxy statement and the Company’s 20082011 annual report are available online atwww.proxydocs.com/inph.
The accompanying proxy is being solicited by the Board of Directors of the Company. The cost of soliciting the proxies and the annual meeting will be borne entirely by the Company. In addition to the use of the mail, proxies may be solicited by personal interview, telephone, and facsimile transmission by directors and officers and employees of the Company. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of shares of Common Stock, $.10 par value (“Common Stock”), held of record by such persons, and the Company may reimburse them for reasonable out-of-pocket expenses they incur in connection with forwarding the solicitation material.
The record date for shareholders entitled to notice of and to vote at the annual meeting is March 13, 2009.14, 2012. At the close of business on that date, the Company had issued, outstanding and entitled to be voted at the meeting 6,905,9946,914,960 shares of Common Stock.
Shareholders of record may vote by proxy by completing, signing and returning the accompanying proxy form in the accompanying postage-paid envelope. A proxy may be revoked at any time before it is exercised. A shareholder giving a proxy may revoke it by (1) submitting another proxy with a later date, (2) giving written notice to the Company’s Secretary before the annual meeting that the proxy has been revoked or (3) voting in person at the annual meeting.
The accompanying proxy, unless the shareholder otherwise specifies in the proxy, will be voted forFOR the election as directors of the Company of the six persons named under the caption“Election of Directors”,FOR the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2012 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 doBoard does not know of any such other matter or business.
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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 haveDirectors are elected by a plurality of the same effect on each proposal other thanvotes cast at the election of directors, if any, as a negative vote.meeting. Because the six nominees for director who receive the most votes will be elected, any abstention willabstentions and broker-non-votes (i.e., shares held by brokers or other nominees that are present at the meeting but not be included in vote totals. Broker non-votes, if any,voted for a particular matter) will not be included in vote totals and will have no effect on any proposalthe election of directors. The ratification of the auditors will require the affirmative vote of a majority of the shares present at thisthe meeting.
The following table sets forth certain information as to the number of shares of Common Stock of the Company beneficially owned as of March 13, 200914, 2012 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) certainthe named executive officers (identified in “Executive Compensation – Summary Compensation Table” below) and each director of the Company and (iii) all named executive officers and directors as a group. To the knowledge of the Company, each of the owners named below has sole voting and investment power with respect to the shares of Common Stock beneficially owned by him or it unless otherwise indicated.
| Name and address of | Amount and Nature of | Percent of | ||||||
| Beneficial Owner | Beneficial Ownership | Class | ||||||
| Gregory B. Kalush | 625,462 | (1) | 8.6 | % | ||||
| S. Thomas Thawley | 298,626 | (1) | 4.3 | % | ||||
| Randall E. McComas | 238,940 | (1) | 3.4 | % | ||||
| Deborah A. Shute | 176,050 | (1) | 2.5 | % | ||||
| James W. Gragg | 109,800 | (1) | 1.6 | % | ||||
| Thomas N. Tipton, Jr. | 81,486 | (1) | 1.2 | % | ||||
| Paul N. Hug | 58,501 | (1) | 0.8 | % | ||||
| Yoram Solomon | 55,000 | 0.8 | % | |||||
| Marc E. DeVinney | 49,900 | 0.7 | % | |||||
| Michael J. Myers | 47,501 | (1) | 0.7 | % | ||||
| Kenneth V. Spenser | 47,501 | (1) | 0.7 | % | ||||
| Christopher B. Strunk | 9,167 | 0.1 | % | |||||
| All executive officers and directors as a group (12 persons) | 1,797,934 | (2) | 22.7 | % | ||||
| 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 | % | ||||
Name and address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Gregory B. Kalush | 320,310 | (1) | 4.5 | % | ||||
S. Thomas Thawley | 280,626 | (1) | 4.0 | % | ||||
James W. Gragg | 74,800 | (1) | 1.1 | % | ||||
Michael J. Myers | 65,501 | (1) | 0.9 | % | ||||
Thomas N. Tipton, Jr. | 59,824 | (1) | 0.9 | % | ||||
Kenneth V. Spenser | 59,501 | (1) | 0.9 | % | ||||
Yoram Solomon | 33,047 | (1) | 0.5 | % | ||||
Christopher B. Strunk | 24,167 | (1) | 0.3 | % | ||||
Randall E. McComas | 6,248 | (1) | 0.1 | % | ||||
Mark D. Kemp | — | (1) | 0.0 | % | ||||
All executive officers and directors as a group (10 persons) | 924,024 | (2) | 12.7 | % | ||||
Royce & Associates, LLC 745 Fifth Avenue New York, NY 10151 | 370,933 | (3) | 5.4 | % | ||||
Renaissance Technologies LLC Renaissance Technologies Holdings Corporation 800 Third Avenue New York, NY 10022 | 344,500 | (4) | 5.0 | % | ||||
| (1) | Includes vested options to purchase shares of Common Stock, and options exercisable within 60 days of the date of this proxy statement, if any, with exercise prices ranging from |
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| (2) | Includes | |
| (3) | Based solely upon information contained in an amended Schedule 13G |
| (4) | Based solely upon information contained in an amended Schedule 13G filed by Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings Corporation (“RTHC”) with the Securities and Exchange Commission on February 13, 2012. It appears from the Schedule 13G that RTC has sole voting and investment power over the shares and that RTHC, as the majority owner of RTC, is deemed to |
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, 52,55, was elected Chairman of the Board in May 2000. Mr. Kalush was appointed the Chief Executive Officer, President and Director of the Company in March 1999. He joined the Company in February 1998 as Chief Financial Officer, Vice President of Finance and Treasurer. Mr. Kalush is also the sole member of the New Employee and Retention Stock Award Committee of the Board of Directors. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
Mr. Kalush’s depth of experience in leading Interphase as CEO and Chairman of the Board, his responsibilities for the strategic direction and management of Interphase’s day-to-day operations, and his experience as the former Chief Financial Officer of Interphase and other executive general management experiences in the telecommunications and enterprise computing technology sectors bring a broad array of industry experience and institutional knowledge to the Board.
Paul N. HugMark D. Kemp, 65,50, was elected a director in 1984.October 2011 by the Board. He has beenis currently President at Martech, LLC, a certified public accountant engagedmanufacturer and installer of composite bath components, including vanities, bathtubs, showers and sinks. Prior to joining Martech, Mr. Kemp served as Senior Vice President and Corporate Controller of Centex Corporation, one of the largest homebuilders in publicthe United States, from 2002 to 2009. Prior to joining Centex, Mr. Kemp spent 19 years with Arthur Andersen LLP, an international accounting practiceand consulting firm, most recently as owner of Paul Hug & Co. CPAs since 1980.a partner in the Dallas office. Mr. HugKemp is currently a member of the Compensation Committee, the Nominating and Governance Committee and is Chairman of the Audit Committee of the Board of Directors.
As a current private-company president, former finance executive of a public company, and former partner of an international accounting firm, Mr. Kemp contributes valuable insight to the Board in the areas of general management, financial acumen, Securities and Exchange Commission (“SEC”) compliance, and corporate governance. His experiences with public company accounting and financial reporting matters, corporate governance practices, and complex financial issues make him a valuable asset as the Chairman of our Audit Committee. Mr. Kemp qualifies as an “audit committee financial expert” under the guidelines of the SEC.
Michael J. Myers, 62,65, was elected a director in 2002. From 2002 until his retirement in 2006, Mr. Myers served as President and CEO of Coppercom Inc., a provider of networking equipment for telecommunications operators. Mr. Myers served as the President of the Broadband Systems Division of Alcatel from 2000 to 2002 and as Group Vice President for Alcatel’s Networking Systems Group from 1998 to 2000. Prior to 1998, Mr. Myers worked for DSC Communications Corporation, serving as its Executive Vice President and Chief Operating Officer from 1997 to 1998, at its DSC Denmark A/S subsidiary, and as a Group Vice President for its transmission business in 1997. Mr. Myers also had prior financial experience with Nortel Networks, NCR, and General Motors Corporation. Mr. Myers is currently the Chairman of the Compensation Committee and a member of the Nominating and Governance Committee and the Audit Committee of the Board of Directors.
As a former chief executive officer and senior executive with both general management and finance expertise as well as significant international experience across a variety of industry sectors, including telecommunications, computing and automotive, Mr. Myers contributes valuable insight to the Board in the areas of general management, financial acumen, strategic insight and governance.
Kenneth V. Spenser, 60,63, was elected a director in 2002. Mr. Spenser is currently President of Better Rehab, LLC a supplier of content to the health services industry, a position he has held since 2007. In 2012, Mr. Spenser became a Mentor in Residence for the Office of Technology Transfer for the University of Michigan and a Frankel Fund Advisor. Frankel Fund is a pre-seed investment fund that leverages the Ross School of Business talent to improve the number of successful ventures coming from the University of Michigan. Previously Mr. Spenser was a founder, President and Chief Executive Officer forof two venture backed software development companies, MicroEngineering Solutions, Inc. and Entivity, Holdings.Inc. MicroEngineering Solutions was successfully sold to Autodesk in 1993 and Entivity was sold to Phoenix Contact, GmbH in 2003. Prior to his experience with venture capital backed companies, 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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with a Bachelor of Science Degree in Physics and Applied Math. He was one of eleven Midshipmen awarded Immediate Graduate Education and completed his Master of Science Degree in Electrical Engineering (Acoustics) before going to Flight School. Mr. Spenser retired as a naval aviatorNavy Captain and twelve years in the Naval Reserves, retiring in 1993 with the rank of Captain.is a Vietnam and Desert Storm veteran. Mr. Spenser is a membercurrently the Chairman of the Nominating and Governance Committee, and also a member of the Audit Committee and Compensation Committee of the Board of Directors.
As a former chief executive officer and senior executive in the technology industry along with his successful entrepreneurial experiences, Mr. Spenser offers a unique and insightful perspective to the Board in the areas of strategic market selection, positioning and market expansion, sales and channel development and overall general management.
Christopher B. Strunk, 60,63, was elected a director in 2007. Prior to his retirement in 2004, Mr. Strunk served as Senior Vice President, North American Sales for Alcatel, from 2002 to 2004. He was Vice President Sales-Bell Atlantic/Verizon for Alcatel from 1998 to 2002. Prior to 1998, Mr. Strunk was Regional Vice President-Sales for DSC Communications Corporation. Mr. Strunk also had prior experience with Granger Associates, AT&T, Bell of Pennsylvania and Diamond State Telephone. Mr. Strunk is currently a member of the Compensation Committee and the Nominating and Governance Committee.
As a former senior executive with significant sales experience in the telecommunications industry, Mr. Strunk contributes valuable insight about the telecommunications market and customer trends to the Board.
S.Thomas Thawley, 68,71, is a co-founder of the Company and has served as Secretary and a director of the Company since its inceptionincorporation in 1977. Mr. Thawley also served as Secretary since the incorporation of the Company in 1977 until July 2011. Mr. Thawley was elected Vice Chairman in May 2000 and is the Chairmancurrently a member of the Nominating and Governance Committee of the Board of Directors.
Mr. Thawley’s experience in leading the business as co-founder of Interphase brings broad electronics industry experience and technical expertise and specific institutional knowledge to the Board.
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 2008,
The Audit Committee was composed of Mr. Hug (Chairman), Mr. Myers, and Mr. Spenser until July 27, 2011. On July 27, 2011, the Committee was composed of Mr. Hug (Chairman), Mr. Myers (Stand-in Chairman), Mr. Spenser, Mr. Strunk, and Mr. Thawley. Mr. Hug passed away on July 27, 2011. From July 28, 2011 until October 4, 2011, the Audit Committee was composed of Mr. Hug, Chairman,Myers (Chairman), Mr. Spenser, Mr. Strunk, and Mr. Thawley. Since October 4, 2011, the Audit Committee was composed of Mr. Kemp (Chairman), Mr. Myers, and Mr. Spenser. The Audit Committee met seven times during 2008.2011. The Audit Committee’s responsibilities are described in the Audit Committee Charter, which is available on the Company’s website atwww.interphase.comincluded as an exhibit to this proxy statement (See Exhibit A). During 2008,
The Compensation Committee was composed of Mr. Myers (Chairman), Mr. Hug, and Mr. Strunk until July 27, 2011. From July 28, 2011 until September 29, 2011, the Compensation Committee was composed of Mr. Myers Chairman,(Chairman) and Mr. Hug,Strunk. Since September 29, 2011, the Compensation
Committee was composed of Mr. Myers (Chairman), Mr. Spenser, and Mr. Strunk. The Compensation Committee met sixfour times during 20082011 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 ourthe Company’s executive compensation policies as provided in a written charter adopted by the Board of Directors, which is available on the Company’s website atwww.interphase.com. During 2008,
The Nominating and Governance Committee was composed of Mr. Thawley (Chairman), Mr. Hug, Mr. Myers, Mr. Spenser, and Mr. Strunk until July 27, 2011. From July 28, 2011 to October 4, 2011, the Nominating and Governance Committee was composed of Mr. Thawley, Chairman, Mr. Hug,Spenser (Chairman), Mr. Myers, Mr. Spenser,Strunk, and Mr. Strunk.Thawley. Since October 4, 2011, the Nominating and Governance Committee was composed of Mr. Spenser (Chairman), Mr. Kemp, Mr. Myers, Mr. Strunk, and Mr. Thawley. The Nominating and Governance Committee is responsible for considering and approving nominees for election as director and performing the other responsibilities set forth in its charter, which is available on the Company’s website atwww.interphase.com. The Nominating and Governance Committee met fourfive times during 2008. 2011.
In 2008,2011, 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 eightnine meetings during the year ended December 31, 2008.2011. 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 boardBoard members and nominees for director to attend the annual meeting of shareholders. All current boardBoard members at the time attended the Company’s 20082011 annual meeting of shareholders.
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Our Chief Executive Officer also serves as the Chairman of the Board. The Board has chosen this structure because it believes the Chief Executive Officer serves as a bridge between management and the Board, ensuring that both groups act with a common purpose. However, the Board believes that it is simultaneously important to have a strong governance structure to ensure a strong and independent Board. All directors, with the exception of the Chairman, are “independent” as defined under SEC rules and NASDAQ Global Market listing requirements, and the Audit Committee, the Compensation and Nominating and Governance Committee are composed entirely of independent directors. The Committee chairs set the agendas for their committees and report to the full Board on their work. The chairman of the Nominating and Governance Committee also serves as the lead independent director. The “independent” members of the Board meet regularly in executive session, without management present.
coming year. The Compensation Committee reviews the Company’s overall compensation program and its effectiveness at both linking executive pay to performance and aligning the interests of our executives and our stockholders. Finally, the Nominating and Governance Committee reviews the Company’s management and Board performance as well as the Board’s structure on a regular basis. Material violations of the Company’s Code of Ethics and related policies are reported to the full Board.
Limitation of Liability and Indemnification
The Company’s Articles of Incorporation, as amended, include a provision that eliminates the personal liability of the Company’s directors for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the Company or its shareholders, (2) for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law, (3) for any transaction from which the director received an improper personal benefit, or (4) for an act or omission for which the liability of a director is expressly provided for by an applicable statute.
The Company’s current Amended and Restated Bylaws provide that the Company (1) shall indemnify the Company’s directors and officers to the fullest extent permitted by Texas law, subject to limited exceptions, (2) may indemnify the Company’s other employees and agents to the same extent that the Company indemnifies its directors and officers, and (3) shall pay or reimburse, in advance of the final disposition of a proceeding, all reasonable expenses incurred to the Company’s directors and officers in connection with the defense of a legal proceeding to the fullest extent permitted by Texas law, subject to limited exceptions.
The Company’s Indemnification Agreement with each of its directors and officers (each an “indemnitee”) provides that, subject to the terms and conditions set forth therein, if the indemnitee was, is, or becomes a party to, witness in, or other participant in, or is threatened to be made a party to, witness in, or other participant in, a claim by reason of or arising in whole or in part out of an indemnifiable event, the Company will indemnify the indemnitee to the fullest extent permitted by law against any and all expenses, judgments, fines, excise and similar taxes, penalties, and amounts paid in settlement of such claim. Each Indemnification Agreement also provides for the Company’s advancement of expenses incurred by an indemnitee in connection with an indemnifiable claim, subject to the indemnitee’s undertaking to repay if he or she is ultimately determined not to be entitled to indemnification. In addition, each Indemnification Agreement addresses various procedural matters related to indemnification. The rights of each indemnitee are in addition to any other rights provided for under the Company’s Amended and Restated Bylaws, as they may be amended from time to time, and under Texas law.
Compensation of Directors
The following table sets forth the compensation amounts paid to our non-employee directors, who during 20082011 were Mr. Hug, Mr. Kemp, Mr. Myers, Mr. Spenser, Mr. Strunk, and Mr. Thawley.
| Fees Earned or | ||||||||||||
| Paid in Cash | Stock Awards | Total | ||||||||||
| Name | ($) | ($)(1) | ($) | |||||||||
| Paul N. Hug | 32,500 | 22,344 | 54,844 | |||||||||
| Michael J. Myers | 30,500 | 22,344 | 52,844 | |||||||||
| Kenneth V. Spenser | 25,200 | 22,344 | 47,544 | |||||||||
| Christopher B. Strunk | 22,300 | 15,960 | 38,260 | |||||||||
| S. Thomas Thawley | 23,000 | 22,344 | 45,344 | |||||||||
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($) | Total ($) | ||||||||||||
Paul N. Hug (2) | 19,600 | 52,920 | — | 72,520 | ||||||||||||
Mark D. Kemp (3) | 8,800 | — | 14,445 | 23,245 | ||||||||||||
Michael J. Myers | 34,200 | 52,920 | — | 87,120 | ||||||||||||
Kenneth V. Spenser | 28,200 | 52,920 | — | 81,120 | ||||||||||||
Christopher B. Strunk | 24,000 | 52,920 | — | 76,920 | ||||||||||||
S. Thomas Thawley | 23,000 | 52,920 | — | 75,920 | ||||||||||||
| (1) | In May |
| (2) | Mr. Hug passed away in July 2011. As a result, his restricted stock award from 2011 which had not vested was cancelled. |
| (3) | As a newly elected board member in October 2011, Mr. Kemp received a grant of stock options for his appointment to the board. He received options to purchase 4,500 shares with an exercise price of $4.41 and a grant date fair value of $3.21 per share, or $14,445. The stock option award vests in October 2012. There were no other stock option awards granted to non-employee directors during 2011. |
Mr. Hug received two quarterly retainers of $5,000 each for his service as a non-employee member of the Board of DirectorsDirectors. In addition, he received $5,000 as the Chairman of the Audit Committee. Mr. Hug also received two quarterly retainers of $1,300 each as a member of the Audit Committee and two quarterly cashretainers of $1,000 each as a member of the Compensation Committee.
Mr. Kemp received one quarterly retainer of $5,000 for his service. Each committee chairman, except the Audit Committee Chairman, received an annual retainer fee of $3,000. The Audit Committee Chairman received an annual retainer fee of $5,000. Eachservice as a non-employee member of the Compensation Committee, includingBoard of Directors. In addition, he received $2,500 as the chairman,Chairman of the Audit Committee. Mr. Kemp also received an annualone quarterly retainer of $2,300. Each$1,300 as a member of the Audit Committee.
Mr. Myers received four quarterly retainers of $5,000 each for his service as a non-employee member of the Board of Directors. In addition, he received $5,000 as the Chairman of the Compensation Committee. Mr. Myers also received four quarterly retainers of $1,300 each as a member of the Audit Committee includingand four quarterly retainers of $1,000 each as a member of the chairman,Compensation Committee.
Mr. Spenser received an annualfour quarterly retainers of $5,000 each for his service as a non-employee member of the Board of Directors. In addition, he received $2,000 as the Chairman of the Nominating and Governance Committee. Mr. Spenser also received four quarterly retainers of $1,300 each as a member of the Audit Committee and one quarterly retainer of $5,200. $1,000 as a member of the Compensation Committee.
Mr. Strunk received four quarterly retainers of $5,000 each for his service as a non-employee member of the Board of Directors. Mr. Strunk also received four quarterly retainers of $1,000 each as a member of the Compensation Committee.
Mr. Thawley received four quarterly retainers of $5,000 each for his service as a non-employee member of the Board of Directors. In addition, he received $3,000 as the Chairman of the Nominating and Governance Committee.
All directors are reimbursed for their reasonable out-of-pocket expenses in serving on the Board of Directors or any committee of the Board. Mr. Kalush does not receive cash compensation for his service on the Board, but see “Executive Compensation – Summary Compensation Table” below for a description of Directors.
The Audit Committee of the Board of Directors is currently composed of Mr. Hug, Chairman,Kemp (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.Committee, which describes the Audit Committee’s authority, responsibilities and functions. A copy of the Audit Committee Charter is available on the Company’s website atwww.interphase.com and is included as an exhibit to this proxy statement (See Exhibit A).
Audit Committee Member Independence
The Board of Directors has made the determination that all members of the Audit Committee are independent“independent” as defined in the applicable requirements of the Securities and Exchange CommissionSEC and the listing standards of the NASDAQ Global Market.
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The Board of Directors has determined that Mr. HugKemp meets the SEC criteria of an “audit committee financial expert.” Mr. Hug has beenKemp holds a certified public accountant engagedBachelor of Business Administration Degree in publicAccounting and is a Certified Public Accountant. Mr. Kemp served as a Senior Vice President and Corporate Controller of Centex Corporation from 2002 to 2009. Prior to joining Centex, Mr. Kemp spent 19 years with Arthur Andersen LLP, an international accounting practiceand consulting firm, most recently as owner of Paul Hug & Co. CPAs since 1980,a partner in the Dallas office, and as such, has participated in dealing with accounting, auditing, internal control, and risk management issues.
Report of Audit Committee
We have reviewed and discussed with management the Company’s internal control over financial reporting and its audited financial statements as of and for the year ended December 31, 2008.
We have discussed with theGrant Thornton LLP (“Grant Thornton”), our independent auditorsaccountants, the matters required to be discussed by Statement on Auditing Standards No. 61 “Communication with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Auditing StandardsPublic Company Accounting Oversight Board of the American Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from the independent auditorsGrant Thornton as required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”, as amended, by the Independence Standards Board, and have discussed with Grant Thornton its independence with respect to 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, 2008.
The current members of the Nominating and Governance Committee are Mr. Thawley, Chairman,Spenser (Chairman), Mr. Hug,Kemp, Mr. Myers, Mr. SpenserStrunk, and Mr. Strunk.Thawley. 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 Directorsdirectors of the Company (“directors”) 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 Directorrecommends nominees for election as directors at the nextCompany’s annual meetingmeetings of shareholders; developshareholders and recommendwhere a vacancy is created due to death, resignation, retirement or removal of a director, or any other reason; develops and recommends to the Board corporate governance principles applicable to the Company; and overseeoversees the evaluation of the Board and the Company by the Directors.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 does not have a formal policy with respect to Board nominee diversity. In recommending proposed nominees to the full Board, the Nominating and Governance Committee is charged with building and maintaining a board that has an ideal mix of skills and experience to achieve the Company’s business objectives in the current environment. In particular, the Nominating and Governance Committee is focused on relevant subject matter expertise, depth of knowledge in key areas that are important to the Company, and diversity of thought, background, perspective and experience so as to facilitate meaningful discussion and broad thinking on strategies and tactics used by the Company.
In all cases, Directorsdirectors 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 Directorsdirectors 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 Directordirector 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 Directordirector should write to ourthe Company’s Secretary, Mr. Tipton, at the Company’s principal executive offices, and include:
| a. | as to each person whom the shareholder proposes to nominate for election or re-election as a director: |
| i. | the name, age, business address and residence of such person, | ||
| ii. | the principal occupation or employment of such person, | ||
| iii. | the number of shares of | ||
| iv. | information about each of the factors to be considered by the Nominating and Governance 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 | ||
| viii. | any other information relating to such person that is required to be disclosed in solicitations of proxies for election of |
| b. | as to the shareholder giving the notice: |
| i. | the name and record address of the shareholder, and |
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| ii. | the number of shares of |
Any shareholder suggested candidates must be submitted in writing and received by the Company no later than December 14, 2009November 22, 2012 to be considered for election at the 20102013 annual meeting of shareholders.
The current members of the Compensation Committee are Mr. Myers (Chairman), Mr. Spenser, and Mr. Strunk. All members of the Committee meet the independence requirements of the NASDAQ Global Market.
The Compensation Committee has overall responsibility for overseeing, evaluating and approving executive officer and director compensation plans, policies and programs and reviewing, and discussing with management, the Compensation Discussion and Analysis section of the Company’s annual proxy statement and preparing the Compensation Committee Report that is required by SEC rules to be included in the Company’s annual proxy statement. The Compensation Committee Report is included herein on page 34. A copy of the Compensation Committee’s written charter is available on the Company’s website atwww.interphase.com.
The current executive officers of the Company, their respective ages, positions held and tenure as officers are listed below:
| Executive | ||||||||||
| Officer of | ||||||||||
| the Company | ||||||||||
| Name | Age | Position(s) Held with the Company | Since | |||||||
| Gregory B. Kalush | 52 | Chairman of the Board, Chief Executive Officer and President | 1998 | |||||||
| Thomas N. Tipton, Jr. | 34 | Chief Financial Officer, Assistant Secretary, Vice President of Finance and Treasurer | 2005 | |||||||
| Randall E. McComas | 59 | Vice President of Global Sales and Customer Support | 2002 | |||||||
| Deborah A. Shute | 46 | Vice President of Human Resources and Administration | 2002 | |||||||
| James W. Gragg | 57 | Vice President of Operations and Fulfillment | 2004 | |||||||
| Marc E. DeVinney | 47 | Vice President of Engineering | 2007 | |||||||
| Yoram Solomon | 44 | Vice President of Corporate Strategy and Business Development | 2008 | |||||||
Name | Age | Position(s) Held with the Company | Executive Officer of the Company Since | |||||||
Gregory B. Kalush | 55 | Chairman of the Board, Chief Executive Officer and President | 1998 | |||||||
Thomas N. Tipton, Jr. | 37 | Chief Financial Officer, Secretary, Vice President of Finance and Treasurer | 2005 | |||||||
Marc E. DeVinney | 50 | Vice President of Engineering | 2007 | |||||||
James W. Gragg | 60 | Vice President of Operations and Fulfillment | 2004 | |||||||
Randall E. McComas | 62 | Vice President of Global Sales and Customer Support | 2002 | |||||||
Yoram Solomon | 47 | 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.Board. Prior to joining Interphase, Mr. Kalush was with DSC Communications Corporation from 1995 to 1998. While at DSC, he served as Vice President of Transmission Data Services, Vice President of Operations, International Access Products and Group Vice President of Finance, Transport Systems Group. Prior to DSC, Mr. Kalush was with IBM Corporation from 1978 to 1994. During that time his positions included Chief Financial Officer and Operations Executive for the Skill Dynamics Business Unit, Director of Finance, Planning and Administration for the Southwest Area, and Division Director of Finance and Operations for the Data Systems Division.
Thomas N. Tipton, Jr.joined the Company in January 2000 as Financial Planning and Analysis Manager. In December 2000, Mr. Tipton became Corporate Controller and Director of Finance, a position he held until December 2005. In August 2005, Mr. Tipton began serving as interim Chief Financial Officer, Vice President of Finance and Treasurer until December 2005, when Mr. Tipton was promoted to Chief Financial Officer, Vice President of Finance and Treasurer. In July 2011, Mr. Tipton began serving as Secretary. Prior to joining Interphase, Mr. Tipton served in various positions in the Assurance and Business Advisory practice of Arthur AndersonAndersen LLP.
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Marc E. DeVinneyjoined the Company in August 2007 as Vice President of Engineering. Prior to joining Interphase, Mr. DeVinney spent 25 years with Alcatel, serving in various capacities. While with Alcatel, Mr. DeVinney most recently served as Director, Mobile Solutions Circuit Core from 2005 to 2006 and as Program Manager, CTO Product Engineering from 2001 to 2005.
James W. Gragg joined the Company in September 1998 as Manufacturing/Test Engineering Manager. In 2000, Mr. Gragg became Director of Manufacturing and Operations, a position he held until November 2004 when he became Vice President of Operations and Fulfillment. Prior to joining Interphase, Mr. Gragg held various technical leadership roles including Hardware Design Engineering Manager at Compaq Computer Corporation, Vice President of Engineering for MSD Systems and Test Engineering Manager for Mostek Corporation. Mr. Gragg also had his own engineering consulting company, Emtech, Inc., for over 10 years.
Yoram Solomonjoined the Company in November 2008 as Vice President of Corporate Strategy and Business Development. Prior to joining Interphase, Mr. Solomon spent the last six years at Texas Instruments (TI) in Dallas(“TI”) serving in various capacities including, most recently as the Sr. Director of Technology Strategy and Industry Relations for the Chief Technology Officer’s office, and Sr. Director of Strategic Marketing, Industry & Standards. Mr. Solomon held additional roles at TI including Director, Strategic Business Development, and General Manager, Consumer Electronics Connectivity Business Unit. Prior to TI, Mr. Solomon served as Vice President and General Manager of PCTEL’s Advanced Communications Business Unit 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 stocksuch stock-compensation agreements.
Gregory B. Kalush.The Board of Directors approved Mr. Kalush’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr.
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annual bonus opportunity based upon his annual bonus target established by the Compensation Committee. A new two-year term began in March 2009,2011, and Mr. Kalush’s current base salary is $325,000 per year. The employment agreement will continue for successive two-year terms, unless either Mr. Kalush or the Company gives notice to the other more than 30 days prior to the expiration of the then-current term that the agreement will not be renewed. 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 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 (i) severance payments in the amount of three (3) years base salary, (ii) health coverage premiums for up to 18 months paid for Mr. Kalush and his dependents as long as they are qualified and eligible for COBRA coverage, and for(iii) regarding vested stock options with a strike price greater than the fair market value on the date of termination, aan 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. If the Company terminates Mr. Kalush’s employment agreement by reason of disability, and subject to Mr. Kalush’s execution of a general release of claims, then Mr. Kalush will be entitled to receive (i) compensation in the amount of two (2) years base salary, (ii) payment of two (2) years of his annual bonus calculated based on the greater of the prior fiscal year’s Executive Bonus Plan payment or 100% of the Executive’s Bonus Plan target for the year in which Mr. Kalush’s employment terminates, (iii) health coverage premiums for up to 18 months paid for Mr. Kalush and (iii)his dependents as long as they are qualified and eligible for COBRA coverage, and (iv) regarding vested stock options with a strike price greater than the fair market value on the date of termination, an additionalexercise period of upequal to the shorter of three (3) years to exercise his vested stock options.from the date of termination or the original expiration date of the option. If Mr. Kalush dies, then Mr. Kalush’s estate will be entitled to (i) a $1.0 million death benefit payable to Mr. Kalush’s designated beneficiary under a life insurance policy with company-paidCompany-paid premiums, and (ii) forregarding vested stock options with a strike price greater than the fair market value on the date of his death, aan 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 permitsprovides for the Companynon-disclosure of confidential information. Remedies for breach of this provision include damages, injunctive relief and specific performance. The damages for use of any identified Confidential Trade Secret Information (defined therein) in violation of this provision shall be 100% of the gross amount of revenue derived or resulting from unauthorized use of such information. Mr. Kalush’s employment agreement also provides for covenants not to terminate Mr. Kalush without further compensationcompete and not to solicit employees during and for overt misconduct.
Thomas N. Tipton, Jr.The Board of Directors approved Mr. Tipton’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Tipton as its Chief Financial Officer and Vice President of Finance, at a base salary of at least $185,000 per year.year plus an annual bonus opportunity based upon his annual bonus target established by the Compensation Committee. His current base salary is $195,000.$202,500. The employment agreement automatically renews for successive six month periods, unless either Mr. Tipton or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. Tipton is terminated for cause. In addition, in accordance with his prior
Marc E. DeVinney. The Board of Directors approved Mr. DeVinney’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Tipton (i) received in December 2005, 10,000 sharesDeVinney, at a base salary of restricted stock under the Company’s 2004 Long-Term Stock Incentive Plan, and (ii) is entitled toat least $175,000 per year plus an annual bonus opportunity based upon his annual bonus target established by the Compensation Committee.
James W. Gragg. The Board of Directors approved Mr. Gragg’s current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. Gragg, at a base salary of at least $175,000 per year plus an annual bonus opportunity based upon his annual bonus target established by the Compensation Committee. His current base salary is $182,000. The employment agreement automatically renews for successive six month periods, unless either Mr. Gragg or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. Gragg is terminated for cause.
Randall E. McComas.The Board of Directors approved Mr. McComas’ current amended and restated employment agreement, effective December 30, 2008, pursuant to which the Company employs Mr. McComas, at a base salary of at least $235,000 per year.year plus an annual bonus opportunity based upon his annual bonus target established by the Compensation Committee. His current base salary is $240,000. The employment agreement automatically renews for successive six month periods, unless either Mr. McComas or the Company gives written notice to the other 30 days prior to the expiration of the then-current term that the agreement will not be renewed, or Mr. McComas is terminated for cause. In addition, in accordance with his prior employment agreement, Mr. McComas (i) received in February 2002, a non-
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The employment agreement,agreements for the executive officers described above (other than 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.
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Compensation Discussion and Analysis
Objectives and Philosophy of Our Compensation Programs
Our executive compensation program is driven by our business environment and is designed to enable us to achieve our strategic priorities and adhere to Company values. The program’s objectives are to:
Attract, motivate, and retain a team of talented leadership who help ensure our future success;
Align executives’ interests with the interests of shareholders;
Reward success as a management team in supporting overall business objectives and in obtaining key financial metrics in a lean and flexible environment;
Provide a balance between short-term goals and long-term priorities to achieve immediate objectives while also focusing on increasing shareholder value over the long term; and
Provide incentives that will stimulate executive behavior such as high performance, integrity, teamwork, and loyalty to achieve defined plan priorities, financial goals, and strategic objectives intended to provide shareholders with a superior rate of return.
Our compensation programs must be competitive with other programs for similarly placed executives at companies within the telecomtelecommunications and general technology industries. Independent compensation consultants are periodically retained for advice and guidance in assessing whether our executive compensation program is competitive. Executive compensation programs impact all employees by setting general levels of compensation and by helping to create an environment of strategic priorities, incentives, and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect executive compensation and incentive programs have on all of our employees.
The guiding principles of our compensation programs are:
Enabling a high-performance organization;
Competitiveness in the marketplace in which we compete for talent;
Optimization of the cost to us and value to our executives;
Global consistency with business-driven flexibility; and
Conscientious and thoughtful decision-making and execution delivery.
To this end, we measure the success of our compensation programs by:
Overall business performance and executive engagement;
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Ability to attract and retain key executive talent;
All of our compensation and benefits for our executives described below have as a primary purpose:purpose the ability to attract, motivate, and retain highly talented individuals who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. We believe that the performance of our executives, considered in light of general economic and industry conditions, our company, and competitive conditions, should be another key basis for determining overall compensation. We also believe that compensation and should not be based on the short-term performance of our stock,Common 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.unfavorable. Beyond that, different elements are designed to engender different behaviors.behaviors emphasizing the short-term performance and long-term health of the Company. In particular, in determining total compensation, we stress a compensation philosophy that is performance driven with competitive base salaries, but high variability in incentives. We believe that our total compensation is competitive with comparable positions at companies in our industry.
Pay Elements of Our Compensation Programs
To promote the objectives of our compensation programs, our compensation programs consist of the following principal elements:
Pay Element | ||||
What the Pay Element Rewards | ||||
Purpose of the Pay Element | ||||
Base Salary | ||||
• Core competence in the executive role relative to skills, experience and contributions to the Company | • To provide fixed compensation based on competitive market practice • To attract and retain executives over time | |||
Annual Cash Incentives | ||||
• Contributions toward the Company’s achievement of specified | • | |||
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Pay Element | ||||||
What the Pay Element Rewards | ||||||
Purpose of the Pay Element | ||||||
Long-Term Incentives | ||||||
Restricted • Continued employment with the Company during a specified vesting period Stock Options: • Continued employment with the Company during a specified vesting period Performance-based Restricted Stock and Performance-based Stock Options: • Achievement by executives of key performance metrics for Company success • Continued employment with the Company during a specified vesting period | • To attract and retain the best people for the Company • To provide stock ownership to executives • To increase the executives’ interest in the Company’s welfare • To promote the success of the Company’s business • To align executives’ and shareholder interests • To provide challenging performance objectives and motivate executives to achieve long-term shareholder value | |||||
Change in Control and Termination Benefits | ||||||
• Focused effort by our executives in the event of a rumored or actual fundamental corporate change | • | |||||
Retirement Benefits, Additional Benefits and Perquisites | • Tenure by executives • Assurance that benefits package is competitive to industry standards | • To facilitate the Company’s ability to attract executives as the Company competes for talented employees | ||||
The use of these programs enables us to reinforce our “pay for performance” philosophy, as well as strengthens our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term shareholder value, and encourages executive recruitment and retention. Additionally, the Compensation Committee maintains flexibility, enabling management and the Board to make decisions regarding executive compensation based on the needs of the business and to recognize different levels of individual contribution.
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The components of our compensation program are determined as follows:
Base Salary.Base salaries are determined based on competitive market practice and our ability to attract, motivate, and retain executives. Base salaries for our executive officers are reviewed on an annual basis, and adjusted where appropriate. Salary ranges are established for each executive officer based on the marketplace mediandata for that position and a salary is assigned to the executive within that range based on individual performance, prior experience and contribution to the financial goals and strategic objectives of the Company. During 2007,the fourth quarter of 2010, the Compensation Committee commissioned an independent compensation firm to conduct a comprehensive analysis of competitive companies. As a result of the firm’s findings, a comparison group of 2116 companies (the “comparison group”) was selected from publicly traded U.S. companies classified under the Global Industry Classification Standard (GICS)(“GICS”) as Communications Equipment, Computer Storage and Peripherals and Electronic Manufacturing Services. The 2116 companies included in the comparison group were Airspan Networks, Avici Systems, Communications Systems, Dataram, Ditech Networks, Endwave, Isco International, Lantronix, Network Engines, NMS Communications, Packeteer, PC TTEL,Tel, Performance Technologies, Proxim Wireless, RF Industries, Radisys, Relm Wireless, Telkonet, Dataram, Qualstar, Socket Communications, Staktek Holdings, TelknonetMobile, Viewcast.com, Entorian Technologies, Radisys, and Verso Technologies.RF Industries. Additionally, competitive comparisons were made against the following general industry surveys: 2010 Hewitt Total Compensation Measurement (“TCM”) survey, 2010 Towers Watson Compensation Data Bank Executive, 2010/2011 Towers Watson Top Management Compensation Calculator Survey, and 2010 Radford Executive survey. Based on this competitive comparison group and the findings of the independent compensation firm, there were (i) pay adjustments madeno changes to certain of our executivesexecutive base salaries during 2011. The Compensation Committee did not commission a similar analysis in January and February 2008 where2011. Based on the 2010 analysis, the findings showedof the independent compensation firm and other factors, the Compensation Committee determined that certain of our executives were not being compensatedthere would be no adjustments to executive base salaries for 2012 at competitive levels, and (ii) base salary merit increases granted for all of our executives in January 2008 and February 2009 consistent with industry standards and company practice for all eligible, non-executive employees.
Annual Cash Incentives.Executive bonuses are intended to link executive compensation with the attainment of defined Company goals on an annual basis.goals. Each fiscal year during the annual planning process, the Compensation Committee, after consulting with management of the Company, establishes business and financial targets for the Company.Company and, in some cases, individual executives. Annual bonus targets are established based upon these business and financial targets. Annual bonuses for ourFor the Chief Executive Officer, Mr. Kalush, the 2011 bonus was based entirely on Company revenue targets. For other executives, are reviewedincluding the named executive officers Mr. Tipton, Mr. Solomon, and paid in February after the audit of the Company’s financial results is substantially completed and the fourth quarter and full year financial results have been reported to the public. For 2008, executive bonuses were based upon the achievement of certain minimum revenue and net income targets. The revenue achievement accounts forMr. DeVinney, 60% of the 2011 bonus calculation whilewas based on Company revenue targets and 40% was based on specific financial and business targets related to specific product lines for which the net income achievement accounts for 40%. A certain percentage achievement inexecutive was responsible. For the revenue portion will result in a specified percentage payoutremaining named executive officer, Mr. McComas, 83% of the 60%2011 bonus was based on Company revenue targets and 17% was based on specific financial and business targets related to specific product lines for which the executive was responsible. Only the bonus portion based on Company revenue targets could have resulted in bonus payments in excess of 100% payout if the targets were exceeded. The portion of the bonus and likewise for the net income portion.based on product line targets could not have resulted in bonus payments in excess of 100% payout, regardless of performance. The table below shows the percentage achievement and the resulting payout percentages based on Company revenue targets for the 20082011 bonus plan.
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| 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+ | ||||||||||||
Revenue Achievement | Bonus Payout % | |
0.0 - 99.9 | 0.0 | |
100.0 - 109.9 | 100.0 - 110.9 | |
110.0 - 119.9 | 112.0 - 123.9 | |
120.0 - 129.9 | 126.0 - 138.9 | |
130.0 - 139.9 | 145.0 - 159.9 | |
140.0 - 149.9 | 180.0 - 199.8 | |
150.0 - 159.9 | 250.0 - 279.7 | |
160.0+ | 300.0 |
The maximum combined (revenue based and net income based) bonus payout isto all executive officers was capped at 300% of the total bonus pool. The sliding scale of target performance iswas used by the Compensation Committee in determining bonuses to be paid to the executives;executive officers; however, the Compensation Committee hasretained full and complete discretion in making its final bonus determinations for a portion (approximately 28%25%) of the bonus pool. AsAlthough certain bonus targets were achieved by executive officers, the earned bonuses were not paid since the Company was not profitable for the year ended December 31, 2011. However, as shown in the Summary Compensation Table, nopartial executive bonuses were paid for 2008.
Long-Term Incentives.The Compensation Committee approves equity grants under the 2004 Long-Term Stock Incentive Plan thatto provide additional incentives and align the executives’ long-term interests with those of the shareholders of the Company by tying a portion of executive compensation to the long-term performance of the Company’s stock price. The Compensation Committee believes equity grants, more than base salary or annual cash incentives, closely align the long-term interests of executives with those of shareholders and assist in the retention of key executives. This is the Company’s principal long-term incentive to executives.
The Compensation Committee recommendsdetermines equity to be granted to an executive with respect to restricted stock, or performance-based restricted stock, stock options, or performance-based stock options based on the following principal elements, including, but not limited to:
President and Chief Executive Officer’s recommendation;
Relevant and validated external market data on executive compensation;
Management role and contribution to the management team;
Job responsibilities and past performance;
Future anticipated contributions;
Corporate performance;
Existing vested and unvested equity holdings; and
Compensation Committee discretion.
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 performedascertained by outsideindependent 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 granted stock options in recent years, but rather have granted restricted stock and performance-based restricted stock.
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Retirement Benefits, Additional Benefits and Perquisites.We provide standard employee benefit programs to our executives, including a 401(k) plan and welfareother plans such as medical, dental and life insurance benefits, which are generally available to all employees. We are very mindful of the total cost of benefits and the impact they have on all employees. Therefore, with only one exception related to a life insurance premium of approximately $1,600 per year paid by the Company for the CEO, executives do not receive any benefit or perquisite which is different than the rest of our eligible employees, nor do they receive any benefit at a lower cost than the rest of our eligible employees.
Tax Deductibility Considerations
Under Section 162(m) of the Internal Revenue Code except with respect toof 1986, as amended (the “Code”), the 2004 Long-Term Stock Incentive Plan.
Compensation Committee is empowered to review and approve the annual compensation and compensation procedures for our seven executives: the President and Chief Executive Officer, the Chief Financial Officer, the Vice President of Global Sales and Customer Support, the Vice President of Engineering, the Vice President of Human Resources and Administration, the Vice President of Operations and Fulfillment, and the Vice President of Corporate Strategy and Business Development. The Compensation Committee does not delegate any of its functions to others in setting compensation.
When establishing base salaries, cash bonuses and equity grants for each of the executives, the Compensation Committee considers, among other things, the recommendations of the President and Chief Executive Officer, the executive’s role and contribution to the management team, responsibilities and performance during the past year and future anticipated contributions, corporate performance, and the amount of total compensation paid to executives in similar positions at comparable companies as provided by an independent compensation firm.
The Compensation Committee generally sets the compensation of the executives at levels that are competitive with similarly situated technology companies. When setting the compensation of each of the executives, the Compensation Committee considers all of the factors set forth above, but does not assign any specific weighting or apply any formula to these factors. The Compensation Committee gives consideration to the recommendations of the President and Chief Executive Officer and may accept or
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Summary Compensation Table
A summary compensation table has beenis provided below and includes individual compensation information on the Chief Executive Officer, Chief Financial Officer and our three other most highly paid executive officers at the end of 2008,2011, whom we refer to in this proxy statement as the named“named executive officers.
| 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 | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Option Awards ($) (2) | All Other Compensation ($) (3) | Total ($) | |||||||||||||||||||||
Gregory B. Kalush | 2011 | 325,000 | 50,000 | 52,920 | (4) | 134,000 | (5) | 9,160 | 571,080 | |||||||||||||||||||
Chairman of the | 2010 | 325,000 | — | — | 120,000 | (8) | 8,848 | 453,848 | ||||||||||||||||||||
Board, Chief Executive | 2009 | 325,000 | 50,500 | 119,000 | (13)(14) | — | (15) | 7,798 | 502,298 | |||||||||||||||||||
Officer and President | ||||||||||||||||||||||||||||
Thomas N. Tipton Jr. | 2011 | 202,500 | 24,326 | — | 73,500 | (6) | 6,075 | 306,401 | ||||||||||||||||||||
Chief Financial Officer, | 2010 | 202,500 | 10,000 | — | 36,900 | (9) | 6,094 | 255,494 | ||||||||||||||||||||
Secretary, Vice | 2009 | 194,038 | 16,000 | 22,750 | (13) | — | (15) | 5,821 | 238,609 | |||||||||||||||||||
President of Finance and Treasurer | ||||||||||||||||||||||||||||
Randall E. McComas | 2011 | 240,000 | 10,000 | — | — | 7,096 | 257,096 | |||||||||||||||||||||
Vice President of | 2010 | 240,000 | — | — | 1,960 | (10) | 7,096 | 249,056 | ||||||||||||||||||||
Global Sales and | 2009 | 239,519 | 15,000 | 22,750 | (13) | — | (15) | 6,300 | 283,569 | |||||||||||||||||||
Customer Support | ||||||||||||||||||||||||||||
Yoram Solomon | 2011 | 185,000 | 5,000 | — | — | (7) | 4,194 | 194,194 | ||||||||||||||||||||
Vice President of | 2010 | 185,000 | — | — | 64,875 | (11) | 4,194 | 254,069 | ||||||||||||||||||||
Corporate Strategy and | 2009 | 185,000 | 10,500 | 18,200 | (13) | — | (15) | 4,194 | 217,894 | |||||||||||||||||||
Business Development | ||||||||||||||||||||||||||||
James W. Gragg | 2011 | 182,000 | 5,000 | — | — | 5,460 | 192,460 | |||||||||||||||||||||
Vice President of | 2010 | 182,000 | — | — | 19,400 | (12) | 5,460 | 206,860 | ||||||||||||||||||||
Operations and | 2009 | 181,327 | 13,000 | 18,200 | (13) | — | (15) | 5,440 | 217,967 | |||||||||||||||||||
Fulfillment | ||||||||||||||||||||||||||||
| (1) | All stock awards were in the form of restricted stock awards. All shares of restricted stock | |
| (2) | All stock options are valued at the grant date fair value, based on the Black-Scholes option pricing model, and expire 10 years from the date of grant. See Note 9 in the notes to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2011 for further discussion of the assumptions used to calculate the grant date fair value. Stock option awards vest as described in the notes below while the named executive officer is employed by the Company and also vest upon certain changes in control of the Company as described under “Summary of Termination and Change in Control Arrangements” below. |
| (3) | “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 |
| (4) | In May 2011 Mr. Kalush received 12,000 shares of restricted stock for his service on the Board, consistent with other board members’ equity compensation, with a grant date fair value of $4.41 per share. The restricted stock award vests over a four year period in equal numbers of shares on each anniversary of the grant date. |
| In February 2011 Mr. Kalush received options to purchase 100,000 shares with an exercise price of $1.78 and a grant date fair value of $1.34 per share or $134,000. The stock option award vests over a three year period in equal numbers of shares on each anniversary of the grant date. |
| (6) | In February 2011 Mr. Tipton received options to purchase 50,000 shares with an exercise price of $1.95 and a grant date fair value of $1.47 per share or $73,500. The stock option award vests over a three year period in equal numbers of shares on each anniversary of the grant date. |
| (7) | In November 2011 Mr. Solomon received options to purchase 100,000 shares with an exercise price of $4.05 per share and a grant date fair value of $2.98 per share, or $298,000. This stock option award is subject to certain performance conditions related to revenue objectives for the years ended December 31, 2012, 2013, 2014, and 2015, the achievement of which would result in vesting of up to 25,000 options per year in February 2013, 2014, 2015, and 2016, respectively. These options are not included in the Summary Compensation Table. |
| (8) | In July 2010 Mr. Kalush received options to purchase 100,000 shares with an exercise price of $1.65 and a grant date fair value of $1.20 per share, or $120,000. The stock option award vests over a three year period in equal numbers of shares on each anniversary of the grant date. |
| (9) | In September 2010 Mr. Tipton received options to purchase 30,000 shares with an exercise price of $1.70 and a grant date fair value of $1.23 per share or $36,900. The stock option award vests over a four year period in equal numbers of shares on each anniversary of the grant date. |
| (10) | In December 2010 Mr. McComas received options to purchase 7,000 shares with an exercise price of $1.36 per share and a grant date fair value of $0.98 per share, or $6,860. This stock option award was subject to certain performance conditions related to revenue objectives for the year ended December 31, 2011, the achievement of which resulted in a February 2012 vesting of 2,000 shares. The grant date fair value of the remaining 5,000 shares is not included in the Summary Compensation Table as the performance conditions were not satisfied and the options were cancelled in February 2012. |
| (11) | In September 2010 Mr. Solomon received options to purchase 30,000 shares with an exercise price of $1.70 per share and a grant date fair value of $1.23 per share, or $36,900. Included in the Summary Compensation Table are stock option awards subject to certain performance conditions related to revenue objectives for years ended December 31, 2012, 2013, and 2014 and scheduled to vest in February 2013, 2014, and 2015, respectively (regarding 7,500 shares each). Within the same stock option award, but not included in the Summary Compensation Table, are stock option awards subject to certain performance conditions related to non-financial objectives, which were not satisfied and thus the options for 7,500 shares were cancelled in February 2012. Within the same stock option award, but not included in the Summary Compensation Table, are options to purchase an additional 70,000 shares related to the achievement of performance conditions over and above the target amounts included in the Summary Compensation Table. Of these 70,000 shares, certain performance conditions related to 3,175 of the shares were not satisfied and thus those options were cancelled in February 2012. Also included in the Summary Compensation Table, in October 2010 Mr. Solomon received options to purchase 30,000 shares with an exercise price of $1.72 per share and a grant date fair value of $1.24 per share, or $37,200. The stock option award vests over a four year period in equal numbers of shares on each anniversary of the grant date. |
| (12) | Included in the Summary Compensation Table, in December 2010 Mr. Gragg received options to purchase 20,000 shares with an exercise price of $1.36 per share and a grant date fair value of $0.97 per share, or $19,400. The stock option award vests over a four year period in equal numbers of shares on each anniversary of the grant date. Not included in the Summary Compensation Table, in December 2010 Mr. Gragg also received options to purchase 7,000 shares with an exercise price of $1.36 per share and a grant date fair value of $1.23 per share, or $8,610. The stock option award was subject to certain performance conditions related to revenue objectives for the year ended December 31, 2011. The performance conditions were not satisfied and the options were cancelled in February 2012. |
| (13) | Certain grants of restricted stock in January |
19
| (14) |
| (15) | Certain | ||
2011 Grants of Plan-Based Awards Table
The following table sets forth information on grants of plan-based awards in 20082011 to the named executive officers.
| Closing | Grant Date | |||||||||||||||||||||||||
| Estimated Future Payouts Under | Price on | Fair | ||||||||||||||||||||||||
| Equity Incentive Plan Awards | Grant | Value of Stock | ||||||||||||||||||||||||
| Grant | Threshold | Target | Maximum | All Other | Date | and Option | ||||||||||||||||||||
| Name | Date | (#) | (#) | (#) | Stock Awards | ($ / Sh) | Awards ($) | |||||||||||||||||||
| Gregory B. Kalush | 1/10/08 | — | — | — | 5,000 | 8.98 | 44,900 | |||||||||||||||||||
| 1/10/08 (1) | 5,700 | 15,000 | 15,000 | — | 8.98 | 134,700 | ||||||||||||||||||||
| 5/7/08 (2) | — | — | — | 5,834 | 3.83 | 22,344 | ||||||||||||||||||||
| Thomas N. Tipton Jr. | 1/10/08 | — | — | — | 3,000 | 8.98 | 26,940 | |||||||||||||||||||
| 1/10/08 (1) | 3,420 | 9,000 | 9,000 | — | 8.98 | 80,820 | ||||||||||||||||||||
| Randall E. McComas | 1/10/08 | — | — | — | 2,400 | 8.98 | 21,552 | |||||||||||||||||||
| 1/10/08 (1) | 2,736 | 7,200 | 7,200 | — | 8.98 | 64,656 | ||||||||||||||||||||
| Marc A. DeVinney | 1/10/08 | — | — | — | 2,400 | 8.98 | 21,552 | |||||||||||||||||||
| 1/10/08 (1) | 2,736 | 7,200 | 7,200 | — | 8.98 | 64,656 | ||||||||||||||||||||
| James W. Gragg | 1/10/08 | — | — | — | 2,400 | 8.98 | 21,552 | |||||||||||||||||||
| 1/10/08 (1) | 2,736 | 7,200 | 7,200 | — | 8.98 | 64,656 | ||||||||||||||||||||
20
| Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of | All Other Option Awards: Number of Securities | Exercise or Base Price of Option | Grant Date Fair Value of Stock and Option | ||||||||||||||||||||||||||||
Name | Grant Date | Threshold (#) | Target (#) | Maximum (#) | Stock or Units (#) | Underlying Options (#) | Awards ($) | Awards ($) (2) | ||||||||||||||||||||||||
Gregory B. Kalush | 2/8/11 | — | — | — | — | 100,000 | 1.78 | 134,000 | ||||||||||||||||||||||||
| 5/4/11 | — | — | — | 12,000 | — | — | 52,920 | |||||||||||||||||||||||||
Thomas N. Tipton Jr. | 2/9/11 | — | — | — | — | 50,000 | 1.95 | 73,500 | ||||||||||||||||||||||||
Randall E. McComas | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Yorom Solomon | 11/3/11 | — | — | 100,000 | (1) | — | — | 4.05 | 298,000 | |||||||||||||||||||||||
James W. Gragg | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| (1) | Relates to stock options granted, subject to forfeiture, under the 2004 Long-Term Stock Incentive Plan. This stock option award is subject to certain performance conditions related to revenue objectives for the years ended December 31, 2012, 2013, 2014, and 2015, the achievement of which would result in pro rata vesting of up to 25,000 options per year in February 2013, 2014, 2015, and 2016, respectively. Neither a threshold nor a target is specified in the stock option agreement. See note (7) of the Summary Compensation Table for more information. |
| (2) | ||
Narrative to Summary Compensation Table and 20082011 Grants of Plan-Based Awards Table
See Compensation“Compensation Discussion and AnalysisAnalysis” above as well as the“Executive Officers - Employment Agreement SummariesSummaries” above and “Summary of Termination and Change in Control Arrangements” below for a complete description of compensation elements pursuant to which the amounts listed under the Summary Compensation Table and 20082011 Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payment, including targets for paymentpayments of annual incentives, as well as performance criteria on which such payments were based.
21
The following table sets forth information as of December 31, 20082011 regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to each award.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||
| Equity Incentive | ||||||||||||||||||||||||||||
| Plan Awards: | Equity Incentive | |||||||||||||||||||||||||||
| Market | Number of | Plan Awards: | ||||||||||||||||||||||||||
| Number of | Number of | Value of | Unearned | Market or Payout Value | ||||||||||||||||||||||||
| Securities | Shares or | Shares or | Shares, Units | of Unearned | ||||||||||||||||||||||||
| Underlying | Units of | Units of | or Other | Shares, Units or Other | ||||||||||||||||||||||||
| Unexercised | Option | Stock That | Stock That | Rights That | Rights That | |||||||||||||||||||||||
| Options | Exercise | Option | Have Not | Have Not | Have Not | Have Not | ||||||||||||||||||||||
| (#) | Price | Expiration | Vested | Vested | Vested | Vested | ||||||||||||||||||||||
| Name | Exercisable | ($) | Date | (#) | ($) | (#) | ($) | |||||||||||||||||||||
| Gregory B. Kalush | — | — | 5,000 | 8,250 | (1) | — | — | |||||||||||||||||||||
| — | — | — | — | 15,000 | 24,750 | (1) (2) | ||||||||||||||||||||||
| — | — | 5,834 | 9,626 | (1) | — | — | ||||||||||||||||||||||
| — | — | 3,333 | 5,499 | (1) | — | — | ||||||||||||||||||||||
| — | — | 3,750 | 6,188 | (1) | — | — | ||||||||||||||||||||||
| — | — | 1,666 | 2,749 | (1) | — | — | ||||||||||||||||||||||
| — | — | 7,200 | 11,880 | (1) | — | — | ||||||||||||||||||||||
| 5,000 | 8.50 | 5/5/2014 | — | — | — | — | ||||||||||||||||||||||
| 50,000 | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||
| 50,000 | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||
| 10,000 | 5.61 | 5/7/2013 | — | — | — | — | ||||||||||||||||||||||
| 10,000 | 4.60 | 5/1/2012 | — | — | — | — | ||||||||||||||||||||||
| 50,000 | 4.83 | 1/16/2012 | — | — | — | — | ||||||||||||||||||||||
| 10,000 | 7.53 | 5/2/2011 | — | — | — | — | ||||||||||||||||||||||
| 62,500 | 8.00 | 3/2/2001 | — | — | — | — | ||||||||||||||||||||||
| 100,000 | 13.88 | 5/30/2010 | — | — | — | — | ||||||||||||||||||||||
| 10,000 | 17.81 | 5/3/2010 | — | — | — | — | ||||||||||||||||||||||
| 50,000 | 23.00 | 10/20/2009 | — | — | — | — | ||||||||||||||||||||||
| 100,000 | 7.31 | 3/12/2009 | — | — | — | — | ||||||||||||||||||||||
| Thomas N. Tipton Jr. | — | — | 3,000 | 4,950 | (1) | — | — | |||||||||||||||||||||
| — | — | — | — | 9,000 | 14,850 | (1) (2) | ||||||||||||||||||||||
| — | — | 2,250 | 3,713 | (1) | — | — | ||||||||||||||||||||||
| — | — | 7,000 | 11,550 | (1) | — | — | ||||||||||||||||||||||
| — | — | 4,000 | 6,600 | (1) | — | — | ||||||||||||||||||||||
| — | — | 920 | 1,518 | (1) | — | — | ||||||||||||||||||||||
| 3,500 | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||
| 4,000 | 4.12 | 7/26/2011 | — | — | — | — | ||||||||||||||||||||||
| 7,000 | 9.16 | 12/7/2010 | — | — | — | — | ||||||||||||||||||||||
| 3,000 | 17.50 | 1/25/2010 | — | — | — | — | ||||||||||||||||||||||
| Randall E. McComas | — | — | 2,400 | 3,960 | (1) | — | — | |||||||||||||||||||||
| — | — | — | — | 7,200 | 11,880 | (1) (2) | ||||||||||||||||||||||
| — | — | 1,875 | 3,094 | (1) | — | — | ||||||||||||||||||||||
| — | — | 5,000 | 8,250 | (1) | — | — | ||||||||||||||||||||||
| 50,000 | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||
| 50,000 | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||
| 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) | — | — | |||||||||||||||||||||
| — | — | — | — | 7,200 | 11,880 | (1) (2) | ||||||||||||||||||||||
| — | — | 1,500 | 2,475 | (1) | — | — | ||||||||||||||||||||||
| — | — | 2,000 | 3,300 | (1) | — | — | ||||||||||||||||||||||
| 10,000 | 7.20 | 11/1/2014 | — | — | — | — | ||||||||||||||||||||||
| 15,000 | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||
| 15,000 | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||
| 10,000 | 4.12 | 7/26/2011 | — | — | — | — | ||||||||||||||||||||||
| 20,000 | 7.94 | 12/28/2010 | — | — | — | — | ||||||||||||||||||||||
| 3,000 | 13.75 | 4/17/2010 | — | — | — | — | ||||||||||||||||||||||
| 2,000 | 17.25 | 10/29/2009 | — | — | — | — | ||||||||||||||||||||||
22
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options: Exercisable (#) | Number of Securities Underlying Unexercised Options: Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||
Gregory B. Kalush | — | — | — | — | 1,666 | 7,530 | (1) | — | — | |||||||||||||||||||||||||||
| — | — | — | — | 33,332 | 150,661 | (1) | — | — | ||||||||||||||||||||||||||||
| — | — | — | — | — | — | 33,333 | 150,665 | (1)(2) | ||||||||||||||||||||||||||||
| — | — | — | — | 1,250 | 5,650 | (1) | — | — | ||||||||||||||||||||||||||||
| — | — | — | — | 12,000 | 54,240 | (1) | — | — | ||||||||||||||||||||||||||||
| — | 100,000 | — | 1.78 | 2/8/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 33,333 | 66,667 | — | 1.65 | 7/22/2020 | — | — | — | — | ||||||||||||||||||||||||||||
| 5,000 | — | — | 8.50 | 5/5/2014 | — | — | — | — | ||||||||||||||||||||||||||||
| 50,000 | — | — | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||||||||
| 50,000 | — | — | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||||||||
| 10,000 | — | — | 5.61 | 5/7/2013 | — | — | — | — | ||||||||||||||||||||||||||||
| 10,000 | — | — | 4.60 | 5/1/2012 | — | — | — | — | ||||||||||||||||||||||||||||
| 45,000 | (3) | — | — | 4.83 | 1/16/2012 | — | — | — | — | |||||||||||||||||||||||||||
Thomas N. Tipton Jr. | — | — | — | — | 8,332 | 37,661 | (1) | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | 8,333 | 37,665 | (1)(2) | ||||||||||||||||||||||||||||
| — | — | — | — | 750 | 3,390 | (1) | — | — | ||||||||||||||||||||||||||||
| — | 50,000 | — | 1.95 | 2/9/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 7,500 | 22,500 | — | 1.70 | 9/14/2020 | — | — | — | — | ||||||||||||||||||||||||||||
| 3,500 | — | — | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||||||||
Randall E. McComas | — | — | — | — | 8,332 | 37,661 | (1) | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | 8,333 | 37,665 | (1)(2) | ||||||||||||||||||||||||||||
| — | — | — | — | 600 | 2,712 | (1) | — | — | ||||||||||||||||||||||||||||
| — | — | 7,000 | (4) | 1.36 | 12/9/2020 | — | — | — | — | |||||||||||||||||||||||||||
| 50,000 | — | — | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||||||||
| 50,000 | — | — | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||||||||
| 91,540 | — | — | 5.05 | 2/15/2012 | — | — | — | — | ||||||||||||||||||||||||||||
Yorom Solomon | — | — | — | — | 6,666 | 30,130 | (1) | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | 8,333 | 37,665 | (1)(2) | ||||||||||||||||||||||||||||
| — | — | — | — | 5,000 | 22,600 | (1) | — | — | ||||||||||||||||||||||||||||
| — | — | 100,000 | 4.05 | 11/3/2021 | — | — | — | — | ||||||||||||||||||||||||||||
| 7,500 | 22,500 | — | 1.72 | 10/6/2020 | — | — | — | — | ||||||||||||||||||||||||||||
| — | — | 100,000 | 1.70 | 9/14/2020 | — | — | — | — | ||||||||||||||||||||||||||||
James W. Gragg | — | — | — | — | 6,666 | 30,130 | (1) | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | 5,000 | 22,600 | (1)(2) | ||||||||||||||||||||||||||||
| — | — | — | — | 600 | 2,712 | (1) | — | — | ||||||||||||||||||||||||||||
| 5,000 | 15,000 | 7,000 | (5) | 1.36 | 12/9/2020 | — | — | — | — | |||||||||||||||||||||||||||
| 10,000 | — | — | 7.20 | 11/1/2014 | — | — | — | — | ||||||||||||||||||||||||||||
| 15,000 | — | — | 11.45 | 3/16/2014 | — | — | — | — | ||||||||||||||||||||||||||||
| 15,000 | — | — | 5.88 | 6/5/2013 | — | — | — | — | ||||||||||||||||||||||||||||
| (1) | ||
| (2) | This |
| (3) | This stock option award expired unexercised on January 16, 2012. |
| (4) | This stock option award was conditional based on a performance criterion in 2011; if the criterion was achieved, vesting would occur immediately. The performance criterion for 5,000 shares was not achieved and therefore the award was cancelled in February 2012. |
| (5) | This stock option award was conditional based on a performance criterion in 2011; if the criterion was achieved, vesting would occur immediately. The performance criterion was not achieved and therefore the award was cancelled in February 2012. |
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.
| Stock Awards | ||||||||
| Number of Shares | Value Realized | |||||||
| Acquired on Vesting | on Vesting | |||||||
| Name | (#) | ($) | ||||||
| Gregory B. Kalush | 9,984 | 41,715 | ||||||
| Thomas N. Tipton Jr. | 6,440 | 19,736 | ||||||
| Randall E. McComas | 4,375 | 18,881 | ||||||
| Marc A. DeVinney | 2,500 | 8,625 | ||||||
| James W. Gragg | 2,000 | 9,510 | ||||||
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (# ) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (# ) | Value Realized on Vesting ($ ) | ||||||||||||
Gregory B. Kalush | 5,000 | 13,350 | 15,001 | 39,911 | ||||||||||||
Thomas N. Tipton Jr. | 4,000 | 4,000 | 3,584 | 6,541 | ||||||||||||
Randall E. McComas | — | — | 3,309 | 6,031 | ||||||||||||
Yorom Solomon | — | — | 6,667 | 23,001 | ||||||||||||
James W. Gragg | 10,000 | 10,400 | 2,767 | 5,040 | ||||||||||||
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 comprisedcomposed solely of “outside directors” as defined for purposes of Section 162(m) of the Code, may elect to adopt qualified or non-qualified defined benefit or non-qualified defined contribution plans if the Compensation Committee determines that doing so is in our best interests.
Summary of Termination and Change in Control Arrangements
The following summaries set forth potential payments payable to our named executive officers upon termination of employment or a change in control of the Company under their current employment agreements, certain current stock option agreements and/or restricted stock agreements, and our other compensation programs. The descriptions set forth below are summaries of the terms of the respective employment agreement agreements and/or stock agreementother agreements and are qualified by reference to the provisions of such agreements.
Gregory B. Kalush.Mr. Kalush’s employment agreement provides for the following termination and severance arrangements:
| • | Resignation by the Executive:If Mr. Kalush resigns or elects not to renew his employment agreement, he is entitled to exercise vested stock options for a period of 90 days following his resignation as an employee of the Company. |
23
| • | Termination due to Non-Renewal of Employment Agreement or Termination for other than Overt Misconduct. The Company or Mr. Kalush can terminate the employment relationship by electing not to renew the employment agreement and giving the other party at least thirty (30) |
| 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 | ||
| 2. | Extended Post-employment Exercise Period; 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 |
If Mr. Kalush’s employment is terminated for any reason by the Company (including the Company electing not to renew his agreement), other than because of his overt misconduct, he would also be entitled to reimbursement for any reasonable outplacement consulting fees and expenses up to a maximum of 15% of his then-current base salary.
| • | Termination due to Disability.In the event Mr. Kalush’s employment is terminated due to disability, Mr. Kalush will be entitled to the following: |
| 1. | Severance Payments. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush will be paid severance payments in the amount of two (2) years’ base salary, payable in bi-weekly installments over a |
24
| Mr. Kalush and his eligible beneficiaries for the 18-month period following termination of employment. | |||
| 2. | Bonus Payment. Subject to Mr. Kalush’s execution of a general release of claims and covenant not to sue, Mr. Kalush will receive payment of two (2) years of his annual bonus based on the Company’s Executive Bonus Plan payable in bi-weekly installments over a | ||
| 3. | Extended Post-employment Exercise |
| • | 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. | Life Insurance Policy. 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. |
| 2. | Extended Post-employment Exercise |
| date of the stock option; provided that for each of Mr. Kalush’s vested stock options, if on the date of termination of employment due to death, the exercise price of the vested stock option is greater than the fair market value of the underlying | |||
25
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 person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of |
| 1. | A lump sum payment in the amount of two (2) years’ base salary at the current base salary amount, payable within thirty (30) days of the | ||
| 2. | A lump sum payment, payable within thirty (30) days of the acquisition, equal to two (2) years’ of Mr. Kalush’s annual bonus based on the Company’s Executive Bonus Plan. The bonus amount will be the greater of the prior fiscal year’s executive bonus payment to him or 100% of Mr. Kalush’s target bonus | ||
| 3. | The vesting of all of Mr. Kalush’s outstanding stock options shall be accelerated on the date of the acquisition and the exercise period of Mr. Kalush’s vested stock options that are outstanding on the date of the acquisition and were granted to him as a result of his employment, |
26
| conditions as the cancelled option and with respect to the same number of vested shares at the same exercise price but exercisable for | |||
| 4. | If at any time during the term of one of Mr. Kalush’s Restricted Stock Agreements an acquisition occurs whereby one investor accumulates 20% or more of the outstanding |
| • |
|
| If | |||
Thomas N. Tipton, Jr., Randall E. McComas, Marc E. DeVinney,Yoram Solomon, and James W. Gragg.These executives’ employment agreements provide that in the event the Company elects not to renew the executive’s agreement and has provided thirty (30) days written notice of its intention not to renew his agreement, or if the executive is terminated during the term of his agreement without cause, he shall be entitled to receive (a) the balance of base salary due under his agreement for the followingbalance of its term, and (b) subject to the executive’s execution of a general release of claims and covenant not to sue, (i) severance pay equal to six (6) months of base salary at the time of termination, payable in bi-weekly installments, subject to reduction by any compensation the executive receives from other employment during the severance period, and (ii) if the executive is eligible for COBRA coverage, the individual premium cost for COBRA coverage for the executive for the period during which he is receiving remaining term payments and severance arrangements:
27
Randall E. McComas, Marc E. DeVinney,Yoram Solomon, and James W. Gragg.TheseEach of these executive’s Restricted Stock Agreements and Stock Option Agreements provide thatif (i) one investor accumulates 20% or more of the outstanding shares of 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 reasonsany reason other than cause or by the executive for Good Reason,good reason (as defined therein), or (ii) one investor other than a reporting company under the Securities Exchange Act of 1934 accumulates 50% or more of the outstanding shares of Common Stock, then, in either case, effective as of the date of such accumulation by that investor, all of the executive’s unvested shares of restricted stock will be released from the forfeiture restrictions and become fully vested.
28become fully exercisable.
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, 2008:
| Termination | ||||||||||||||||||||||
| Without Cause | Termination | Disability | Death | Change in | ||||||||||||||||||
| Name | Benefit | or for Non-Renewal ($) | for Cause ($) | ($) | ($) | Control ($) | ||||||||||||||||
| Gregory B. Kalush (1) | Salary | 975,000 | — | 650,000 | — | 650,000 | ||||||||||||||||
| Chairman of the Board, Chief | Bonus | — | — | 400,000 | — | 400,000 | ||||||||||||||||
| Executive Officer and President | Outplacement services | 48,750 | — | 48,750 | — | 48,750 | ||||||||||||||||
| Insurance Policy (2) | — | — | — | — | — | |||||||||||||||||
| Cobra Coverage | 28,587 | — | — | — | — | |||||||||||||||||
| 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 | 92,500 | — | — | — | — | ||||||||||||||||
| Chief Financial Officer, Treasurer | Stock Vest Acceleration | — | — | — | — | 43,181 | ||||||||||||||||
| and Vice President of Finance | Total Value | 92,500 | — | — | — | 43,181 | ||||||||||||||||
| Randall E. McComas | Salary | 117,500 | — | — | — | — | ||||||||||||||||
| Vice President of Global Sales and | Stock Vest Acceleration | — | — | — | — | 27,184 | ||||||||||||||||
| Customer Support | Total Value | 117,500 | — | — | — | 27,184 | ||||||||||||||||
| Marc A. DeVinney | Salary | 87,500 | — | — | — | — | ||||||||||||||||
| Vice President of Engineering | Stock Vest Acceleration | — | — | — | — | 28,215 | ||||||||||||||||
| Total Value | 87,500 | — | — | — | 28,215 | |||||||||||||||||
| James W. Gragg | Salary | 87,500 | — | — | — | — | ||||||||||||||||
| Vice President of Operations and | Stock Vest Acceleration | — | — | — | — | 21,615 | ||||||||||||||||
| Fulfillment | Total Value | 87,500 | — | — | — | 21,615 | ||||||||||||||||
Name | Benefit | Termination Without Cause or for Non - Renewal ($) | Termination for Cause ($) | Disability ($ ) | Death ($) | Change in Control ($) (1) | ||||||||||||||||
Gregory B. Kalush | Salary | 975,000 | — | 650,000 | — | 650,000 | ||||||||||||||||
Chairman of the Board, Chief | Bonus | — | — | 400,000 | — | 400,000 | ||||||||||||||||
Executive Officer and President | Outplacement services | 48,750 | — | 48,750 | — | 48,750 | ||||||||||||||||
Insurance Policy (2) | — | — | — | — | — | |||||||||||||||||
Cobra Coverage | 14,868 | — | — | — | — | |||||||||||||||||
Extended Exercise Period | 192,673 | — | 192,673 | 192,673 | 192,673 | |||||||||||||||||
Stock Vest Acceleration | — | — | — | — | 834,080 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total Value | 1,231,291 | — | 1,291,423 | 192,673 | 2,125,503 | |||||||||||||||||
Thomas N. Tipton Jr. | Salary | 202,500 | — | — | — | — | ||||||||||||||||
Chief Financial Officer, Secretary, | Cobra Coverage | 4,492 | — | — | — | — | ||||||||||||||||
Vice President of Finance and Treasurer | Stock Vest Acceleration | — | — | — | — | 270,666 | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
| ||||||||||||
| Total Value | 206,992 | — | — | — | 270,666 | |||||||||||||||||
Randall E. McComas | Salary | 240,000 | — | — | — | — | ||||||||||||||||
Vice President of Global Sales and | Cobra Coverage | 5,847 | — | — | — | — | ||||||||||||||||
Customer Support | Stock Vest Acceleration | — | — | — | — | 100,158 | ||||||||||||||||
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|
|
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| ||||||||||||
Total Value | 245,847 | — | — | — | 100,158 | |||||||||||||||||
Yorom Solomon | Salary | 185,002 | — | — | — | — | ||||||||||||||||
Vice President of | Cobra Coverage | 4,492 | — | — | — | — | ||||||||||||||||
Corporate Strategy and Business Development | Stock Vest Acceleration | — | — | — | — | 482,395 | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
| ||||||||||||
| Total Value | 189,494 | — | — | — | 482,395 | |||||||||||||||||
James W. Gragg | Salary | 182,000 | — | — | — | — | ||||||||||||||||
Vice President of Operations and | Cobra Coverage | 457 | — | — | — | — | ||||||||||||||||
Fulfillment | Stock Vest Acceleration | — | — | — | — | 124,962 | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
| ||||||||||||
Total Value | 182,457 | — | — | — | 124,962 | |||||||||||||||||
| (1) | Mr. Kalush will be entitled to a gross up payment if he incurs any excise tax imposed by Section 4999 of the | |
| (2) | Mr. Kalush’s estate is entitled to a one-time $1,000,000 death benefit payable by the insurance provider under an insurance policy paid for by the Company. |
29
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 reportAnnual Report on Form 10-K and proxy statement on Schedule 14A.
| THE COMPENSATION COMMITTEE | ||||
| Michael J. Myers, Chairman | ||||
| Christopher B. Strunk |
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was composed of Mr. Myers (Chairman), Mr. Hug, and Mr. Strunk until July 27, 2011. From July 28, 2011 until September 29, 2011, the Compensation Committee was composed of Mr. Myers Chairman,(Chairman) and Mr. HugStrunk. Since September 29, 2011, the Compensation Committee was composed of Mr. Myers (Chairman), Mr. Spenser, and Mr. Strunk. None of those members has ever been an officer or employee of the Company or any of its subsidiaries. None of the Company’s named executive officers served during the year ended December 31, 20082011 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.
During 2008,2011, the Company was not a party to any transactions that would require disclosure pursuant to Item 404 of Regulation S-K.
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 CommissionSEC and furnish the Company with a copy. Based solely on the Company’s review of the copies of such forms it has received, the Company believes that all of its officers, directors, and greater than ten percent shareholders complied with all filing requirements applicable to them during the reporting period ended December 31, 2008.
ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2012
The Audit Committee has selected Grant Thornton LLP (“Grant Thornton”) served as our independent registered public accountants for the independent auditorsyear ending December 31, 2012 and recommends that shareholders vote for ratification of such selection. Although ratification by shareholders is not required by law, the Company for the years ended December 31, 2008 and 2007. The Company’s Audit Committee pre-approves all services performedhas determined that it is desirable to request ratification of this selection by the Company’s principal auditor. A representativeshareholders. If the shareholders do not ratify the selection of Grant Thornton, is expected tothe Audit Committee may reconsider its selection. Notwithstanding its selection or voting results, the Audit Committee, in its discretion, may appoint new independent registered public accountants at any time during the year if the Audit Committee believes that such a change would be in the best interests of Interphase and its shareholders.
Grant Thornton has audited our consolidated financial statements annually since it was first appointed in 2004. We expect that representatives of Grant Thornton will be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if they so desire.
Pre-Approval Policies and will be available to answer appropriate shareholder questions. At its April 2009 meeting,Procedures
In accordance with the Audit Committee’s charter and policy and applicable law, the Audit Committee must pre-approve all services to be provided by Grant Thornton, including audit services, audit-related services and other services. In determining whether to pre-approve such services, the Audit Committee must consider whether the provision of such services is consistent with the independence of Grant Thornton. Generally, the full Audit Committee provides pre-approval for a particular defined task or scope of work subject to a specific budget. In other cases, the chairman of the Board of Directors will conduct its review ofAudit Committee may pre-approve such services between committee meetings subject to his discretion; but the independent auditors’ performance, independence, qualifications and quality controls and will make its formal decision aschairman must then communicate such pre-approvals to the retention offull Audit Committee at the independent public auditors to
30
Fees Billed by Grant Thornton LLP during 2011 and 2010
The following table sets forth the fees we were billed for audit and other services provided by Grant Thornton in 2011 and 2010. All of the following categoriesservices described below were approved in conformity with the Audit Committee’s pre-approval policies and amounts:
| 2008 | 2007 | |||||||
| Audit Fees | $ | 169,600 | $ | 174,004 | ||||
| Tax Fees | 29,902 | 76,934 | ||||||
| Audit-Related Fees | — | 2,500 | ||||||
| All Other Fees | — | — | ||||||
| Total | $ | 199,502 | $ | 253,438 | ||||
| 2011 | 2010 | |||||||
Audit Fees | $ | 152,585 | $ | 147,800 | ||||
Tax Fees | — | — | ||||||
Audit-Related Fees | — | — | ||||||
All Other Fees | 6,500 | 6,625 | ||||||
|
|
|
| |||||
Total | $ | 159,085 | $ | 154,425 | ||||
The Grant Thornton Audit Fees“Audit Fees” for the year ended December 31, 20082011 and 2007 were2010 consisted of fees (and expenses) billed for professional services rendered for the annual audit of the consolidated financial statements of the Company, including quarterly reviews.
The Grant Thornton Tax Fees“All Other Fees” for the year ended December 31, 2008 were2011 consisted of fees billed for the preparationa web-based accounting research tool and fees billed for a background check of the Company’s 2007 tax returns.newly elected board member, Mr. Kemp. The Grant Thornton Tax Fees“All Other Fees” for the year ended December 31, 2007 were2010 consisted of fees billed for the preparationa web-based accounting research tool.
Vote Required
The affirmative vote of the Company’s 2006 tax returnsholders of a majority of the shares of Common Stock present in person or represented by proxy and consultations regardingentitled to vote on the Company’s sales and use tax practices.
OUR BOARD OF DIRECTORS, ON BEHALF OF THE AUDIT COMMITTEE, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2012.
A shareholder who wishes to have presented ata proposal considered for inclusion in the 2009Company’s proxy statement for the Company’s 2013 annual meeting of shareholders must be received bysubmit the Companyproposal in writing to the Company’s Secretary, at itsthe Company’s principal executive offices no later than December 14, 2009, whetherNovember 22, 2012.
If the 2013 annual meeting of shareholders is moved to a date more than 30 days before or notafter the shareholder wishes to includeanniversary of the 2012 annual meeting of shareholders, then the deadline for inclusion of a proposal in the Company’s proxy statement will instead be a reasonable time before the Company begins to print and mail its proxy materials.
A shareholder who wishes to make a proposal at the 20102013 annual meeting of shareholders without including the proposal in the Company’s proxy statement must give written notice of that proposal to the CompanyCompany’s Secretary, Mr. Tipton, at itsthe Company’s principal executive offices, by February 15, 2010.1, 2013. 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 proxies held by them regarding that proposal, if properly raised at the meeting, in their discretion.
31
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 stockCommon Stock owned by him (or her) beneficially or of record. In general, all shareholder communications delivered to the secretarySecretary 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.
The Annual Report to Shareholders of the Company for 2008,2011, 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 20082011 Form 10-K has been included with these proxy materials. Exhibits to theForm 10-K are available upon written request and upon payment of a reasonable charge to cover the Company’s cost in providing such exhibits. Written requests should be sent to Investor Relations, Interphase Corporation, Parkway Centre I, 2901 North Dallas Parkway, Suite 200, Plano, Texas, 75093.
32
  | ||
 | ||
| THOMAS N. TIPTON, JR. | ||
| Chief Financial Officer, Secretary, | ||
| Vice President of Finance and Treasurer |
Plano, Texas
March 27, 2012
EXHIBIT A
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS OF
INTERPHASE CORPORATION
Effective December 7, 2011
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 as follows:
| i. | The audit committee will oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information. |
| ii. | The audit committee will review the effectiveness of the company’s internal financial control and risk management system |
| iii. | The audit committee will oversee the independent audit process including appointing and assessing the performance of the external auditor |
| iv. | The audit committee will review the company’s process for monitoring compliance with laws and regulations affecting financial reporting; |
| v. | The audit committee will review the company’s 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:
| 2.1 | Perform activities within the scope of its charter. |
| 2.2 | Engage independent counsel and other advisers as it deems necessary to carry out its duties. |
| 2.3 | Ensure the attendance of company officers at meetings as appropriate. |
| 2.4 | Have unrestricted access to members of management, employees, third parties and relevant information. |
| 2.5 | Establish procedures for dealing with concerns of employees regarding accounting, internal control or auditing matters. |
| 2.6 | Establish procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters. |
| 2.7 | Be directly responsible for the appointment, compensation, retention, and oversight of the work of, the external auditor. |
| 2.8 | Approve all audit engagement fees and terms as well as reviewing policies for the provision of non-audit services by the external auditors and the framework for pre-approval of such services. |
| 2.9 | Approve the public release of quarterly and annual financial results. |
| 2.10 | Approve all “related-party” transactions. |
3. Organization
Membership
| 3.1 | The board of directors will select the audit committee members and the chairman of the audit committee. |
| 3.2 | The audit committee will comprise at least three members and all members shall be independent non-executive directors of the company. |
| 3.3 | A quorum of any meeting will be two thirds of the members. |
| 3.4 | Each member shall have skills and experience appropriate to the company’s business. |
| 3.5 | Each member shall be financially literate; at least one member shall be designated as a financial expert. |
| 3.6 | Members will be appointed for a one year term of office. |
| 3.7 | The chairman of the audit committee will function as its secretary. |
Meetings
| 3.8 | Only committee members are entitled to attend meetings. The audit committee may invite such other persons (e.g., the chief executive officer, chief financial officer, corporate controller, external auditor representatives, other members of the board) to all, or a portion of, its meetings, as it deems necessary. |
| 3.9 | The external auditors should be invited to make presentations to the audit committee as appropriate. |
| 3.10 | Meetings shall be held not less than five times a year, including once each quarter to review financial results. |
| 3.11 | Special meetings may be convened as required. The chairman will convene a meeting if requested by the external auditors. |
| 3.12 | The chairman shall circulate the agenda and supporting documentation to the audit committee members a reasonable period in advance of each meeting. The chairman shall also create an 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. |
| 3.13 | The chairman of the committee shall circulate the minutes of meetings to members of the board and members of the committee. |
| 3.14 | Members of the audit committee should attend every meeting of the committee. |
| 3.15 | The committee will meet with outside legal counsel at least annually without management present. |
| 3.16 | The committee will meet with the external auditors at least quarterly without management present. |
| 3.17 | The committee will meet individually and privately with the chief executive officer, chief financial officer and corporate controller at least annually. |
4. Roles and responsibilities
The Audit Committee will:
Internal control
| 4.1 | Evaluate whether management is setting the appropriate ‘control culture’ by communicating the importance of internal control and management of risk. |
| 4.2 | Understand the internal control systems implemented by management for the approval of transactions and the recording and processing of financial data. |
| 4.3 | Understand the controls and processes implemented by management to ensure that the financial statements derived from the underlying financial systems, comply with relevant standards and requirements, and are subject to appropriate management review. |
| 4.4 | Evaluate the overall effectiveness of the internal control and risk management frameworks and consider whether recommendations made by the external auditors have been implemented by management. |
| 4.5 | Consider how management is held to account for the security of computer systems and applications, and the contingency plans for processing financial information in the event of a systems breakdown or to protect against computer fraud or misuse. |
| 4.6 | Inquire of management and the independent auditors about significant risks or exposures facing the company; assess the steps management has taken or proposes to take to minimize such risks to the company; and periodically review compliance with such steps. |
| 4.7 | Review with management the company’s anti-fraud program, as well as the annual fraud risk assessment, including the mitigating controls management has put in place to minimize such risks to the company. |
| 4.8 | Review with management the policies and procedures with respect to officers’ expense accounts and perquisites, including their use of corporate assets, and consider the results of any review of these areas by the independent auditors. Review a comparison of actual compensation to compensation approved by the compensation committee, including stock based compensation. |
| 4.9 | Review the company’s code of conduct at least annually to ensure that it is adequate and up-to-date. |
| 4.10 | Review the procedures for the receipt, retention, and treatment of complaints received by the company regarding accounting, internal accounting controls, or auditing matters that may be submitted by any party internal or external to the organization at least annually. Additionally, at each meeting, review any complaints that might have been received, current status, and resolution if one has been reached. |
Financial reporting
| 4.11 | Gain an understanding of the current areas of greatest financial risk and how these are being managed. |
| 4.12 | Review with management and the independent auditor significant accounting and reporting issues, including the effect of any regulatory and accounting initiatives, as well as off-balance-sheet structures, if any, and understand their impact on financial reports. |
| 4.13 | Oversee the periodic financial reporting process implemented by management and review the interim financial statements, annual financial statements and preliminary announcements prior to their release. |
| 4.14 | Review management’s process for ensuring that information contained in analyst briefings and press announcements is consistent with published financial information, balanced and transparent (particulary regarding GAAP vs non-GAAP data). |
| 4.15 | Inquire of the chief executive officer and chief financial officer regarding the “quality of earnings” of the company from a subjective as well as an objective standpoint. |
| 4.16 | Meet with management and the external auditors to review the financial statements, the key accounting policies and judgements, and the results of the audit. |
| 4.17 | Ensure that significant adjustments, unadjusted differences, disagreements with management and critical accounting policies and practices are discussed with the external auditor. |
| 4.18 | Review the other sections of the annual report before its release and consider whether the information is understandable and consistent with members’ knowledge about the company and its operations and lacks bias. |
Compliance with laws and regulations
| 4.19 | Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any fraudulent acts or noncompliance. |
| 4.20 | Obtain regular updates from management and company’s legal counsel regarding compliance matters that may have a material impact on the company’s financial statements or compliance policies. |
| 4.21 | Be satisfied that all regulatory compliance matters, related to the business of the company, have been considered in the preparation of the financial statements. |
| 4.22 | Review the findings of any examinations by regulatory agencies. |
Working with auditors
External audit
| 4.23 | Review the professional qualification of the auditors (including background and experience of partner and auditing personnel). |
| 4.24 | Consider the independence of the external auditor and any potential conflicts of interest. |
| 4.25 | Review on an annual basis the performance of the external auditors and make recommendations to the board for the appointment, reappointment or termination of the appointment of the external auditors. |
| 4.26 | Review the external auditors’ proposed audit scope and approach for the current year in the light of the company’s present circumstances and changes in regulatory and other requirements. |
| 4.27 | Discuss with the external auditor any audit problems encountered in the normal course of audit work, including any restriction on audit scope or access to information. |
| 4.28 | Ensure that significant findings and recommendations made by the external auditors and management’s proposed response are received, discussed and appropriately acted on. |
| 4.29 | Discuss with the external auditor the appropriateness of the accounting policies applied in the company’s financial reports and whether they are considered as aggressive, balanced or conservative. |
| 4.30 | Meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately. Ensure the auditors have access to the chairman of the audit committee when required. |
| 4.31 | Review policies for the provision of non-audit services by the external auditor and the framework for pre-approval of non-audit services. |
| 4.32 | Consider, with management, the rationale for employing audit firms other than the principal independent auditors. |
| 4.33 | Ensure the company has appropriate policies regarding the hiring of audit firm personnel for senior positions after they have left the audit firm. |
| 4.34 | Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. |
Reporting responsibilities
| 4.35 | Regularly update the board about committee activities and make appropriate recommendations. |
| 4.36 | Ensure the board is aware of matters that may significantly impact the financial condition or affairs of the business. |
| 4.37 | Oversee the preparation of an annual report of the committee as required by the rules of the SEC and the annual affirmation required by the appropriate listing exchange, if necessary. Include in the annual proxy statement for the company a report of the committee in accordance with the proxy rules promulgated by the SEC. |
Evaluating performance
| 4.38 | Evaluate the committee’s own performance, both of individual members and collectively, on a regular basis. |
| 4.39 | Assess the achievement of the duties specified in the charter and report the findings to the board. |
Review of the committee charter
| 4.40 | Review the audit committee charter annually, reassess the adequacy of the charter considering changes that are necessary as a result of new laws or regulations and recommend any proposed changes to the board of directors. |
| 4.41 | Ensure that the charter is approved or reapproved by the board. |
Other
| 4.42 | The committee will perform such other functions as assigned by law, the company’s charter or bylaws, or the board of directors. |
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Using ablack ink pen, mark your votes with anXas shown in | x | |||||||||
Annual Meeting Proxy Card | ||||||||||
6qPLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6q
A | ||||||||||||||||||||||||||||||||||||
| Proposals — The Board of Directors recommends a voteFOR the listed nominees andFOR |
1. Election of Directors: | For | Withhold | For | Withhold | For | Withhold | + | |||||||||||||
01 - | 02 - | 03 - Michael J. Myers | ||||||||||||||||||
04 - Kenneth V. Spenser | 05 - Christopher B. Strunk | 06 - S. Thomas Thawley | ||||||||||||||||||
| For Against Abstain | For | Against | Abstain | |||||||||||||||||
2. Proposal to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2012. | ¨ ¨ ¨ | 3. In the discretion of the Proxies, on any other matter that may properly come before the meeting or any adjournment thereof. | ¨ | ¨ | ¨ | |||||||||||||||
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. | ||||||
// |
 |
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, 2012 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 Thomas N. Tipton, Jr., 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.) | ||
