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_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended October 31, 1995 Commission File Number 0-13071
INTERPHASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1549797
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
13800 SENLAC, DALLAS, TEXAS 75234
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (214) 654-5000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on January 4, 1996 was approximately $35,813,463.
As of January 4, 1996, registrant had outstanding 4,667,703
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into this annual
report on Form 10-K Report: (1) Portions of the Definitive Proxy Statement for
Annual Meeting of Shareholders to be held in March 1996 (Part III).
_______________________________________________________________________________
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Interphase Corporation ("Interphase" or the "Company") designs, develops,
manufactures, markets and supports high performance network and mass storage
products based on advanced technologies for some of today's most powerful
computer systems. Interphase's network and mass storage products include high
performance network adapters, and computer network operating system software
drivers, Fiber Distributed Data Interface ("FDDI") concentrators, and mass
storage controllers. The Company's network products implement high speed
networking technologies such as FDDI, Asynchronous Transfer Mode ("ATM"), fast
ethernet (both 100 VG-AnyLAN and 100 Base T), as well as the older more
established ethernet (10Base T) and Token Right technologies that facilitate the
high speed movement of information across computer networks. The Company's mass
storage controllers are currently based on Small Computer Systems Interface
("SCSI") technology and in 1996 will include products based upon the emerging
high speed Fibre Channel technology to facilitate the movement of data to and
from mass storage devices. Fibre Channel can also be used for a high speed
interconnect in clustered applications. The Company's products are designed to
not only comply with the appropriate open system technical standards but also
optimize the performance of the customers network and mass storage environments.
The Company's network adapters and mass storage controllers consist of both
hardware and software. The hardware is essentially printed circuit boards which
plug into the backplane of a computer and incorporate industry standard bus
architectures of the most popular client/server platforms such as VMEbus, Sbus,
EISA, NIO, GIO, Micro Channel Architecture and the emerging industry standard
PCI bus, as well as input-output front-ends for many performance oriented
computer systems. The Company's network adapters support a variety of media
including fiber optic cabling and unshielded twisted pair ("UTP") and shielded
twisted pair ("STP") copper wire. The Company's software consists of drivers
for the most popular client/server operating systems such as Windows NT,
Netware, HP-UX, IRIX, O/S2, Solaris, SunO/S, AIX and certain real-time operating
systems. In addition the software may include diagnostics, station management
("SMT") and in certain cases off-loads the processing of the protocol stack
from the server to the adapter card. The Company's FDDI concentrator products
are stand-alone network devices which serve as a single point of connection for
multiport local area networks as well as perform certain network traffic
management tasks. The mass storage controllers provide a high-speed connection
to computer peripheral devices, such as disk drives, tape drives and printers.
The Company's products are used in a wide range of computer applications
including graphics workstations, high performance work groups, CPU clusters,
medical imaging, telephone switching, on-line transaction processing and
financial services networks.
With respect to the client/server computer market, the majority of the Company's
products have been installed in the server (or "host") as opposed to the client
(or "desktop"). This reflects the Company's historical focus on the development
of high-performance, fully featured products that are targeted for the most
demanding computer networks. Given the recent emergence of more powerful
desktop
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computing environments and a growth in demand for data intensive
applications, the Company believes that its strengths in certain network and
mass storage technologies will create significantly more opportunities for
desktop installations of its products in future years.
The Company believes that its success in gaining significant market share in
its selected markets is dependent upon not only the development and
manufacturing of high performance, high quality products but also in
establishing and maintaining the appropriate distribution channels. The
Company has original equipment manufacturer ("OEM") agreements with some of
the best known companies in the computer business for its network products
and mass storage controllers. The Company's customers include OEM's of
computer systems and network switches, systems integrators, value added
resellers ("VAR"), distributors and end-users. The Company believes that it
must maintain an ongoing synergistic relationship with its customers and
demonstrate technology leadership coupled with sophisticated manufacturing
and customer support capabilities. The Company's manufacturing and
development activities are certified under the ISO 9001 international quality
standard. This standard, considered the most comprehensive of the ISO 9000
standards, applies to not only manufacturing quality, but design, development
and support quality systems as well. Certain companies in the United States
and Europe now require ISO certification of their key suppliers. The
Company's headquarters and manufacturing facilities are located at its
Dallas, Texas location.
The Company, a Texas corporation, was founded in 1977.
PRODUCT OVERVIEW
The bus structure of a computer system is the pathway over which data flows
among the system's components, such as the central processing units ("CPU"),
disk or tape drives and network adapters. The bus structure of a computer
coordinates the timing and routing of data, as well as defines the system
architecture for components which interface with each other. The Company
develops and sells products based on high performance bus architectures such as
the VMEbus, SBus, EISA bus, Multibus, and the new emerging industry standard PCI
bus. These bus architectures were developed by computer system manufacturers
and are considered "open systems" since certain specifications of the
architecture are published. The concept of open systems has gained significant
momentum in recent years and has allowed end-users to configure a computing and
network environment that incorporates desired technology, features, scalibility
and support from a variety of product and service providers.
The CPU of a computer performs basic arithmetic, local memory access and
input/output functions for communication with peripheral equipment as well as
other functions associated with data transfers within a network such as protocol
processing. When commanded by the CPU, a network adapter facilitates the high-
speed communication of data among computer systems over a network as well as
validates data completeness and integrity. Network adapters also perform varying
levels of protocol processing and network management tasks. A network protocol
is the set of rules or conventions used to govern the exchange of information
between networked nodes or LANs. Most computer applications require immediate
access to a greater volume of data than can be stored in the computer's local
memory. This necessitates external data storage capacity provided by disk or
tape drives. A disk
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controller directs the data storage and retrieval operations of the disk
drive and controls the flow of data between the CPU and disk drive. The disk
controller locates and formats the data stored on the disk, performs data
validity checking, data error detection and correction and informs the CPU of
the status of these operations and of the controller itself. A tape
controller performs the same functions as a disk controller but interfaces
with a tape drive. Multifunction controllers operate like a disk controller
but allow the CPU to access disk drives and tape drives simultaneously.
Intelligent controllers designed by the Company incorporate proprietary firmware
(i.e., programs developed by the Company and stored in memory on the product)
and software to perform these functions simultaneously and independently from
the CPU, which allows the CPU to perform other operations at the same time as
network communications, data storage or retrieval occurs.
NETWORK PRODUCTS
Over the past several years the Company has developed a diverse line of network
products targeted for the VMEbus, Sbus, MCA and EISA bus marketplace. The
majority of these products are sold directly to OEMs but a substantial portion
are also sold to VAR's, system integrators, distributors and large end-users.
Revenues derived from network products represented approximately 61%, 58% and
53% of revenues during the years ended October 31, 1995, 1994 and 1993,
respectively. List prices for these products range from approximately $650 to
$25,000.
The Company's products included within this broad grouping can be further
divided into board level controller (adapter) products and stand-alone network
devices such as the fiberHUB 1600, M800, and M400 FDDI Concentrator.
BOARD LEVEL PRODUCTS-
FDDI PRODUCT LINE-
FDDI is a stable, standardized, 100Mbit per second technology. Its combination
of speed and stability make FDDI ideal for reliable high-performance workgroup
connections. FDDI high performance adapters are often used for movement of large
graphical images such as color prepress and medical imaging applications. These
adapters are also used in enterprise servers for high-demand transaction
processing networks in corporate systems.
The V/FDDI 5211 represents a third generation FDDI network adapter from
Interphase. This host based product is capable of supporting varying types of
media (e.g. fiber or copper) and contains an optical bypass control. It can be
used in VME64 systems and is capable of link level or on-board protocol
processing. Its RISC-based architecture can be configured for either single or
dual attachment to an FDDI network and is available in a 9U or 6U form factor
(refers to standard form factors of the printed circuit board).
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The V/FDDI 4211 is a second generation FDDI network adapter for VMEbus systems.
Its RISC-based architecture can be configured for either single or dual
attachment and is available in a 9U form factor as well as a 6U form factor. It
also contains an optical bypass switch control.
The S/FDDI 4611 is a high performance FDDI network adapter for SBus systems. It
contains many of the same features as the VMEbus FDDI products such as support
for various media. The Solaris or SunOS software driver included with this
product contains native TCP/IP support and integrated Station Management (SMT).
The E/FDDI 4811 is a high performance FDDI network adapter for EISA bus systems.
It provides for full implementation of FDDI Station Management (SMT) on-board,
freeing the host CPU to execute applications and upper level protocols.
ETHERNET AND TOKEN RING PRODUCT LINE-
The V/Ethernet 4207 provides a connection to an ethernet network for VMEbus
systems. It is a high performance protocol processor that is capable of data
rate transfers of over 30 Mbytes/second.
The V/Ethernet 3207 is considered to be a cost effective controller designed
for less complex local area ethernet networks.
The V/Token Ring Owl Is a VMEbus controller for both 4 and 16 Mbits/second Token
Ring local area networks. It has an on-board COMMprocessor and is available in
either a 6U or 9U form factor.
FAST ETHERNET (100VG-ANYLAN AND 100BASE-T)-
100VG-AnyLAN is a high performance ethernet LAN standard that supports all of
the network design rules and topologies of the popular 10Base-T ethernet and
token ring networks. Because of this, it allows organizations to leverage their
existing network and cable infrastructures while upgrading to higher
transmission speeds.
Interphase is currently shipping the 4622 SBus 100VG-AnyLan adapter, which is
the industry's only 100VG product for Sun platforms, as well as the 5022 PMC.
The 100Base-T Standard supports 100Mbps of bandwidth using the 802.3 Ethernet
Media Access Control ("MAC") sublayer operating at 100 Mbps instead of 10Mbps.
Interphase is currently in development of 100Base-T network adapter, with first
product shipments expected in mid 1996.
ATM PRODUCT LINE-
ATM is the newly emerging, scalable network technology capable of providing
enhanced quality of service in managing video, audio and data transmissions
compared to other existing network technologies. The scalable capability of
ATM allows the deployment of products with data transfer rates of 25 Mb, 51 Mb,
100 Mb, and 622 Mb, based upon the same core technology and operating
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within the same network. ATM will also provide enhanced network management
capabilities and is expected to be suitable for many desktop and server
computing environments. This developing industry standard is expected to
gain wide acceptance among both network and computer system manufacturers as
well as large cable system operations and telecommunications firms (by whom
it was initially developed and promoted). The ATM adapter market is
anticipated to grow rapidly over the next several years. These adapters can
connect stations over ATM using multimode fiber, single-mode fiber, or
Category 5 Unshielded Twisted Pair copper cable.
The 5515 PCI ATM adapter provides full duplex ATM connectivity for most PCI-
compliant systems.
The 4615 SBus ATM adapter provides full duplex ATM connectivity for virtually
all Sun Sbus platforms.
The 4815 EISA ATM adapter provides full duplex ATM connectivity for many EISA-
compliant systems .
The 5215 VME ATM adapter provides full duplex ATM connectivity for SGI Onyz and
Challenge systems running the IRIX operating system.
The 4915 GIO ATM adapter provides full duplex ATM connectivity for virtually all
Silicon Graphics GIO-based platforms.
The 4515 PMC ATM adapter provides reliable, high performance ATM connectivity
for PMC-based systems.
STAND ALONE NETWORK DEVISES-
The M1600 FDDI Concentrator provides multiport connectivity to an FDDI network.
It supports up to 16 master ports and facilitates high speed FDDI networking
between a variety of computing devices and across different types of FDDI media
including fiber and copper. This device is "hot swappable" meaning that
individual modules may be replaced, removed or added without interrupting the
entire network. Other fault tolerance features include an external optical
bypass control and an optional redundant power supply, making the M1600 well
suited for demanding FDDI backbone environments.
The M800 FDDI Concentrator contains many of the same high performance features
as the M1600 FDDI Concentrator but is designed for smaller workgroups with large
data transfer requirements. It is available in a table top or rack mountable
design.
The M400 FDDI Concentrator is a compact, fixed port concentrator ideal for small
workgroup cluster. Available in either 4 or 8 port configurations, the M400
provides options for fiber or copper media connectivity and the ability to
select managed or unmanaged operations.
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MASS STORAGE CONTROLLER PRODUCTS
Revenues derived from mass storage controller products represented approximately
34%, 39% and 47% of consolidated revenues during the years ended October 31,
1995, 1994 and 1993, respectively. The Company's mass storage product line
includes products that function in VMEbus, EISA bus and Multibus systems.
During 1995 and 1994 the vast majority of mass storage revenues were derived
from SCSI products. Presently, SCSI is the most popular mass storage technology
for both desktop and server applications since it is "device independent"
whereas many technologies prior to SCSI were not. Device independent refers to
the fact that the controller can access and send data to and from a variety of
peripheral devices (e.g. disk drives, tape drives or printers). List prices for
these products range from approximately $285 to $5,000. Historically, the
primary market for these products has been computer system OEM's.
The V/SCSI-2 4220 is designed for VMEbus and VME64 systems. It complies with the
industry standard SCSI-2 interface. It also contains two channels that support
up to 14 SCSI-1 or SCSI-2 devices. It is capable of data rates of up to 10
MBytes/second in the synchronous mode and 5 MBytes/second in the asynchronous
mode. This product is available in either a 6U or 9U form factor.
Additionally, an optional daughter card is available which allows for a
connection to an Ethernet network. The incorporation of an Ethernet daughter
card with a SCSI adapter in this manner utilizes only one slot in a computer
backplane.
The V/SCSI 4210 is a high performance dual channel SCSI host adapter for VMEbus
applications. It supports up to seven SCSI devices per channel and can be
configured with one or two independent SCSI channels. By utilizing the
BUSpacket Interface it can provide transfer rates of up to 5 MBytes/second in
synchronous mode and up to 1.5 MBytes/second in the asynchronous mode. This
product is available in either a 6U or 9U form factor.
Fibre Channel is the new, emerging high bandwidth architecture used for
concurrent communications among computers and peripheral devices. It is 10 to
250 times faster than existing technologies, including SCSI, capable of
transmitting at rates of one gigabit per second simultaneously in both
directions. This kind of performance is a practical necessity when sizable
files containing x-rays or MRI scans are retrieved from a storage device. Fibre
Channel can also operate over distances up to 10 km. For disaster recovery
purposes it is an ideal technology for backing up mission critical data to mass
storage device at a secure remote location. The Company will introduce its
first Fibre Channel products during 1996.
RESEARCH AND NEW PRODUCT DEVELOPMENT
The markets for the Company's products are characterized by rapid technological
development, evolving industry standards, frequent new product introductions and
relatively short product life cycles. The Company's success is substantially
dependent upon its ability to anticipate and react to these changes, maintain
its technological expertise, expand and enhance its product offerings in
existing technologies, and to develop in a timely manner new products in
emerging technologies, such as ATM-based networking, which achieve market
acceptance. The Company believes it must offer products to
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the market which not only meet ever-increasing performance and quality
standards, but also provide compatibility and interoperability with products
and architectures offered by various computer and network systems vendors.
The continued utility of the Company's products can be adversely affected by
products or technologies developed by others.
The Company has been engaged in the development of new products and the
refinement of its existing products since its inception. Interphase has been
active in the formulation of industry standards sanctioned by groups such as the
IEEE and ANSI and is a member of the ATM Forum, VME International Trade
Association (VITA), Fibre Channel Association, RAID Advisory Board, PCI Bus
Consortium, Fast Ethernet Alliance, SCSI Committee, the LADDIS Group, ONC/NFS
Consortium, University of New Hampshire FDDI Interoperability Lab, FC-Open
(Fibre Channel) Consortium, and ANTC Consortium for FDDI interoperability
testing.
During 1995, the Company has applied the majority of its engineering
development resources to products for the emerging ATM market. This network
technology provides for the integration of voice, video and data transmission in
local area networks and wide area networks, significant improvements in network
manageability, and scalability of speed from 25 mega bits per second ("Mbps") to
51, 100, 155 and 622 Mbps. This focus has resulted in a number of
accomplishments by the Company including: the introduction of over 25 ATM
network interface cards during 1995, its PCI ATM adapter card being selected as
one of three finalist for "Best of Show" at the Spring 1995 Networld/Interop
show, the announcement of the industry's lowest priced ATM card in February
1995, and the joint announcement with Bay Networks of the first complete,
standards based, open ATM solution in December 1994.
During fiscal 1995, the Company has continued to introduce new FDDI products,
including PCI, GIO, and Sbus FDDI adapter cards and the M400 low cost four or
eight port FDDI concentrator with copper or fiber connectivity and optional SNMP
management. The Company also introduced the industry's first Sbus 100 VG-AnyLAN
adapter and is developing the Company's first Fibre Channel mass storage
controller for introduction in 1996.
During the three years in the period ended October 31, 1995, the Company's
research and development expenses were approximately $7,327,000, $7,862,000 and
$8,772,000, respectively. The decrease in absolute spending in 1995 and 1994 is
the result of certain cost reduction actions which are more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this document. At October 31, 1995, the Company had
approximately 51 employees engaged in research and product development
activities on a full-time basis.
MARKETING AND CUSTOMERS
The Company's standard products are sold to OEM's for inclusion in scientific,
industrial, medical, engineering workstations, printing, mini-supercomputer,
graphics and other computer applications. These purchasers incorporate the
Company's products in proprietary systems for resale to distributors, system
integrators and VAR's (which add specially designed software) prior to resale to
end-users. Also, the Company sells products directly to sophisticated end-users
such as large corporations,
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universities and scientific research organizations. During the year ended
October 31, 1995, sales to Pyramid Corporation accounted for $7,039,000 or
15% of consolidated revenues, and was the only customer accounting for more
than 10% of consolidated revenues. During the year ended October 31, 1994,
two customers accounted for more than 10% of consolidated revenues, Sequent
Computer and Motorola Systems, with revenues of $4,125,000 and $4,082,000,
respectively, each of which equaled approximately 10% of consolidated
revenues. During the year ended October 31, 1993, sales to Siemens Nixdorf
Information Systems were $4,517,000 or 12% of consolidated revenues, and was
the only customer accounting for more than 10% of consolidated revenuers.
In 1989, Motorola purchased 660,000 shares of common stock of the Company at a
price of $11.00 per share. In addition, Motorola received warrants to purchase
an additional 660,000 shares of common stock at an exercise price of $15.40 per
share. The warrants are exercisable only upon the occurrence of certain events,
including (i) a change of control of the Company or (ii) Motorola's purchase of
the Company's products achieving certain levels. The warrants expire in March
1996 and contain certain antidilution provisions. Sales to Motorola
approximated 6%, 10% and 8% of the Company's revenues for the years ending
October 31, 1995, 1994 and 1993, respectively.
The Company markets its products through its own sales organization and, to a
lesser extent, through a network of independent sales representatives. In
addition to the Company's headquarters in Dallas, Texas, the Company has sales
offices located in or near Santa Clara, California; Boston, Massachusetts;
Portland, Oregon; Phoenix, Arizona; Minneapolis, Minnesota; Nashua, New
Hampshire; Tokyo, Japan; and London, England. The Company's sales personnel
market products directly to key customers as well as support the sales
representative network. During 1995, the Company has been successful in
establishing new alliances with key computer and network switch OEM's for its
ATM products, including Bay Networks, UB Networks, NEC, Agile Networks, and
Hewlett Packard. In addition, the Company has entered into distribution
agreements with key national and international distribution partners, including
Anixter, Fuji-Xerox, Gates/Arrow and Westcon.
Interphase emphasizes its extensive product support, training and field support
to its customers. The Company's products are generally sold with a one year
warranty covering components and labor. After the expiration of the warranty
period, support services are generally provided by the Company for a stated flat
fee.
European sales in fiscal 1995, 1994 and 1993 accounted for approximately
$3,818,000 or 8% of consolidated revenues, $6,277,000 or 16% of total revenues
and $9,801,000 or 25% of total revenues, respectively. The Company believes
these declines are attributable to certain product development and marketing
strategies taken by the Company's European customer base which resulted in fewer
business opportunities for the Company as well as the persistent and continuing
general economic weakness in many European economies. In addition certain of
the Company's U.S. customers purchase and integrate products in the U.S., then
sell directly into the European markets and have been increasing market share in
Europe during these time frames. In the latter part of fiscal 1995 the Company
reorganized its European operations with the anticipation that European sourced
revenues will begin to reverse the recent downward trend during 1996.
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The Company and its customers generally enter into written agreements
specifying, among other items standard in commercial agreements, product
specifications, failure rates, shipping requirements, shipment rescheduling
terms, price/volume schedules and manufacturer warranties. Substantially all of
these agreements do not contain determinable purchase commitments of the
customers, providing instead that actual purchase and shipments of products be
made by specific purchase order. Accordingly, any shipment rates stated in such
contracts are subject to rescheduling and/or cancellation, and therefore are not
indicative of the future purchase orders to be submitted by such customer. In
addition, the actual terms of the contracts tend to be modified in the ordinary
course of business by means of subsequent purchase order terms and by course of
dealing.
The Company does not believe that the level of backlog of orders is either
material or indicative of future results, since its contracts are subject to
revision through subsequent purchase orders and since its customers are
generally permitted to cancel purchase orders, within certain parameters, prior
to shipment without penalty.
The majority of the Company's sales are to OEMs with payment terms typically
being net 30-45 days from date of invoice.
MANUFACTURING AND SUPPLIES
All manufacturing operations are currently conducted at the Company's
headquarters in Dallas, Texas. The Company's products consist primarily of
various integrated circuits, other electronic components and firmware assembled
onto an internally designed printed circuit board.
The Company uses sole-sourced, internally designed, applications specific
integrated circuits ("ASIC") on most of its products as well as standard off-
the shelf items presently available from two or more suppliers. Historically
the Company has not experienced any significant problems in maintaining an
adequate supply of these parts sufficient to satisfy customer demand, and the
Company believes that it has good relations with its vendors. However, during
the latter part of fiscal 1995, the Company began to experience difficulty in
the timely delivery of a certain ASIC from a vendor with whom the Company has
had a long standing relationship. The Company believes this problem arose in
part because of the significant increase in worldwide demand for semiconductor
components during 1995 as well as the vendor's production problems associated
with the transfer of this particular ASIC from one production facility to
another. Should this shortage continue or other shortages occur the Company's
revenue levels would likely be adversely affected and, potentially,
relationships with its customers could be impaired.
The Company generally does not manufacture products to stock in finished goods
inventory, as substantially all of the Company's production is dedicated to
specific customer purchase orders. As a result, the Company does not have any
material requirements to maintain significant inventories or other working
capital items.
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INTELLECTUAL PROPERTY AND PATENTS
While the Company believes that its success is ultimately dependent upon the
innovative skills of its personnel and its ability to anticipate technological
changes, its ability to compete successfully will depend, in part, upon its
ability to protect proprietary technology contained in its products. The
Company does not currently hold any patents relative to its current product
lines. Instead, the Company relies upon a combination of trade secret,
copyright and trademark laws and contractual restrictions to establish and
protect proprietary rights in its products. The development of alternative,
proprietary and other technologies by third parties could adversely affect the
competitiveness of the Company's products. Further, the laws of some countries
do not provide the same degree of protection of the Company's proprietary
information as do the laws of the United States. Finally, the Company's
adherence to industry-wide technical standards and specifications may limit the
Company's opportunities to provide proprietary product features capable of
protection.
The Company is also subject to the risk of litigation alleging infringement of
third party intellectual property rights. Infringement claims could require the
Company to expend significant time and money in litigation, pay damages, develop
non-infringing technology or acquire licenses to the technology which is the
subject of asserted infringement.
The Company has entered into several nonexclusive software licensing agreements
that allow the Company to incorporate software into its product line thereby
increasing its functionality, performance and interoperability.
EMPLOYEES
At October 31, 1995, the Company had 193 full-time employees, of which 76 were
engaged in manufacturing and quality assurance, 51 in research and development,
35 in sales, sales support, service and marketing and 31 in general management
and administration.
The Company's success to date has been significantly dependent on the
contributions of a number of its key technical and management employees. The
Company does not maintain life insurance policies on its key employees and,
except for a few executive officers, does not have employment agreements with
key employees. The loss of the services of one or more of these key employees
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled and motivated technical, managerial, sales and
marketing personnel. Competition for such personnel is intense.
None of the Company's employees are covered by a collective bargaining agreement
and there have been no work stoppages. Additionally, the Company considers its
relationship with its employees to be good.
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COMPETITION
The computer network industry is intensely competitive and is significantly
affected by product introductions and market activities of industry
participants. The Company expects substantial competition to continue. The
Company's competition includes vendors specifically dedicated to the mass
storage controller and computer network product markets. Traditionally the
Company's major OEM customers have chosen not to manufacture adapters for their
products or do not manufacture sufficient quantities or types of controllers to
meet their needs. Increased competition could result in price reductions,
reduced margins and loss of market share.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing and other resources and larger installed
bases than the Company. Several of the Company's competitors have been acquired
by major networking companies. These acquisitions are likely to permit the
Company's competitors to devote significantly greater resources to the
development and marketing of new competitive products and the marketing of
existing competitive products to their larger installed bases. The Company
expects that competition will increase substantially as a result of these and
other industry consolidations and alliances, as well as the emergence of new
competitors. The Company believes that it has been able to compete as a result
of its perceived technological leadership within the Company's market segment
and its reputation for high product performance.
ITEM 2. PROPERTIES.
The Company leases a 96,000 square foot facility located in Farmers Branch,
Texas, a suburb of Dallas. The facility includes approximately $2.8 million in
leasehold improvements that were made by the Company. The lease, inclusive of
renewal options, extends through 2009. The Company believes that its facilities
and equipment are in good operating condition and are adequate for its
operations. The Company owns most of the equipment used in its operations.
Such equipment consists primarily of engineering equipment, manufacturing and
test equipment, and fixtures.
ITEM 3. LEGAL PROCEEDINGS.
On January 22, 1996, the Company filed a lawsuit in the 160th Judicial District
Court of Texas against Rockwell International Corporation and related parties
seeking damages for breach of contract in connection with a proposed acquisition
by the Company of a division of Rockwell. The Company is unable to predict with
any certainty the outcome of this litigation. Also See Note 8 of the notes to
consolidated financial statements of this document entitled "Acquired Product
Rights". Other than the foregoing, there are no other legal proceedings,
pending or threatened, against the Company that, in management's opinion, could
have a material effect on the Company's financial position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Since January 1984 shares of the Company's common stock have been traded in The
Nasdaq Stock Market under the symbol INPH. The following table summarizes its
high and low price for each fiscal quarter during 1995 and 1994 as reported by
Nasdaq.
<TABLE>
<CAPTION>
FISCAL 1995: HIGH LOW
------------ ---- ---
<S> <C> <C>
First quarter $12 3/4 $ 8 1/2
Second quarter 12 3/8 8 3/8
Third quarter 17 3/4 9 3/4
Fourth quarter 17 1/2 10 1/2
FISCAL 1994:
------------
First quarter $ 5 3/4 $ 3 5/8
Second quarter 6 4 1/8
Third quarter 7 5
Fourth quarter 12 3/4 5 1/4
</TABLE>
As of January 4, 1996, the Company had 111 record owners of its common stock.
The Company has not paid dividends on its Common Stock since its inception.
The Board of Directors does not anticipate payment of any dividends in the
foreseeable future and intends to continue its present policy of retaining
earnings for reinvestment in the operations of the Company.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
FOR THE YEAR ENDED OCTOBER 31,
(In thousands, except per share data) 1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $47,368 $40,303 $38,496 $44,258 $40,186
Gross profit 23,547 20,066 18,764 24,142 23,125
Research and development 7,327 7,862 8,772 9,180 6,434
Sales and marketing 8,583 7,599 9,087 8,337 7,681
General and administrative 4,004 4,146 4,847 4,380 4,441
Special charges - 1,148 2,447 - -
Operating income (loss) 3,633 (689) (6,389) 2,245 4,569
Other, net 589 278 404 592 30
Income (loss) before income tax 4,222 (411) (5,985) 2,837 4,599
------ ------ ------- ------ ------
Net income (loss) $2,759 $(280) $(4,201) $1,787 $3,107
------ ------ ------- ------ ------
------ ------ ------- ------ ------
Net income (loss) per share $0.55 $(0.06) $(0.94) $0.39 $0.77
Weighted average number of common 5,051 4,484 4,472 4,592 4,033
and common equivalent shares
BALANCE SHEET DATA:
OCTOBER 31,
Working capital $24,328 $20,776 $19,053 $21,796 $22,208
Total assets 35,430 31,943 32,339 36,468 34,065
Total liabilities 5,019 5,094 5,239 5,240 4,740
Shareholders' equity 30,411 26,849 27,100 31,228 29,325
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
CONSOLIDATED STATEMENTS OF OPERATIONS PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales 50.3 50.2 51.3
-------------------------
Gross profit 49.7 49.8 48.7
Research and development 15.4 19.5 22.8
Sales and marketing 18.1 18.9 23.6
General and administrative 8.5 10.3 12.6
Provision for strategic realignment - 2.8 3.0
Loss on acquired product rights - - 3.3
-------------------------
Operating income (loss) 7.7 (1.7) (16.6)
-------------------------
Interest income 1.2 .8 1.2
Other, net - - (.2)
-------------------------
Income (loss) before income taxes 8.9 (.9) (15.6)
Provision (benefit) for income taxes 3.1 (.3) (4.7)
-------------------------
Net income (loss) 5.8% (.6)% (10.9)%
-------------------------
-------------------------
</TABLE>
RESULTS OF OPERATIONS
REVENUES: Total revenues in 1995 were $47,368,000 as compared to $40,303,000 in
1994 and 38,496,000 in 1993. This represents a growth in revenues of 18% from
1994 to 1995. The improvement in revenues was led by a 33% increase in sales
of the Company's FDDI (Fiber Distributed Data Interface) product line, a 9%
increase in SCSI products and partially offset by a decrease of 17% in sales of
older ethernet products. FDDI revenues approximated 45% of total revenues in
1995, SCSI 33% and ethernet 12%. Asynchronous Transfer Mode ("ATM") products
were 4% of total revenues in 1995 and reflected the fastest rate of growth
throughout the year. Networking products in total comprised 61% of total
revenues for 1995, while mass
14
<PAGE>
storage product revenues approximated 34% of total revenue. North American
revenues grew 29%, Pacific Rim revenues grew 15%, and European revenues
declined 40% compared to 1994 The increase in revenue from 1993 to 1994 was
$1,807,000, which represents a growth of approximately 5%. This growth is
due primarily to a 44% increase in revenue from the Company's FDDI product
largely offset by declines in ethernet and to a lesser extent by SCSI product
revenues. In 1994 FDDI revenues approximated 39% of total revenues, SCSI
36%, Ethernet 17% and ATM 1%. In 1994 network products in total comprised
58%, and mass storage product revenues approximated 39%, of total revenues.
COST OF SALES: Cost of Sales expressed as a percentage of revenues was 50%,
50% and 51% for the years ended October 31, 1995, 1994 and 1993,
respectively. In 1995, the FDDI and SCSI products experienced slightly lower
cost of sales as a percentage of revenues compared to 1994, due primarily to
product mix changes. Ethernet cost of sales as a percentage of revenues
in 1995 was unchanged from 1994, and ATM cost of sales as a percentage of
revenues continued to be very high, typical of a first year technology. In
1994, the cost of sales as a percentage of revenues declined compared to 1993
by 1% due to cost reduction actions described more fully below in "Special
Charges" and the positive impact of higher production volumes. In 1996, the
overall cost of sales as a percentage of revenues is expected to increase due
to the anticipated growth of ATM products.
RESEARCH AND DEVELOPMENT: The Company's investment in the development of new
products through research and development was $7,327,000, $7,862,000 and
$8,772,000 in 1995, 1994, and 1993, respectively. As a percentage of revenue,
research and development expenses were 16%, 20% and 23% for 1995, 1994, and
1993, respectively . The decrease in absolute spending in 1995 and 1994 is a
deliberate focus by the Company to expend resources more effectively, and the
cost reduction actions taken in 1994. The Company has continued to focus its
developmental efforts on ATM and FDDI products. As a percent of revenue
research and development expense are expected to remain essentially flat for
1996, as compared to 1995.
SALES AND MARKETING: Sales and marketing expenses were $8,583,000, $7,599,000
and $9,087,000 in 1995, 1994, and 1993, respectively. As a percentage of
revenue, sales and marketing expenses were 18%, 19% and 24% for 1995, 1994, and
1993, respectively. The increase in spending from 1994 to 1995 is primarily
related to the increase in revenues over 1994. The decrease in absolute
spending from 1993 to 1994 is due to cost reduction actions taken in 1994.
SPECIAL CHARGES: In the first quarter of 1994 the Company recorded a $1,148,000
provision for strategic realignment related to a 15% reduction in workforce,
consolidation of the California engineering activities to Dallas and the write-
off of nonproductive assets. This cost reduction initiative followed a similar
action taken in the third quarter of 1993 when the Company recorded a $1,172,000
charge also related to a similar reduction in workforce and the write-off of
nonproductive assets. Each of these actions were implemented as part of a
strategy to regain profitable quarterly financial performance by adjusting
spending to near-term revenue expectations while preserving the Company's key
strengths. These two efforts have been referred
15
<PAGE>
to throughout as the "cost reduction actions". Finally, in the third quarter
of 1993, the Company recorded a $1,275,000 loss associated with the write-off
of certain acquired product rights from Intellectual Systems, Inc. This
matter has resulted in litigation and is discussed further in Note 8 to the
Consolidated Financial Statements.
GENERAL AND ADMINISTRATIVE: The expenses for general and administrative were
$4,004,000, $4,146,000 and $4,847,000 in 1995, 1994, and 1993, respectively. As
a percentage of revenue, general and administrative expenses were 9%, 10% and
13% for 1995, 1994, and 1993, respectively. The decreases in spending in both
1995 and 1994 were a result of cost reduction actions as discussed above.
INTEREST INCOME: Interest Income was $586,000, $309,000 and $463,000 in 1995,
1994, and 1993, respectively. The increase in interest income for 1995 compared
to 1994 is related to the increase in funds available for investment. The
decrease in interest income in 1994 is due to a decline in funds available for
investment and a one-time gain that was recognized in 1993 for the early
liquidation of certain marketable securities that had increased in value as a
result of the change in market interest rates.
PROVISION (BENEFIT) FOR INCOME TAXES: The Company's provision for income taxes
in 1995, 1994, and 1993 is made up of the federal statutory rate of 34% as well
as a provision for state and foreign taxes paid but not available for credit in
the United States. Therefore the rate is slightly higher than 34%.
NET INCOME (LOSS): The net income for the Company was $2,759,000 in 1995,
compared to a net loss of $280,000 in 1994 and a net loss of $4,201,000 in
1993. 1995 profit is a result the 18% growth in revenues while, maintaining
a gross margin of 50% and reducing operating expenses by 4% from 1994,
resulting in a net income as a percentage of revenues of approximately 6%.
The decrease in net loss from 1993 to 1994 is attributable to the reduction
in normal operating expenses resulting from the cost reduction actions as
discussed above.
ADOPTION OF ACCOUNTING STANDARDS: Effective November 1, 1993, the Company
adopted Financial Accounting Standards Board Statement ("SFAS") No. 109,
"Accounting for Income Taxes". SFAS No. 109 utilizes the liability method, and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities given the provisions of enacted tax law. As permitted by the
Statement, prior year financial statements have not been restated and the result
of the change was not material to the Consolidated Financial Statements.
On November 1, 1993, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the requirements
of the Statement, the Company has determined that all of its marketable
securities should be classified as "available-for-sale" securities and reported
at fair value. Unrealized gains and losses are excluded from earnings and
reported in a separate component of shareholders' equity, net of related
16
<PAGE>
deferred taxes. The Company's results of operations will continue to include
earnings from such securities as calculated on a yield-to-maturity basis.
RECENTLY ISSUED ACCOUNTING POLICIES: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121; "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of", which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS No. 121 to have any material effect on the
consolidated financial statements of the Company.
In November 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement becomes effective for
the Company in fiscal year 1997. This statement requires companies to provide
additional disclosures related to employee stock-based compensation plans, or
allows companies to change the accounting for compensation expense associated
with its stock-based compensation. The Company has not yet determined the
impact, if any, on the results of operations of the Company due to adoption of
this statement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities aggregated
$12,686,000, and $11,534,000 and $8,291,000 at October 31, 1995, 1994, and
1993, respectively. The increase of $1,152,000 in 1995 was primarily due to
the level of profitability in 1995 partially offset by the growth in accounts
receivable and inventories, both a refection of the growth of the business
during the year. Expenditures for equipment and purchased software were
nearly the same as depreciation and amortization expenses in 1995. From
1993 to 1994 the increase in cash, cash equivalents and marketable securities
was $3,243,000. This increase is the result of generating $4,575,000 in cash
from operations coupled with a reduction in capital outlays of over 40% from
the prior year, pursuant to the cost reductions actions implemented in early
1994. Expenditures for equipment and purchased software were $2,728,000,
$1,492,000 and $2,777,000 in 1995, 1994 and 1993, respectively. The Company
expects that its cash, cash equivalents and marketable securities will be
adequate to meet foreseeable needs in 1996. At October 31, 1995, the Company
had no material commitments to purchase capital assets. The Company's only
significant long-term obligation is its operating lease on its Dallas
facility. The Company has not paid any dividends since its inception and
does not anticipate paying any dividends in 1996.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 (a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
See information regarding the Directors and nominees for director under the
heading "Election of Directors" of the Proxy Statement for the Annual Meeting
of Shareholders to be held in March 1996, which is incorporated herein by
reference.
EXECUTIVE OFFICERS
As of January 4, 1996, the executive officers of the Company, their respective
ages, positions held and tenure as officers are listed below:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS OF
THE COMPANY
NAME AGE POSITION(S) HELD WITH THE COMPANY SINCE
---- --- --------------------------------- -----------
<S> <C> <C> <C>
R. Stephen Polley 45 Chairman, Chief Executive Officer, 1993
Chief Operating Officer and President
Robert L. Drury 48 Chief Financial Officer, 1992
Vice President of Finance and Treasurer
James C. Gleason 35 Vice President of Sales and Operations 1992
Ernest E. Godsey 48 Vice President of Business Development 1992
Paula E. D. Jandura 43 Vice President of Administration 1992
John E. Tuder 37 Vice President of Engineering 1995
</TABLE>
R. STEPHEN POLLEY joined the company as President and Chief Operating Officer in
November 1993 and was elected a director by the Board of Directors in November
1993. In June 1994, Mr. Polley was named Chief Executive Officer of the Company
and appointed Chairman of the Board of Directors. From August 1992 to February
1993, Mr. Polley acted as a consultant in strategic and management matters and
as a director for Computer Automation, Inc. Computer Automation provided
various products and services for use in facsimile management systems,
minicomputers and microcomputers. From 1987 to April 1992, Mr. Polley served
as President, Chief Executive Officer and a director of Intellicall, Inc., a
diversified supplier of telecommunications products and services including
private pay telephones and microprocessor-based automated operator systems.
19
<PAGE>
ROBERT L. DRURY joined the company as Vice President of Finance and Chief
Financial Officer in December 1992. In June 1994, Mr. Drury was also named
Treasurer for the Company. From 1988 through 1992, Mr. Drury was Chief
Financial Officer of the Ben Hogan Company, a manufacturer of golf related
products.
JAMES C. GLEASON joined the company in 1986 as Manufacturing Operations Manager.
Since that time he has served as Vice President of Sales and Marketing (1993),
Vice President of Operations (1992) and Vice President of Manufacturing (1988).
ERNEST E. GODSEY joined the company as Vice President of Business Development in
December 1992. From October 1991 through December 1992, Mr. Godsey was Vice
President of Engineering and Marketing for Mizar, Inc., a supplier of various
products for the microcomputer OEM marketplace. From 1986 through October 1991,
Mr. Godsey was employed by the Company in various marketing capacities, the last
being that of Vice President of Marketing.
PAULA E. D. JANDURA has served as Vice President of Administration since 1986.
JOHN E. TUDER joined the company as Vice President of Engineering in 1995.
Prior to joining Interphase Mr. Tuder was Director of Product Development for
the Broadband Products Division of DSC Communications Corporation, from 1993
through 1995, and prior to that with Intergraph in Huntsville, Alabama, from
1980 through 1993.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is in the Proxy Statement for the Annual
Meeting of Shareholders to be held in March 1996, which is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is in the Proxy Statement for the Annual
Meeting of Shareholders to be held in March 1996, which is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is in the Proxy Statement for the Annual
Meeting of Shareholders to be held in March 1996, which is incorporated herein
by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (i) and (ii) Financial Statements and Schedules.
Reference is made to the listing on page F-1 of all financial statements and
schedules filed as a part of this report.
(iii) Exhibits.
Reference is made to the Index to Exhibits on page E-1 for a list of all
exhibits filed during the period covered by this report.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during the quarter
ended October 31, 1995.
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants -
ARTHUR ANDERSEN LLP F-2
Consolidated Balance Sheets - October 31, 1995 and 1994 F-3
Consolidated Statements of Operations - Years Ended
October 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity - Years Ended
October 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows - Years Ended
October 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7 to F-15
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Interphase Corporation:
We have audited the accompanying consolidated balance sheets of Interphase
Corporation (a Texas corporation) and subsidiary as of October 31, 1995 and
1994, and the related consolidated statements of operations, shareholder's
equity, and cash flows for each of the three years in the period ended October
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interphase Corporation and
subsidiary as of October 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended October 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
November 1, 1993, the Company changed its method of accounting for certain debt
and equity securities.
ARTHUR ANDERSEN LLP
Dallas, Texas
December 4, 1995
F-2
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, OCTOBER 31,
- ------ 1995 1994
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 3,320 $ 3,814
Marketable securities 9,366 7,720
Trade accounts receivable, less allowances for uncollectible
accounts of $238 and $240, respectively 7,521 5,658
Inventories, net 7,486 6,577
Refundable income taxes - 219
Prepaid expenses and other current assets 957 733
Deferred income taxes, net 594 1,019
------- -------
Total current assets 29,244 25,740
------- -------
Machinery and equipment 10,920 11,137
Leasehold improvements 2,758 2,763
Furniture and fixtures 351 312
------- -------
14,029 14,212
Less-accumulated depreciation and amortization (8,820) (8,918)
------- -------
Total property and equipment, net 5,209 5,294
------- -------
Capitalized software, net of accumulated amortization 524 804
Deferred income taxes, net 301 46
Other assets 152 59
------- -------
Total assets $35,430 $31,943
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 3,193 $ 3,501
Accrued compensation 1,357 1,463
Income taxes payable 366 -
------- -------
Total current liabilities 4,916 4,964
Deferred lease obligations 103 130
------- -------
Total liabilities 5,019 5,094
Common stock, no par value; 100,000,000 shares authorized;
4,661,303 and 4,513,230 shares outstanding 24,177 23,493
Retained earnings 6,263 3,504
Unrealized holding period loss (29) (148)
------- -------
Total shareholders' equity 30,411 26,849
------- -------
Total liabilities and shareholders' equity $35,430 $31,943
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues $47,368 $40,303 $38,496
Cost of sales 23,821 20,237 19,732
------- ------- -------
Gross profit 23,547 20,066 18,764
------- ------- -------
Research and development 7,327 7,862 8,772
Sales and marketing 8,583 7,599 9,087
General and administrative 4,004 4,146 4,847
Provision for strategic realignment - 1,148 1,172
Loss on acquired product rights - - 1,275
------- ------- -------
Total operating expenses 19,914 20,755 25,153
------- ------- -------
Operating income (loss) 3,633 (689) (6,389)
Interest income 586 309 463
Other, net 3 (31) (59)
------- ------- -------
Income (loss) before income taxes 4,222 (411) (5,985)
Provision (benefit) for income taxes 1,463 (131) (1,784)
------- ------- -------
Net income (loss) $ 2,759 $ (280) $(4,201)
------- ------- -------
------- ------- -------
Net income (loss) per common and
common equivalent share $ 0.55 $ (0.06) $ (0.94)
------- ------- -------
------- ------- -------
Weighted average common and common
equivalent shares 5,051 4,484 4,472
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
----------------- RETAINED HOLDING
SHARES AMOUNT EARNINGS PERIOD LOSS TOTAL
------ ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1992 4,464 $23,243 $ 7,985 $ - $31,228
Option exercises, including related tax benefit 13 73 - 73
Net Loss - - (4,201) - (4,201)
----- ------- ------- ----- -------
Balance at October 31, 1993 4,477 23,316 3,784 - 27,100
----- ------- ------- ----- -------
Option exercises, including related tax benefit 36 177 - - 177
Unrealized holding period loss - - - (148) (148)
Net loss - - (280) - (280)
----- ------- ------- ----- -------
Balance at October 31, 1994 4,513 23,493 3,504 (148) 26,849
----- ------- ------- ----- -------
Option exercises, including related tax benefit 148 684 - - 684
Unrealized holding period gain - - - 119 119
Net income - - 2,759 - 2,759
----- ------- ------- ----- -------
Balance at October 31, 1995 4,661 $24,177 $ 6,263 $ (29) $30,411
----- ------- ------- ----- -------
----- ------- ------- ----- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,759 $ (280) $(4,201)
------- ------- -------
Adjustment to reconcile net income (loss) to net cash provided (used) by operating activities:
Loss on acquired product rights - - 1,275
Provision for strategic realignment - 1,148 1,172
Depreciation and amortization 2,814 3,189 3,069
Change in assets and liabilities, excluding effect from provision for strategic realignment
and loss on acquired product rights:
Trade accounts receivable (1,863) 187 2,924
Inventories (909) (195) (1,199)
Refundable income taxes 219 1,630 (1,849)
Prepaid expenses and other current assets (224) 285 (307)
Accounts payable and accrued liabilities (28) (746) (70)
Accrued compensation (106) (221) (174)
Income taxes payable 366 - (267)
Deferred income taxes 170 (446) (405)
Deferred lease obligations (27) 24 30
------- ------- -------
Net adjustments 412 4,855 4,199
------- ------- -------
Net cash provided (used) by operating activities 3,171 4,575 (2)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, equipment and leasehold improvements (2,501) (1,114) (2,246)
Additions to capitalized software (227) (378) (531)
Decrease (increase) in other assets (93) 221 (232)
Decrease (increase) in marketable securities (1,528) (2,280) (25)
------- ------- -------
Net cash used by investing activities (4,349) (3,551) (3,034)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations - (90) (88)
Increase in common stock 684 177 73
------- ------- -------
Net cash provided (used) by financing activities 684 87 (15)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (494) 1,111 (3,051)
Cash and cash equivalents at beginning of year 3,814 2,703 5,754
------- ------- -------
Cash and cash equivalents at end of year $ 3,320 $ 3,814 $ 2,703
------- ------- -------
------- ------- -------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ - $ (7) $ (21)
Taxes refunded 244 1,433 -
Taxes paid (1,014) (27) (725)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
INTERPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
financial statements of Interphase Corporation ("the Company") and its wholly
owned subsidiary. All significant intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers marketable securities with
original maturities of less than three months, as well as interest bearing money
market accounts, to be cash equivalents.
MARKETABLE SECURITIES: As of October 31, 1995 and 1994, the fair market value
of marketable securities was $9,366,000 and $7,720,000 respectively. In
accordance with the requirements of the Financial Accounting Standards Board
Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities", all marketable securities are deemed to be classified as
"available-for-sale securities" and reported at fair value. Unrealized gains
and losses are excluded from earnings and reported in a separate component of
shareholders' equity, net of related deferred taxes. The Company's results of
operations will continue to include earnings from such securities as calculated
on a yield-to-maturity basis. During 1995 the Company realized a net loss of
$14,000 from the sale of securities. As of October 31, 1995, the Company had
recorded a valuation loss of $42,000 with respect to certain available-for-sale
securities ($29,000 net of taxes). During 1994 the Company realized a gain of
$1,000 from the sale of securities. As of October 31, 1994, the Company had
recorded a valuation loss of $225,000 with respect to its available-for-sale
securities ($148,000 net of taxes).
ALLOWANCE FOR DOUBTFUL ACCOUNTS: As of October 31, 1995, 1994 and 1993 the
balance for allowance for doubtful accounts was $238,000, $240,000 and $242,000.
The activity for this account for the three years ended October 31, 1995 was as
follows: (in thousands)
<TABLE>
<CAPTION>
Balance at Write-offs Balance
Beginning Charged to Net of at End of
Year: of Year Expense Recoveries Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $240 $ - $ 2 $238
1994 242 2 (4) 240
1993 153 100 (11) 242
</TABLE>
INVENTORIES: Inventories are valued at the lower of cost or market and include
material, labor and manufacturing overhead. Cost is determined on a first-in,
first-out basis: (in thousands)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Raw Materials $3,878 $2,981
Work-in-process 3,401 2,933
Finished Goods 207 663
------ ------
Total $7,486 $6,577
------ ------
------ ------
</TABLE>
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation and amortization are provided over the estimated useful lives of
depreciable assets using primarily the straight-line method. When property and
equipment are sold or otherwise retired, the cost and accumulated depreciation
applicable to such assets are eliminated from the accounts, and any resulting
gain or loss is reflected in current operations.
F-7
<PAGE>
The depreciable lives of property and equipment are as follows:
<TABLE>
<S> <C>
Machinery and equipment 3-5 years
Leasehold improvements 3-10 years
Furniture and fixtures 5-7 years
</TABLE>
CAPITALIZED SOFTWARE: Capitalized software at October 31, 1995 represents
various software licenses purchased by the Company and utilized in connection
with the Company's network and mass storage products as well as the general
operations of the Company. Capitalized software is amortized over 3-5 years
utilizing the straight-line method. Related amortization expense was
approximately $400,000, $508,000 and $410,000 in 1995, 1994 and 1993,
respectively. Accumulated amortization at the end of 1995, 1994 and 1993 was
$1,441,000, $1,309,000 and $803,000, respectively.
REVENUE RECOGNITION: Revenue from product sales is recorded only when the
earnings process has been completed, which is generally at the time of shipment.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially expose
the Company to concentrations of credit risk, as defined by Statement of
Financial Accounting Standards (SFAS) No. 105 consist primarily of trade
accounts receivable. The majority of the Company's sales have been to original
equipment manufacturers of computer systems. The Company conducts credit
evaluations of its customers' financial condition and limits the amount of trade
credit extended when necessary. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information.
RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense
as incurred.
FOREIGN EXCHANGE: The Company has established the U.S. Dollar as the functional
currency of its foreign operations. Therefore, monetary assets and liabilities
of the Company's foreign operations are translated into U.S. Dollars at the
exchange rates in effect at the end of the year. Nonmonetary assets and
liabilities are translated at historical rates whereas revenue and expense
transactions are translated using the average exchange rates that prevailed
during the year. The resulting gains and losses are included in the Company's
results of operations.
INCOME TAXES: Effective November 1, 1993, the Company adopted the SFAS No. 109,
"Accounting of Income Taxes". Statement No. 109 utilizes the liability method
to determine deferred taxes. Deferred tax liability is based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given the provisions of enacted tax law. The
Company's consolidated financial statements include deferred income taxes
arising from the recognition of revenues and expenses in different periods for
income tax and financial reporting purposes. The adoption of SFAS No. 109 is
not material to the Company's operating results or financial position.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Net income (loss) per
common and common equivalent share is computed using the weighted average number
of outstanding common and dilutive common equivalent shares outstanding during
the periods presented. The dilutive impact of outstanding stock options and
warrants has been considered under the treasury stock method. In 1994 and 1993,
the impact of outstanding stock options and warrants was anitdilutive and,
therefore, has been excluded from the computations of net loss per share related
to those years.
Shares used in the computation of net income (loss) per common and common
equivalent share are summarized below.
F-8
<PAGE>
Weighted average common and common equivalent shares: (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Outstanding weighted average
shares outstanding 4,561 4,484 4,472
Stock options 490 - -
-------------------------
Total 5,051 4,484 4,472
-------------------------
-------------------------
</TABLE>
RECENTLY ISSUED ACCOUNTING POLICIES: In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of", which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. Adoption is required in financial
statements for fiscal years beginning after December 15, 1995. The Company does
not expect the adoption of SFAS No. 121 to have any material effect on the
consolidated financial statements of the Company.
In November 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement becomes effective for
the Company in fiscal year 1997. This statement requires companies to provide
additional disclosures related to employee stock-based compensation plans, or
allows companies to change the accounting for compensation expense associated
with its stock-based compensation. The Company has not yet determined the
impact, if any, on the results of operations of the Company due to adoption of
this statement.
CERTAIN RECLASSIFICATIONS: Certain amounts previously reported in the 1994
financial statements have been reclassified to conform with the 1995
presentation.
F-9
<PAGE>
2. INCOME TAXES
The provision (benefit) for income taxes for each period presented was as
follows: (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Current provision (benefit) $1,293 $ 315 $(1,379)
Deferred provision (benefit) 170 (446) (405)
-------------------------
Total $1,463 $ (131) $(1,784)
-------------------------
-------------------------
</TABLE>
Tax effect of temporary differences that give rise to significant components of
the deferred tax assets as of October 31, 1995 and 1994 are presented as
follows: (in thousands)
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Current deferred tax assets:
Assets:
Net operating and capital
loss carry forward $ - $ 306
Capital loss carryforward - 36
Inventory 146 88
Accounts receivable 120 122
Unrealized holding loss 42 77
Realignment provision 2 52
Deferred revenue 2 56
Vacation accrual 146 126
Other expenses 136 127
Other - 29
-----------------------
Total $594 $1.019
-----------------------
-----------------------
</TABLE>
<TABLE>
Noncurrent deferred tax assets (liabilities), net:
Assets:
<S> <C> <C>
Depreciation $525 $ 147
Alternative minimum tax credit - 93
Other 36 86
-----------------------
561 326
Liabilities:
Other (260) (280)
-----------------------
Total $301 $ 46
-----------------------
-----------------------
</TABLE>
The Company has not recorded a valuation allowance with respect to the various
deferred tax assets as management believes it is more likely than not that these
assets will be realized. Management periodically reviews the realization of the
Company's deferred tax assets, as appropriate, when existing conditions change
the probability of realization.
F-10
<PAGE>
The differences between the provision (benefit) for income taxes computed on
income before income taxes at the U.S. federal statutory income tax rate (34%)
and the amount shown in the Consolidated Statements of Operations are presented
below: (in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $1,435 $(140) $(2,035)
State income taxes 102 - -
Foreign taxes not credited - 25 154
Other (74) (16) 97
---------------------------
Provision (benefit) for income taxes $1,463 $(131) $(1,784)
---------------------------
---------------------------
</TABLE>
3. SHAREHOLDERS' EQUITY
AMENDED AND RESTATED STOCK OPTION PLAN: In fiscal 1995, the Company amended
and restated its Stock Option Plan which, as amended, authorizes the issuance to
employees of incentive stock options (as defined in section 422 of the Internal
Revenue Code of 1986, as amended) and nonqualified stock options to purchase up
to 1,350,000 shares of common stock. The exercise price of incentive stock
options must be at least equal to the fair market value of the Company's common
stock on the date of the grant, while the exercise price of nonqualified stock
options may be less than fair market value on the date of grant, as determined
by the board. Options generally vest ratably over a 5 year period from the date
of grant. The term of option grants may be up to 10 years. Grants prior to
June 1994 expire after 6 years. Options are canceled upon the lapse of three
months following termination of employment except in the event of death or
disability, as defined. The following table summarizes the transactions under
the Stock Option Plan: (in thousands, except option prices)
<TABLE>
<CAPTION>
NUMBER OF OPTIONS RANGE OF OPTION PRICE
--------------------------------------------
<S> <C> <C>
Balance, October 31, 1992 429 $2.75- 10.25
Granted 271 4.00- 7.25
Exercised (13) 4.13- 6.25
Canceled (203) 2.75- 8.94
--------------------------------
Balance, October 31, 1993 484 4.00- 8.94
Granted 640 4.25- 7.94
Exercised (36) 4.00- 5.00
Canceled (331) 4.00- 8.94
--------------------------------
Balance, October 31, 1994 757 4.00- 8.00
Granted 536 9.57-16.13
Exercised (134) 4.00- 7.38
Canceled (102) 4.00-11.44
--------------------------------
Balance, October 31, 1995 1,057 4.00-16.13
Exercisable at October 31, 1995 193 4.00-10.56
</TABLE>
F-11
<PAGE>
STOCK OPTION SUB-PLAN: This plan was adopted in 1988 for the benefit of the
Company's employees located in the United Kingdom. This plan authorizes the
issuance of options to purchase common stock of the Company at prices at least
equal to the fair market value of the common stock on the date of the grant. The
options vest after 3 years and expire after 10 years. The options are canceled
upon termination of employment, except in the event of death, retirement or
injury, as defined. As of October 31, 1995 options to purchase 3,000 common
shares were outstanding and exercisable under this plan with exercise prices
ranging from $5.63-$10.56 per share.
DIRECTOR STOCK OPTIONS: In May 1994, the Company formalized its ("directors'
plan") program of granting stock options for up to 500,000 common shares to its
directors. Future grants pursuant to the directors' plan will vest within one
year and have a term of 5 years. As of October 31, 1995, options to directors
for 184,000 common shares with exercise prices ranging from $4.38-16.88 per
share were outstanding. Of these shares, approximately 144,000 were
exercisable with exercise prices ranging from $4.38-$10.25. Options outstanding
under the directors' plan were issued in 1990, 1994 and 1995, and expire
between 1996, 1999 and 2000. The exercise prices related to these options were
equal to the market value of the Company's stock on the date of grant.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following: (in
thousands)
<TABLE>
<CAPTION>
OCTOBER 31,
1995 1994
-----------------
<S> <C> <C>
Accounts payable $1,357 $1,392
Accrued royalties 448 119
Accrued property tax 390 269
Accrued other 998 1,721
------ ------
$3,193 $3,501
------ ------
------ ------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company paid approximately $397,000, $328,000 and $190,000 during each of
the three years in the period ended October 31, 1995, 1994 and 1993,
respectively, to certain outside directors of the Company or their firms for
remuneration for their professional services.
6. TRANSACTIONS WITH MOTOROLA, INC.
In 1989, the Company and Motorola, Inc. executed an agreement whereby Motorola
purchased, for cash, 660,000 newly issued shares of the Company's common stock
at a price of $11 per share. In addition, Motorola received warrants to
purchase an additional 660,000 shares of common stock at an exercise price of
$15.40 per share. The warrants may be exercised only upon the occurrence of
certain events, including (i) a change in control of the Company or (ii)
Motorola's purchase of the Company's product achieving certain levels. The
warrants expire in March 1996, contain certain antidilutive provisions and are
subject to repurchase by the Company under certain conditions. The Company also
granted Motorola registration rights with respect to all common stock that
Motorola owns. Pursuant to the terms of the agreement, the Company elected a
designee of Motorola to its Board of Directors. Shipments to Motorola comprised
6%, 10%, and 8% of the Company's revenues during the years ended October 31,
1995, 1994 and 1993, respectively.
F-12
<PAGE>
7. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan for those employees who meet
the plan's length of service requirements. Under the defined contribution plan,
employees may make voluntary contributions to the plan, subject to certain
limitations, and the Company accrued between 4% to 7% of the employees' annual
compensation. The total expenses under this plan for the years ended October
31, 1995, 1994 and 1993 were approximately $507,000, $662,000 and $780,000,
respectively. The Company makes contributions to the plan equal to the amount
accrued. The Company offers no postretirement or postemployment benefits.
8. OTHER FINANCIAL INFORMATION
MAJOR CUSTOMERS: The Company had one customer in 1995, two customers in 1994
and one customer in 1993 accounting for more than 10% of the Company's
consolidated revenues. Net revenues resulting from these customers were as
follows: (in thousands)
<TABLE>
<CAPTION>
YEAR TOTAL REVENUES % OF CONSOLIDATED REVENUES
------------------------------------------------------
<S> <C> <C>
1995 $7,039 15%
1994 8,207 20%
1993 4,517 12%
</TABLE>
COMMITMENTS: The Company leases its office, research and development and
manufacturing facility under a noncancelable operating lease. Rent expense
related to the lease is recorded on a straight-line
basis and has resulted in the deferred lease obligation in the accompanying
balance sheet. As of October 31, 1995, operating lease commitments having
noncancelable terms of more than one year are as follows: (in thousands)
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
- -----------------------
<S> <C>
1996 $ 619
1997 619
1998 619
1999 562
2000 459
------
Total $2,878
------
------
</TABLE>
Total rent expense for operating leases was approximately as follows: (in
thousands)
<TABLE>
<CAPTION>
YEAR TOTAL RENT EXPENSE
--------------------------
<S> <C>
1995 $702
1994 811
1993 739
</TABLE>
GEOGRAPHIC INFORMATION: The Company operates principally in the United States,
Europe and the Pacific Rim. During 1995, the Company eliminated its European
general and administrative functions, but continues to maintain sales offices in
Europe and Japan. Currently, records are maintained on a consolidated basis at
the corporate headquarters in Dallas. As a result, results of operations are no
longer discernible on a geographical basis. In 1995, the amount of identifiable
assets employed in the Company's European and Japanese operations were not
material. A geographic detail of revenue is as follows: (in thousands)
F-13
<PAGE>
<TABLE>
<CAPTION>
REGION 1995 1994 1993
- ---------------------------------------------------------
<S> <C> <C> <C>
North America $41,207 $31,929 $28,695
Europe 3,818 6,341 9,801
Pacific Rim 2,343 2,033 -
</TABLE>
In 1994, cost of sales from European operations expressed as a percentage of
revenues was 51% as compared to 50% generated by Domestic operations. In 1993,
cost of sales from European operations expressed as a percentage of revenues was
46% as compared to 53% generated by Domestic operations. The amount of
identifiable assets employed in the Company's European operations were not
material other than cash, cash equivalents and trade accounts receivable which
aggregated $1,599,000 and $2,238,000 as of October 31, 1994 and 1993,
respectively.
9. ACQUIRED PRODUCT RIGHTS
In March 1992, the Company entered into a Licensing, Joint Development and
Marketing Agreement with Intellectual Systems, Inc. ("ISI"). Pursuant to the
agreement, the Company paid $1,000,000 for a nonexclusive license to manufacture
and sell future products that would incorporate technology that was owned by
ISI. Also, in 1992, the Company paid ISI $275,000 for certain other development
work to be performed by ISI related to use of the original licensed technology.
As a result of a dispute between the parties regarding ISI's compliance with the
agreement, and after an unsuccessful attempt by the parties to negotiate a
termination of the agreement, in October 1993 the Company filed a suit in the
District Court for Dallas County, Texas, which sought monetary damages from ISI
and one of its officers. The suit alleged, among other things, breach of
contract and conspiracy to defraud. ISI and its officer responded to the claims
by filing a suit containing a general denial and a counter claim seeking
unspecified damages from Interphase for breach of contract. In November 1994,
the district court denied ISI's pleading and issued an interlocutory default
judgment against ISI for $1,275,000. Subsequent to the district court ruling,
ISI filed for protection under Chapter 11 of the federal bankruptcy code. Even
prior to the bankruptcy filing, the Company had considerable doubt as to ISI's
ability to satisfy a judgment in the Company's favor. Therefore, in 1993 the
Company recorded a non-cash write-off of $1,275,000, related to the acquired
product rights. To the extent the Company ultimately receives any payment from
ISI, such amount will be recorded as income in the period received.
10. STRATEGIC REALIGNMENT
In June 1993, the Company announced a strategic restructuring and rightsizing
and recorded a related provision of $1,172,000. In January 1994, the Company
announced a similar action and recorded a provision of $1,148,000. Each of
these actions included a 15% reduction in workforce and reduced operating
expenses in all functional areas of the Company. The respective provisions
reflected in the accompanying consolidated statements of operations include
expenses associated with severance benefits, the consolidation of the California
Engineering activities in Dallas, the write-off of nonproductive assets and
other expenses associated with the restructuring. Each of these actions
represented efforts to adjust the Company's spending and organization structure
to expected revenue levels and renewed emphasis on investment in certain
technologies that the Company deemed critical to its long term success.
Included in accrued liabilities as of October 31, 1995, and 1994 were
approximately $27,000 and $274,000, respectively, of the total provisions for
strategic realignment.
F-14
<PAGE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
--------------------------------------------------
(in thousands, except per share amounts)
1995
- ----
<S> <C> <C> <C> <C>
Revenues $11,022 $11,473 $12,356 $12,517
Gross profit 5,420 5,771 6,083 6,273
Income before taxes 948 1,005 1,166 1,103
Net income 606 645 745 763
Net income per
common and common
equivalent share $ .12 $ .13 $ .14 $ .15
1994
- ----
Revenues $ 9,295 $ 9,735 $ 9,986 $11,287
Gross profit 4,460 4,763 4,976 5,867
Income (loss) before taxes (2,210) 333 573 893
Net income (loss) (1,495) 219 389 607
Net income (loss) per
common and common
equivalent share $ (.33) $ .05 $ .08 $ .12
</TABLE>
Operating results in the first quarter of 1994 included a $1,148,000 provision
for strategic realignment.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERPHASE CORPORATION
Date: January 24, 1996 By: /s/ R. Stephen Polley
--------------------------
R. Stephen Polley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on January 24, 1996.
NAME TITLE
---- -----
Chairman of the Board of Directors,
Chief Executive Officer, Chief Operating
Officer and President
/s/ R. Stephen Polley (Principal executive officer)
--------------------------------
R. Stephen Polley
Chief Financial Officer,
Vice President of Financial and Treasurer
/s/ Robert L. Drury (Principal financial officer)
--------------------------------
Robert L. Drury
/s/ Michael E. Cope Director
--------------------------------
Michael E. Cope
/s/ Dale Crane Director
--------------------------------
Dale Crane
/s/ James F. Halpin Director
--------------------------------
James F. Halpin
/s/ Paul N. Hug Director
--------------------------------
Paul N. Hug
/s/ Robert H. Lyon Director
--------------------------------
Robert H. Lyon
/s/ David H. Segrest Director
--------------------------------
David H. Segrest
/s/ S. Thomas Thawley Director
--------------------------------
S. Thomas Thawley
<PAGE>
INDEX TO EXHIBITS
Exhibits
- --------
3 (a) Certificate of Incorporation of the registrant. (1)
3 (b) Amended and Restated Bylaws of the registrant adopted on December 5,
1995. (4)
10(b) Registrant's Amended and Restated Stock Option Plan and Amendment No.
1 thereto. (4)
10(c) Registrant's Incentive Stock Option Sub-Plan. (2)
10(d) Directors Stock Option Plan and Amendment No.1 thereto. (4)
10(e) Stock Purchase Warrant issued to Motorola, Inc. (3)
23(a) Consent of Independent Public Accountants. (4)
_______________________
(1) Filed as an exhibit to Registration Statement No. 2-86523 on
Form S-1 and incorporated herein by reference.
(2) Filed as an exhibit to Report on Form 10-K for the year ended October 31,
1988 and incorporated herein by reference.
(3) Filed as an exhibit to Report on Form 10-Q for the quarter ended April 30,
1989 and incorporated herein by reference.
(4) Filed herewith.
E-1
<PAGE>
EXHIBIT 3 (b)
AMENDED AND RESTATED
BYLAWS
OF
INTERPHASE CORPORATION
(A TEXAS CORPORATION)
<PAGE>
TABLE OF CONTENTS FOR INTERPHASE CORPORATION
Page
----
ARTICLE I
OFFICES
Section 1. Principal Office . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Closing of Transfer Books and Fixing Record Date. 2
Section 6. List of Shareholders . . . . . . . . . . . . . . . . . . . . . . 2
Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Action by Unanimous Consent. . . . . . . . . . . . . . . . . . . 3
ARTICLE III
DIRECTORS
Section 1. Number of Directors. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Compensation of Directors. . . . . . . . . . . . . . . . . . . . 6
Section 11. Action by Unanimous Consent. . . . . . . . . . . . . . . . . . . 6
Section 12. Presence at Meetings by Means of
Communication Equipment. . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
NOTICES
Section 1. Form of Notice . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-i-
<PAGE>
ARTICLE V
OFFICERS
Section 1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3. Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . 8
Section 5. Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . 8
Section 6. President. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8. Assistant Vice Presidents. . . . . . . . . . . . . . . . . . . . 9
Section 9. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Assistant Secretaries. . . . . . . . . . . . . . . . . . . . . . 9
Section 11. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 12. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . 10
Section 13. Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 14. Bonding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Registered Shareholders. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX
AMENDMENTS TO BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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AMENDED AND RESTATED
BYLAWS
INTERPHASE CORPORATION
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be in Dallas, Texas, or such other location as the Board of Directors may
determine.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. TIME AND PLACE OF MEETINGS. Meetings of the shareholders shall
be held at such time and at such place, within or without the State of Texas, as
shall be determined by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. Commencing in 1978, an annual meeting of
shareholders shall be held on the last Tuesday of the last month of each fiscal
year, if not a legal holiday, and if a legal holiday, then on the next secular
day following, at 10:00 A.M., at which they shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting. The
date of the annual meeting of the shareholders may be held on a date different
than that given above if the Board so determines, and so states in the notice of
the meeting or in a duly executed waiver thereof.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Chief Executive Officer or the Board of Directors, and
shall be called by the Chief Executive Officer or the Secretary at the request
in writing of the holders of not less than ten percent (10%) of the voting power
represented by all the shares issued, outstanding and entitled to be voted at
the meeting. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at special meetings shall be confined to the
purposes stated in the notice of the meeting.
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SECTION 4. NOTICE. Written or printed notice stating the place, day and
hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than 10 nor more than 50 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, the Secretary
or the Officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the shareholder at his address as it appears on the stock transfer books of
the Corporation.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. For the
purpose of the determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Corporation may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, 50 days. If the stock transfer books shall be closed for
the purpose of determining shareholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than 50 days and, in the case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of share-holders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof except
where the determination has been made through the closing of stock transfer
books and the stated period of closing has expired.
SECTION 6. LIST OF SHAREHOLDERS. The officer or agent of the Corporation
having charge of the stock transfer books for shares of the Corporation shall
make, at least ten days before each meeting of the shareholders, a complete list
of the shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of voting
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shares held by each, which list, for a period of ten days prior to such meeting,
shall be kept on file at the registered office of the Corporation and shall be
subject to inspection by any shareholder at any time during the usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
SECTION 7. QUORUM. The holders of shares having a majority of the voting
power represented by all issued and outstanding shares entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the shareholders for the transaction of business except as otherwise
provided by the Articles of Incorporation or by the Texas Business Corporation
Act (herein called the "Act"). If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote, present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. Once a quorum is constituted, the shareholders present or represented
by proxy at a meeting may continue to transact business until adjournment,
notwithstanding the subsequent withdrawal therefrom of such number of
shareholders as to leave less than a quorum.
SECTION 8. VOTING. When a quorum is present at any meeting, the vote of
the holders of shares having a majority of the voting power, present or
represented by proxy at such meeting and entitled to vote, shall decide any
question brought before such meeting and shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by the Act, the
Articles of Incorporation or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 9. ACTION BY UNANIMOUS CONSENT. Any action required to be taken
at a meeting of the shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
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ARTICLE III
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed from time to time by resolution of the Board of
Directors, but in no case shall the number of directors be less than one nor
more than ten. Until otherwise fixed by resolution of the Board of Directors,
the number of directors shall be the number stated in the Articles of
Incorporation of the Corporation. No decrease in the number of directors shall
have the effect of reducing the term of any incumbent director. Directors shall
be elected at each annual meeting of the shareholders, except as provided in
Section 2 of this Article, and each director shall hold office until the annul
meeting of shareholders following his election or until his successor is elected
and qualified. Directors need not be residents of the State of Texas or
shareholders of the Corporation.
SECTION 2. VACANCIES. Subject to other provisions of this Section 2, any
vacancy occurring in the Board of Directors may be filled by the affirmative
vote of a majority of the remaining directors, though the remaining directors
may constitute less than a quorum of the Board of Directors as fixed by Section
8 of this Article. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors may be filled by the
affirmative vote of a majority of the remaining directors or by the election at
any annual or special meeting of shareholders for that purpose. Shareholders
holding shares having a majority of the voting power represented by all issued
and outstanding shares may, at any time and with or without cause, terminate the
term of office of all or any of the directors by a vote at any annual or special
meeting called for that purpose. Such removal shall be effective immediately
upon such shareholder action even if successors are not elected simultaneously,
and the vacancies on the Board of Directors caused by such action shall be
filled only by election by the shareholders.
SECTION 3. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all of the powers
of the Corporation and do all such lawful acts and things, as are not by the
Act, the Articles of Incorporation or these Bylaws directed or required to be
exercised or done by the shareholders.
SECTION 4. PLACE OF MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Texas.
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SECTION 5. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held, without further notice, immediately following the
annual meeting of shareholders at the same place, unless by the majority vote or
unanimous consent of the directors then elected and serving, such time or place
shall be changed.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held with or without notice at such time and place as the Board of
Directors may determine by resolution.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chief Executive Officer and shall be
called by the Secretary on the written request of a majority of the incumbent
directors. The person or persons authorized to call special meeting of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by them. Notice of any special meeting shall be given
at least 24 hours previous thereto if given either personally (including written
notice delivered personally or telephone notice) or by telex, telecopy, telegram
or other means of immediate communication, and at least 72 hours previous
thereto if given by written notice mailed to each director at the address of his
business or residence. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. If mailed, the
notice shall be deemed to be delivered when deposited in the United States mail
addressed, in the above-specified manner, with postage thereon prepaid, If
notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any director may waive
notice of any meeting, as provided in Article IV, Section 2 of these Bylaws.
The attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 8. QUORUM AND VOTING. At all meetings of the Board of Directors,
the presence of a majority of the number of directors fixed in the manner
provided in Article III, Section 1, of these Bylaws shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the
affirmative vote of at least a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by the Act, the Articles of Incorporation
or these Bylaws. If a quorum shall not be present at any meeting of directors,
a majority of the directors present thereat may adjourn the meeting from time to
time without notice
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other than announcement at the meeting, until a quorum shall be present.
SECTION 9. COMMITTEES. The Board of Directors may, by resolution adopted
by a majority of the whole Board of Directors, designate one or more committees,
each to consist of one or more directors, one of whom may be designated as
Chairman and as such shall preside at all meetings of such committees. To the
extent provided in the resolution of the Board of Directors, the committees so
appointed shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
except where action of the Board of Directors is required by the Act
(particularly Article 2.36 thereof) or by the Articles of Incorporation, but the
designation of such committees and the delegation thereto of authority shall not
operate to relive the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law. The committees shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required. Any member of a committee may be removed, with or without cause, by
the affirmative vote of a majority of the whole Board of Directors. If any
vacancy or vacancies occur in the committees, such vacancy or vacancies shall be
filled by the affirmative vote of a majority of the whole Board of Directors.
SECTION 10. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of any committee may, by resolution of the Board of
Directors, be allowed like compensation for attending committee meetings.
SECTION 11. ACTION BY UNANIMOUS CONSENT. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent, setting forth the action so
taken, is signed by all the members of the Board of Directors or the committee,
as the case may be, and such written consent shall have the same force and
effect as a unanimous vote at a meeting.
SECTION 12. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATION EQUIPMENT.
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each
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other, and participation in a meeting pursuant to this Section 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
SECTION 1. FORM OF NOTICE. Whenever under the provisions of the Act, the
Articles of Incorporation or these Bylaws, notice is required to be given to any
director or shareholder, and no provision is made as to how such notice shall be
given, it shall not be construed to mean personal notice exclusively, but any
such notice may be given in writing, by mail, postage prepaid, addressed to such
director or shareholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same be thus deposited, postage prepaid,
in the United States mail as aforesaid.
SECTION 2. WAIVER. Whenever any notice is required to be given to any
director or shareholder of the Corporation under the provisions of the Act, the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether before or after the time
stated in such notice, shall be equivalent to the giving of such notice.
ARTICLE V
OFFICERS
SECTION 1. GENERAL. The elected officers of the Corporation shall be a
President, a Vice President, a Secretary and a Treasurer. The Board of
Directors may also elect or appoint a Chairman of the Board, a Vice Chairman of
the Board, a Chief Executive Officer, additional Vice Presidents, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, a Controller, and such other officers as may be deemed
necessary, all of whom shall also be officers unless otherwise provided in these
Bylaws. Two or more offices may be held by the same person.
SECTION 2. ELECTION. The Board of Directors shall elect the officers of
the Corporation at each annual meeting of the Board of Directors. The Board of
Directors may appoint such other officers and agents as it shall deem necessary
and shall determine the salaries of all officers and agents from time to time.
The officers shall hold office until their successors are chosen and qualified.
No officer need be a member of the Board of Directors except the Chairman of the
Board, if one be elected. Any officer elected or appointed by the Board of
Directors may be removed, with
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or without cause, at any time by a majority vote of the whole Board.
Election or appointment of an officer or agent shall not of itself create
contract rights.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a
member of the Board of Directors and shall preside when present at all meetings
of the Board of Directors and of the shareholders. The Chairman of the Board
shall advise and counsel the Chief Executive Officer (when not serving in such
office) and the other officers of the Corporation, and shall exercise such
powers and perform such duties as shall be assigned to or required of him from
time to time by the Board of Directors.
SECTION 4. VICE CHAIRMAN OF THE BOARD. If one be appointed, the Vice
Chairman of the Board shall be an honorary position bestowed upon an individual
who has in some way contributed to the success of the Corporation. However, the
Vice Chairman of the Board shall not have any authority to act for or on behalf
of the Corporation other than as specifically directed by the Board of Directors
from time to time. The Vice Chairman of the Board, if one be appointed, shall
be selected from the members of the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall have, subject to the provisions of these Bylaws, general
supervision of the affairs of the Corporation and general and active control of
all its business. He shall preside, in the absence of the Chairman of the
Board, at all meetings of shareholders and at all meetings of the Board of
Directors. He shall see that all orders and resolutions of the Board of
Directors and the shareholders are carried into effect. He shall have general
authority to execute bonds, deeds and contracts in the name of the Corporation
and affix the corporate seal thereto; to sign stock certificates; to remove the
President; and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these Bylaws. He shall, in the absence or disability of
the President, perform the duties and exercise the powers of the President.
SECTION 6. PRESIDENT. The President shall be the Chief Operating Officer
of the Corporation, shall in the absence or disability of the Chief Executive
Officer perform the duties and exercise the powers of the Chief Executive
Officer, and shall have, subject to review and approval of the Chief Executive
Officer, responsibility for the general day-to-day operations of the
Corporation's personnel, properties and facilities. The President shall have
the authority to cause the employment or appointment of such employees and
agents of the Corporation as the proper conduct
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of operations may require, and to fix their compensation, subject to the
provisions of these Bylaws; and, to remove or suspend any employee or agent
who shall have been employed or appointed under his authority or under
authority of an officer subordinate to him. The President shall attend all
meetings of the Board of Directors, but shall not be allowed to vote at such
meetings.
SECTION 7. VICE PRESIDENTS. Each Vice President shall perform such duties
and have such powers as the Board of Directors, the Chief Executive Officer or
the Chief Operating Officer may from time to time prescribe. The Vice President
in charge of finance, if one is so elected, shall also perform the duties and
assume the responsibilities described in Section 11 of this Article for the
Treasurer, and shall report directly to the Chief Executive Officer of the
Corporation.
SECTION 8. ASSISTANT VICE PRESIDENTS. In the absence of a Vice President
or in the event of his inability or refusal to act, the Assistant Vice President
(or, if there be more than one, the Assistant Vice Presidents in the order
designated or of their election or in such other manner as the Board of
Directors shall determine) shall perform the duties and exercise the powers of
that Vice President, and shall perform such other duties and have such other
powers as the Board of Directors, the Chief Executive Officer, the Chief
Operating Officer or the Vice President under whose supervision he is appointed
may from time to time prescribe.
SECTION 9. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
Executive Committee or other standing committees when required. He shall give,
or cause to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or the Chief Executive Officer, under
whose supervision he shall be. He shall have custody of the corporate seal of
the Corporation and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it, and when so affixed, it may be attested
by his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary
shall keep and account for all books, documents, papers and records of the
Corporation except those for which some other officer or agent is properly
accountable. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of the
secretary of a corporation.
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SECTION 10. ASSISTANT SECRETARIES. In the absence of the Secretary or in
the event of his inability or refusal to act, the Assistant Secretary (or, if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors or if there be no such determination, then in the order of
their appointment) shall perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Secretary may from time
to time prescribe.
SECTION 11. TREASURER. The Treasurer (or the Vice President in charge of
finance, if one is so elected) shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers or such disbursements, and shall render to the
Chief Executive Officer and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, he shall give the Corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration of the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if one is so designated,
and he shall perform such other duties as may be prescribed by the Board of
Directors, the Chief Executive Officer or any such Vice President in charge of
finance.
SECTION 12. ASSISTANT TREASURERS. The Assistant Treasurer or Assistant
Treasurers shall assist the Treasurer, and in the absence of the Treasurer or in
the event of his inability or refusal to act, the Assistant Treasurer (or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors or, if there is no such determination, then in the
order of their appointment), shall perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers as
the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe.
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SECTION 13. CONTROLLER. If one be appointed, the Controller shall
maintain adequate records of all assets, liabilities and transactions of the
Corporation, shall see that adequate audits are currently and regularly made,
and shall, in conjunction with the Chief Executive Officer, the Vice President
in charge of finance, if one is so designated, and the Treasurer, initiate and
enforce measures and procedures whereby the business of the Corporation shall be
conducted with maximum safety, efficiency and economy. The Controller shall be
under the supervision of the Chief Executive Officer and the Vice President in
charge of finance, if one is so designated, and he shall perform such other
duties as may be prescribed by the Board of Directors, the Chief Executive
Officer or any such Vice President in charge of finance.
SECTION 14. BONDING. If required by the Board of Directors, all or
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the Corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in their possession or under their control belonging to the
Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
SECTION 1. FORM OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board of Directors and shall be numbered
consecutively and entered in the books of the Corporation as they are issued.
Each certificate shall state on the face thereof that the Corporation is
organized under the laws of the State of Texas, the name of the registered
holder, the number, class of shares, and the designation of the series, if
any, which said certificate represents, and either the par value of the
shares or a statement that the shares are without par value. Each
certificate shall also set forth on the back thereof, a full or summary
statement of matters required by the Act or the Articles of Incorporation to
be described on certificates representing shares, and shall contain a
statement on the face thereof referring to the matters set forth on the back
thereof. Certificates shall be signed by the Chairman of the Board,
President or any Vice President and the Secretary or any Assistant Secretary,
and may be sealed with the seal of the Corporation or a facsimile thereof.
If any certificate is countersigned by a transfer agent or registered by a
registrar, either of which is other than the Corporation or an employee of
the Corporation, the
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signatures of the Corporation's officers may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or
signatures have been used on such certificate or certificates, shall cease to
be such officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates have been
delivered by the Corporation or its agents, such certificate or certificates
may nevertheless be issued and delivered as though the person or persons who
signed the certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the Corporation.
SECTION 2. LOST CERTIFICATES. The Corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
SECTION 3. TRANSFER OF SHARES. Shares of stock shall be transferable only
on the books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Subject to any restrictions on transfer set forth in the
Articles of Incorporation of the Corporation, these Bylaws or any agreement
among shareholders to which this Corporation is a party or has notice, upon
surrender to the Corporation or to the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 4. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
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INDEMNIFICATION
The Corporation shall indemnify persons who are or were a director or
officer of the Corporation both in their capacities as directors and officers of
the Corporation and, if serving at the request of the Corporation as a director,
officer, trustee, employee, agent or similar functionary of another foreign or
domestic corporation, trust, partnership, joint venture, sole proprietorship,
employee benefit plan or other enterprise, in each of those capacities, against
any and all liability and reasonable expense that may be incurred by them in
connection with or resulting from (a) any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative (collectively, a "Proceeding"), (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, all to the fullest extent permitted by Texas statutory or decisional
law, as the same exists or may hereafter be amended or interpreted. The
Corporation shall pay or reimburse, in advance of the final disposition of the
Proceeding, to all persons who are or were a director or officer of the
Corporation all reasonable expenses incurred by such person who was, is or is
threatened to be made a named defendant or respondent in a Proceeding to the
fullest extent permitted by Texas statutory or decisional law, as the same
exists or may hereafter be amended or interpreted. The Corporation may
indemnify persons who are or were an employee or agent (other than a director or
officer) of the Corporation, or persons who are not or were not employees or
agents of the Corporation but who are or were serving at the request of the
Corporation as a director, officer, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise
(collectively, along with the directors and officers of the Corporation, such
persons are referred to herein as "Corporate Functionaries") against any and all
liability and reasonable expense that may be incurred by them in connection with
or resulting from (a) any Proceeding, (b) an appeal in such a Proceeding, or (c)
any inquiry or investigation that could lead to such a Proceeding, to the
fullest extent permitted by Texas statutory or decisional law, as the same
exists or may hereafter be amended or interpreted. The rights of
indemnification provided for in this Article VII shall be in addition to all
rights to which any Corporate Functionary may be entitled under any agreement or
vote of shareholders or as a matter of law or otherwise.
The Corporation may purchase or maintain insurance on behalf of any
Corporate Functionary against any liability asserted against him and incurred by
him in such a capacity or arising out of his status as a Corporate Functionary,
whether or not the Corporation
-13-
<PAGE>
would have the power to indemnify him or her against the liability under the
Act or these Bylaws; provided, however, that if the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the Corporation
would not have the power to indemnify the person only if including coverage
for the additional liability has been approved by the shareholders of the
Corporation. Without limiting the power of the Corporation to procure or
maintain any kind of insurance or arrangement, the Corporation may, for the
benefit of persons indemnified by the Corporation, (i) create a trust fund,
(ii) establish any form of self-insurance, (iii) secure its indemnification
obligation by grant of any security interest or other lien on the assets of
the Corporation, or (iv) establish a letter of credit, guaranty or surety
arrangement. Any such insurance or other arrangement may be procured,
maintained or established within the Corporation or its affiliates or with
any insurer or other person deemed appropriate by the Board of Directors of
the Corporation regardless of whether all or part of the stock or other
securities thereof are owned in whole or in part by the Corporation. In the
absence of fraud, the judgment of the Board of Directors of the Corporation
as to the terms and conditions of such insurance or other arrangement and the
identity of the insurer or other person participating in an arrangement shall
be conclusive, and the insurance or arrangement shall not be voidable and
shall not subject the directors approving the insurance or arrangement to
liability, on any ground, regardless of whether directors participating in
approving such insurance or other arrangement shall be beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Act and the Articles of
Incorporation and any agreements or obligations of the Corporation, if any, may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
Corporation, provided that all such declarations and payments of dividends shall
be in strict compliance with all applicable laws and the Articles of
Incorporation. The Board of Directors may fix in advance a record date for the
purpose of determining shareholders entitled to receive payment of any dividend,
such record date to be not more than 50 days prior to the payment date of such
dividend. In the absence of any action by the Board of Directors, the date upon
which the Board of Directors adopts the resolution declaring such dividend shall
be the record date.
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<PAGE>
SECTION 2. RESERVES. There may be created by resolution of the Board of
Directors out of the earned surplus of the Corporation such reserve or reserves
as the Board of Directors from time to time, in its discretion, deems proper to
provide for contingencies, or to equalize dividends, or to repair or maintain
any property of the Corporation, or for such other proper purpose as the Board
shall deem beneficial to the Corporation, and the Board may modify or abolish
any reserve in the same manner in which it was created.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 4. SEAL. The Corporation shall have a seal which may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced. Any officer of the Corporation shall have authority to affix the
seal to any document requiring it.
SECTION 5. RESIGNATION. Any director, officer or agent of the Corporation
may resign by giving written notice to the President or the Secretary. The
resignation shall take effect at the time specified therein, or immediately if
no time is specified therein. Unless specified in such notice, the acceptance
of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
These Bylaws may be altered, amended, modified or repealed, or new Bylaws
may be adopted at any meeting of the Board of Directors at which a quorum is
present, by the affirmative vote of a majority of the Directors present at such
meeting.
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<PAGE>
EXHIBIT 10 (b) AMENDMENT NO. 1
TO THE
INTERPHASE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
Pursuant to Section 17 of the Interphase Corporation Amended and Restated
Stock Option Plan (the "Plan"), the Plan is hereby amended as follows:
1. Section 9 of the Plan is hereby amended to read in its entirety as
follows:
Section 9. OPTION PRICE. The option price for Incentive Options
shall not be less than 100% of the fair market value per share of the
Common Stock on the date the Incentive Option is granted. The option price
for Nonqualified Options shall be, as determined by the Board, any price
per share of the Common Stock that is greater than par value per share of
the Common Stock.
IN WITNESS WHEREOF, the undersigned has executed this Amendment effective
as of the 22nd day of March, 1995.
INTERPHASE CORPORATION
By
------------------------------------
<PAGE>
INTERPHASE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
WHEREAS, on August 24, 1984, the Board of Directors (the "Board") of
Interphase Corporation adopted the Interphase Corporation Incentive Stock Option
Plan (the "Plan"); and
WHEREAS, the Board subsequently amended the Plan from time to time to
increase the number of shares of common stock of the Company available under the
Plan from 200,000 shares to 1,350,000 shares and to make certain changes to the
Plan; and
WHEREAS, the Board now desires to amend and restate the Plan, and in
connection therewith, add provisions to the Plan to allow the grant of non-
qualified stock options and to rename the Plan the Interphase Corporation
Amended and Restated Stock Option Plan;
NOW, THEREFORE, in consideration of the foregoing, the Board hereby adopts
the Amended and Restated Stock Option Plan effective November 9, 1994:
1. PURPOSE. The purpose of the Plan is to continue to provide
selected employees with a proprietary interest in the Company through the
granting of either incentive stock options or non-qualified stock options
which will
(a) increase the interest of the selected employees in the
Company's welfare;
(b) furnish an incentive to the selected employees to continue
their services for the Company; and
(c) provide a means through which the Company may attract able
persons to enter its employ.
2. ADMINISTRATION. The Plan will be administered by the Board.
<PAGE>
3. PARTICIPANTS. The Board shall, from time to time, select the
particular employees of the Company and its Subsidiaries to whom options
are to be granted, and who will, upon such grant, become participants in
the Plan.
4. STOCK OWNERSHIP LIMITATIONS. No Incentive Option may be granted
to an employee who owns more than 10% of the voting power of all classes of
stock of the Company or its Parent or Subsidiaries. This limitation will
not apply if the option price is at least 110% of the fair market value of
the stock at the time the Incentive Option is granted and the Incentive
Option is not exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Board may not grant options under
the Plan for more than 1,350,000 shares of Common Stock of the Company, but
this number may be adjusted to reflect, if deemed appropriate by the Board,
any stock dividend, stock split, share combination, recapitalization or the
like, of or by the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or Common Stock
held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase
pursuant to an option granted under the Plan may be reoffered under the
Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock which any
employee is first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option
plans (within the meaning of Section 422 of the Internal Revenue Code) of
the Company or its Parent or Subsidiaries shall not exceed $100,000. For
this purpose, the fair market value (determined at the respective date of
grant of each option) of the stock purchasable by
2
<PAGE>
exercise of an Incentive Option (or an installment thereof) shall be
counted against the $100,000 annual limitation for an employee only for
the calendar year such stock is first purchasable under the terms of the
Incentive Option.
7. ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Common Stock to be offered from time to time by grant of options
to employees of the Company or its Subsidiaries. The grant of an option to
an employee shall not be deemed either to entitle the employee to, or to
disqualify the employee from, participation in any other grant of options
under the Plan.
8. GRANT OF OPTIONS. The Board is authorized to grant Incentive
Options and Nonqualified Options under the Plan. The grant of options
shall be evidenced by stock option agreements containing such terms and
provisions as are approved by the Board, but not inconsistent with the
Plan, including provisions that may be necessary to assure that any option
that is intended to be an Incentive Option will comply with Section 422 of
the Internal Revenue Code. The Company shall execute stock option
agreements upon instructions from the Board. The Plan shall be submitted
to the Company's stockholders for approval. The Board may grant options
under the Plan prior to the time of stockholder approval, which options
will be effective when granted, but if for any reason the stockholders of
the Company do not approve the Plan prior to one year from the date of
adoption of the Plan by the Board, all options granted under the Plan will
be terminated and of no effect, and no option may be exercised in whole or
in part prior to such stockholder approval.
3
<PAGE>
A stock option agreement may provide that the participant may
request approval from the Board to exercise an option or a portion thereof
by tendering shares of Common Stock at the fair market value per share on
the date of exercise in lieu of cash payment of the exercise price.
9. OPTION PRICE. The option price shall not be less than 100% of
the fair market value per share of the Common Stock on the date the option
is granted.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Board authorizes the option
unless the Board specifies a later date. No option may terminate later
than 10 years from the date the option is granted. The Board may provide
for the exercise of options in installments and upon such terms, conditions
and restrictions as it may determine. The Board may provide for
termination of the option in the case of termination of employment or any
other reason.
11. RIGHTS IN THE EVENT OF DEATH OR DISABILITY. If a participant
dies or becomes disabled [within the meaning of Section 22(e)(3) of the
Internal Revenue Code] while in the employ of the Company but prior to
termination of his right to exercise an option in accordance with the
provisions of his stock option agreement without having totally exercised
the option, the option may be exercised, to the extent of the shares with
respect to which the option could have been exercised by the participant on
the date of the participant's death or disability, by (i) the participant's
estate or by the person who acquired the right to exercise the option by
bequest or inheritance or by reason of the death of the participant in the
event of the participant's death, or (ii) the participant or his personal
representative in the event of the participant's disability, provided the
option is exercised prior to the date of its expiration or not more than
one year from the date of the participant's death or disability whichever
first occurs.
4
<PAGE>
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or, if permitted by the stock
option agreement, by tendering shares of Common Stock at the fair market
value per share at the time of exercise, or on such other terms as are set
forth in the applicable option agreement. No shares may be issued until
full payment of the purchase price therefore has been made, and a
participant will have none of the rights of a stockholder until shares are
issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set
forth in the applicable stock option agreements. In no event may an option
be exercised or shares be issued pursuant to an option if any requisite
action, approval or consent of any governmental authority of any kind
having jurisdiction over the exercise of options shall not have been taken
or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and
the option price may be adjusted to reflect, as deemed appropriate by the
Board, any stock dividend, stock split, share combination or the like of or
by the Company. In the event of a merger, consolidation, share exchange,
reorganization, liquidation, recapitalization, separation or the like of or
by the Company, the Board may make such arrangements as it deems advisable
with respect to outstanding options granted under the Plan, which
arrangements shall be binding upon each employee that holds an outstanding
option granted under the Plan, including, but not limited to, arrangements
for the substitution of new options for any options then outstanding, the
assumption of any such options, payment for the outstanding options and
adjusting the number of shares
5
<PAGE>
covered by each outstanding option and the option price therefor. Any
such arrangement relating to an Incentive Option shall comply with the
requirements of Internal Revenue Code Section 422 and the regulations
thereunder. If the Company becomes a party to an agreement providing
for the merger, consolidation or share exchange of or by the Company and
pursuant to that agreement the holders of Common Stock would receive
cash, securities or property from another person or entity and if the
Board does not make arrangements for the substitution of new options for
any options then outstanding, the assumption of such options, or payment
for such options, the Plan shall terminate and any options outstanding
hereunder shall terminate on the effective date of such transaction;
provided, however, all outstanding options granted under the Plan shall
become immediately exercisable during the five business days immediately
preceding the effective date of such transaction. If the options will
so terminate on the effective date of the transaction, the Company shall
give each Option Holder at least 15 days' notice of such termination and
an opportunity to exercise such options prior to such termination.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the
Plan. The Board may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the
6
<PAGE>
Plan, (b) materially increase the number of securities that may be
issued under the Plan, or (c) materially modify the requirements or
eligibility for participation in the Plan must be approved by the
stockholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any officer or employee any right to
be granted an option to purchase Common Stock of the Company or any other
rights except as may be evidenced by a stock option agreement, or any
amendment thereto, duly authorized by the Board and executed on behalf of
the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on November 8, 2004. The Board may not grant options under
the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Plan" means this Amended and Restated Stock Option Plan as
amended from time to time.
(b) "Company" means Interphase Corporation, a Texas corporation.
(c) "Board" means the board of directors of the Company or a
committee appointed by the board of directors to administer the Plan
or any portion of the Plan.
(d) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized to
issue (as long as the common stock varies from that currently
authorized, if at all, only in amount of par value).
7
<PAGE>
(e) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in the chain, and "Subsidiaries" means more than
one of any such corporations.
(f) "Parent" means any corporation in an unbroken chain of
corporations ending with the Company if, at the time of granting of
the option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(g) "Option Period" means the period during which an option may
be exercised.
(h) "Incentive Option" means an option granted under the Plan
which meets the requirements of Section 422 of the Internal Revenue
Code.
(i) "Nonqualified Stock Option" means an option granted under
the Plan which is not intended to be an Incentive Option.
8
<PAGE>
EXHIBIT 10 (d) AMENDMENT NO. 1
TO THE
INTERPHASE CORPORATION
DIRECTORS STOCK OPTION PLAN
Pursuant to Section 15 of the Interphase Corporation Directors Stock Option
Plan (the "Plan"), the Plan is hereby amended, subject to approval by the
Company's stockholders, as follows:
1. Sections 5(b)-(e) of the Plan are hereby amended to read in their
entirety as follows:
"(b) Subject to approval by the Company's stockholders pursuant
to Section 5(f), each director of the Company on the Effective Date
shall be granted an option, effective as of the date establishing the
option price under Section 7, to purchase 12,500 shares of Common
Stock of the Company.
(c) Each director of the Company who has not, during the three-
year period preceding the date of his election or appointment to the
Board, served as a director of the Company shall be granted an option,
effective as of the date of his election or appointment to the Board
(the "Initial Grant Date"), to purchase 10,000 shares of Common Stock
of the Company, and each director of the Company who has served as a
director of the Company during such three-year period but who was not
elected at the preceding annual stockholders meeting shall be granted
an option, effective as of the Initial Grant Date, to purchase 5,000
shares of Common Stock of the Company.
<PAGE>
(d) Each director of the Company elected at the annual
stockholders meeting shall be granted an option, effective as of the
date of the annual stockholders meeting (the "Annual Grant Date"), to
purchase 5,000 shares of Common Stock of the Company. This Section
5(d) shall not apply to a director whose Initial Grant Date is on the
same date as the Annual Grant Date.
(e) Directors may elect by written notice to the Company not to
receive one or more option grants hereunder, by so electing on or
before the Effective Date, on or before the Initial Grant Date, or at
least six months in advance of the Annual Grant Date (unless the
director was elected or appointed less than six months in advance of
the Annual Grant Date, in which case he may then so elect on or before
the Initial Grant Date), whichever is applicable, of the option."
2. Section 6 of the Plan is hereby amended to read in its entirety as
follows:
"6. GRANT OF OPTIONS. All options under the Plan shall be
automatically granted as provided in Section 5. The grant of options
shall be evidenced by stock option agreements containing such terms
and provisions as are approved by the Board, but not inconsistent with
the Plan."
2
<PAGE>
3. Section 7 of the Plan is hereby amended to read in its entirety as
follows:
"7. OPTION PRICE. Except for options described in Section 5(a),
the option price shall be equal to the closing price of Common Stock
of the Company on (a) for grants under Section 5(b), the date of
adoption of the Plan by the Board and (b) for all subsequent grants,
the Initial Grant Date or the Annual Grant Date, whichever is
applicable, on which such grants are made."
4. Section 11(a) of the Plan is hereby amended to read in its entirety as
follows:
"(a) Options described in Section 5(a) will vest in accordance
with their respective terms. Options described in Section 5(b) will
be fully vested on the date of grant of the options. All other
options will only be exercisable if the participant is a director of
the Company on the day preceding the annual stockholders meeting which
follows the date of grant of the option."
IN WITNESS WHEREOF, the undersigned has executed this Amendment effective
as of the 20th day of September, 1995.
INTERPHASE CORPORATION
By:
-----------------------------------
3
<PAGE>
Its:
----------------------------------
4
<PAGE>
INTERPHASE CORPORATION
DIRECTORS STOCK OPTION PLAN
INTRODUCTION
Since 1990, the Board of Directors of Interphase Corporation (the
"Company") has pursued a program of granting stock options to directors of the
Company which is formalized on May 6, 1994 (the "Effective Date") by the
following Directors Stock Option Plan:
1. PURPOSE. The purpose of the Plan is to provide directors of the
Company with a proprietary interest in the Company through the granting of
options which will
(a) increase the interest of the directors in the Company's
welfare;
(b) furnish an incentive to the directors to continue their
services for the Company; and
(c) provide a means through which the Company may attract able
persons to serve on the Board.
2. ADMINISTRATION. The Plan will be administered by the Board.
3. PARTICIPANTS. All directors of the Company are to be granted
options under the Plan, and upon such grant will become participants in the
Plan.
4. SHARES SUBJECT TO PLAN. Options may not be granted under the
Plan for more than 500,000 shares of Common Stock of the Company, but this
number may be adjusted to reflect, if deemed appropriate by the Board, any
stock dividend, stock split, share combination, recapitalization or the
like, of or
<PAGE>
by the Company. Shares to be optioned and sold may be made available
from either authorized but unissued Common Stock or Common Stock held by
the Company in its treasury. Shares that by reason of the expiration of
an option or otherwise are no longer subject to purchase pursuant to an
option granted under the Plan may be reoffered under the Plan.
5. ALLOTMENT OF SHARES. Grants of options under the Plan shall be
as described in this Section 5.
(a) The following options previously granted by the Board shall
continue in accordance with the terms of the respective nonqualified
stock option agreements issued by the Company:
<TABLE>
<CAPTION>
NUMBER OF
OPTION HOLDER DATE OF GRANT UNEXERCISED SHARES
------------- ------------- ------------------
<S> <C> <C>
Dale Crane 03-23-90 9,000
Dale Crane 12-16-93 12,000
Paul N. Hug 03-23-90 6,500
Paul N. Hug 12-16-93 12,000
David H. Segrest 03-23-90 5,500
David H. Segrest 12-16-93 12,000
S. Thomas Thawley 12-16-93 12,000
------
Total 69,000
</TABLE>
(b) Subject to approval by the Company's stockholders pursuant
to Section 5(f), each director of the Company on the Effective Date
shall be granted an option, effective as of the date establishing the
option price under Section 7 (the "Grant Date"), to purchase 12,500
shares of Common Stock of the Company.
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<PAGE>
(c) Each director of the Company elected at the annual
stockholders meeting who has not previously served as a director of
the Company shall be granted an option, effective as of the Grant
Date, to purchase 10,000 shares of Common Stock of the Company.
(d) Each other director of the Company elected at the annual
stockholders meeting shall be granted an option, effective as of the
Grant Date, to purchase 5,000 shares of Common Stock of the Company.
(e) Directors may elect by written notice to the Company not to
receive one or more option grants hereunder, as follows:
(i) With respect to an initial option grant, by electing on
the Effective Date or the date of initial election as a director.
(ii) With respect to other grants, by electing at least six
months in advance of the Grant Date of the option.
(f) The Plan shall be submitted to the Company's stockholders
for approval. The Board may grant options under the Plan prior to the
time of stockholder approval, which options will be effective when
granted, but if for any reason the stockholders of the Company do not
approve the Plan prior to one year after the date of
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<PAGE>
adoption of the Plan by the Board, all options granted under the
Plan, other than those described in Section 5(a), will be
terminated and of no effect, and no option may be exercised in
whole or in part prior to such stockholder approval.
6. GRANT OF OPTIONS. All options under the Plan shall be
automatically granted as provided in Section 5. The grant of options shall
be evidenced by stock option agreements containing such terms and
provisions as are approved by the Board, but not inconsistent with the
Plan. The Company shall execute stock option agreements upon instructions
from the Board.
7. OPTION PRICE. Except for options described in Section 5(a), the
option price shall be equal to the closing price of Common Stock of the
Company on (a) for grants under Section 5(b), the date of adoption of the
Plan by the Board and (b) for all subsequent grants, the date of the
Company's annual stockholders meeting.
8. OPTION PERIOD. The Option Period will begin on the effective
date of the option grant and, except for options described in Section 5(a),
will terminate on the fifth anniversary of that date.
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<PAGE>
9. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies or
becomes disabled prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option may be exercised at any time prior
to the date of its expiration by (i) the participant's estate or by the
person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the participant in the event of
the participant's death, or (ii) the participant or his personal
representative in the event of the participant's disability, subject to the
other terms of the Plan and applicable laws, rules and regulations.
10. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check at the time of exercise, or on
such other terms as are set forth in the applicable option agreement. No
shares may be issued until full payment of the purchase price therefor has
been made, and a participant will have none of the rights of a stockholder
until shares are issued to him.
11. VESTING.
(a) Options described in Section 5(a) will vest in accordance
with their respective terms. Options described in Section 5(b) will
be fully vested on the
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<PAGE>
Grant Date. All other options will only be exercisable if the
participant is a director of the Company on the day preceding the
annual stockholders meeting which follows the Grant Date of the
option.
(b) In no event may an option be exercised or shares be issued
pursuant to an option if any requisite action, approval or consent of
any governmental authority of any kind having jurisdiction over the
exercise of options shall not have been taken or secured.
12. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and
the option price thereof, and the number of shares to be granted pursuant
to Sections 5(c) and (d) and the option price thereof, may be adjusted to
reflect, as deemed appropriate by the Board, any stock dividend, stock
split, share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or the like, of or
by the Company.
In the event the Company shall be a party to any merger, consolidation
or corporate reorganization, as the result of which the Company shall be
the surviving corporation, the rights and duties of the participants and
the Company under the Plan shall not be affected in any manner. In the
event
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<PAGE>
the Company shall sell all or substantially all of its assets or
shall be a party to any merger, consolidation or corporate reorganization,
as the result of which the Company shall not be the surviving corporation,
or in the event any other person or entity may make a tender or exchange
offer for stock of the Company whereby such other person or entity would
own more than 50% of the outstanding Common Stock of the Company (the
surviving corporation, purchaser, or tendering corporation being
collectively referred to as the "purchaser", and the transaction being
collectively referred to as the "transaction"), then the Board may, at its
election, (a) reach an agreement with the purchaser that the purchaser will
assume the obligations of the Company in connection with each then
outstanding option granted under the Plan; (b) reach an agreement with the
purchaser that the purchaser will convert each then outstanding option
granted under the Plan into options of at least equal value as to stock of
the purchaser; or (c) not later than twenty days prior to the effective
date of such transaction, notify each participant and afford each
participant a right for ten days after the date of such notice to exercise
any unexercised portion of his then outstanding option(s) granted under the
Plan. Within such ten-day period, the participant may exercise any portion
of his then outstanding option(s) as he may desire and deposit with the
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<PAGE>
Company the requisite cash to purchase in full and not in installments the
Common Stock thereby exercised, in which case the Company shall, prior to
the effective date of the transaction, issue all Common Stock thus
exercised, which shall be treated as issued stock for purposes of the
transaction.
13. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. Except as otherwise
provided in the Plan, during a participant's lifetime, options granted to a
participant may be exercised only by the participant.
14. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the
Plan. The Board may rescind and amend its rules and regulations.
15. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase
the number of securities that may be issued under the Plan, or
(c) materially modify the requirements of eligibility for participation in
the Plan, must be approved by the
-8-
<PAGE>
stockholders of the Company. In addition, the Plan shall not be amended
more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
16. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any director any right to be granted
an option to purchase Common Stock of the Company or any other rights
except as may be evidenced by the stock option agreement, or any amendment
thereto, duly authorized by the Board and executed on behalf of the
Company, and then only to the extent and on the terms and conditions
expressly set forth therein.
17. TERM. Unless sooner terminated by action of the Board, the Plan
will terminate on May 5, 2004. The Board may not grant options under the
Plan after that date, but options granted before that date will continue to
be effective in accordance with their terms.
18. DEFINITIONS. For the purposes of the Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Plan" means this Directors Stock Option Plan, as amended
from time to time.
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<PAGE>
(b) "Board" means the board of directors of the Company or any
committee of the Board appointed by the Board to administer the Plan
or any portion of the Plan.
(c) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized to
issue (as long as the common stock varies from that currently
authorized, if at all, only in amount of par value).
(d) "Option Period" means the period during which an option may
be exercised.
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<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interphase Corporation:
As independent public accountants, we hereby consent to the incorporation of
our reports, included in this Form 10-K into the Company's previously filed
Registration Statement on Forms S-8 No. 33-62136 and No. 33-87546.
ARTHUR ANDERSEN LLP
Dallas, Texas
January 24, 1996
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<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<SECURITIES> 9,366
<RECEIVABLES> 7,759
<ALLOWANCES> (238)
<INVENTORY> 7,486
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0
0
<COMMON> 24,177
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<TOTAL-LIABILITY-AND-EQUITY> 30,411
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