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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTERPHASE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
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To the Holders of Common Stock of
INTERPHASE CORPORATION:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of
Interphase Corporation, a Texas corporation (the "Company"), will be held at the
offices of the Company, 13800 Senlac, Dallas, Texas on May 14, 1997 at 10:00
a.m., local time, for the following purposes:
(a) to elect eight directors of the Company to serve until the next annual
meeting of shareholders or until their respective successors shall
be elected and qualified;
(b) to ratify and approve amendments to the Company's Amended and Restated
Stock Option Plan to increase the aggregate number of shares issuable
upon exercise of options thereunder from 1,350,000 to 2,350,000 and to
provide that any and all options may be granted to any one or more
participants; and
(c) to transact such other business as may properly come before the meeting
or any adjournment thereof.
IT IS DESIRABLE THAT AS LARGE A PROPORTION AS POSSIBLE OF THE SHAREHOLDERS'
INTERESTS BE REPRESENTED AT THE MEETING. WHETHER OR NOT YOU PLAN TO BE PRESENT
AT THE MEETING, YOU ARE REQUESTED TO SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the Board of Directors
S. THOMAS THAWLEY
SECRETARY
Dallas, Texas
April 16, 1997
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INTERPHASE CORPORATION
13800 SENLAC
DALLAS, TEXAS 75234
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
- --------------------------------------------------------------------------------
This Proxy Statement is furnished to shareholders of Interphase
Corporation, a Texas corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
annual meeting of shareholders to be held on May 14, 1997. Proxies in the form
enclosed will be voted at the meeting, if properly executed, returned to the
Company prior to the meeting and not revoked. The proxy may be revoked at any
time before it is voted by giving written notice to the Secretary of the
Company. This proxy statement is first being mailed to shareholders on or about
April 16, 1997.
OUTSTANDING CAPITAL STOCK AND RECORD DATE
The record date for shareholders entitled to notice of and to vote at the
annual meeting is March 27, 1997. At the close of business on that date, the
Company had issued, outstanding and entitled to be voted at the meeting
5,492,608 shares of Common Stock, no par value ("Common Stock").
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted (i) for the election as directors of the Company of the
eight persons named under the caption "ELECTION OF DIRECTORS," (ii) to ratify
and approve amendments to the Company's Amended and Restated Stock Option Plan
to increase the aggregate number of shares issuable upon exercise of options
granted thereunder from 1,350,000 to 2,350,000 shares and to provide that any
and all options may be granted to any one or more participant, as described
under the caption "AMENDMENTS OF AMENDED AND RESTATED STOCK OPTION PLAN," and
(iii) at the discretion of the proxy holders on any other matter that may
properly come before the meeting or any adjournment thereof.
Where shareholders have appropriately specified how their proxies are to be
voted, they will be voted accordingly. If any other matter or business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors do not know of any such other matter or business.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
annual meeting. In deciding all questions, a holder of Common Stock is entitled
to one vote, in person or by proxy, for each share held in his name on the
record date. Abstentions will be included in vote totals and, as such, will
have the same effect on each proposal other than the election of directors as a
negative vote. Broker non-votes, if any, will not be included in vote totals
and, as such, will have no effect on any proposal.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned as of March 1, 1997 by
(i) each person who is known to the Company to own beneficially more than 5% of
the outstanding Common Stock of the Company, (ii) certain executive officers and
each director of the Company and (iii) all executive officers and directors as a
group. Each of the persons named below has sole voting and investment power
with respect to the shares of Common Stock beneficially owned by him or it
unless otherwise indicated.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------------------- -------------------- --------
(NUMBER OF SHARES)
R. Stephen Polley (1) 617,539 (2) 11.2%
S. Thomas Thawley (1) 306,125 (2) 5.6%
David H. Segrest (1) 59,400 (2) 1.1%
Dale Crane (1) 52,500 (2) 1.0%
Paul N. Hug (1) 42,300 (2) 0.8%
James F. Halpin (1) 17,000 (2) 0.3%
Robert H. Lyon - (3) -
Gary W. Fiedler (1) - -
Robert L. Drury (1) 15,000 (4) 0.3%
Ernest Godsey (1) 14,000 (4) 0.3%
John Tuder (1) 12,000 (4) 0.2%
All executive officers and directors
as a group (11 persons) 1,131,864 (5) 20.6%
Motorola, Inc. 660,000 12.0%
1303 E. Algonquin Road
Schaumburg, IL 60196
Third Avenue Value Fund, Inc. 300,000 5.5%
767 Third Avenue
New York, NY 10017
(1) The address for Messrs. Polley, Thawley, Segrest, Crane, Hug, Halpin,
Fiedler, Drury, Godsey and Tuder is Interphase Corporation, 13800 Senlac,
Dallas, TX 75234.
(2) Includes options issued to Mr. Polley to purchase 158,334 shares of Common
Stock at exercise prices ranging from $4.50-$14.875 per share (fair market
value on the date of grant). Includes beneficial ownership of shares
granted the previous owners of Synaptel (433,205). Includes options to
purchase Common Stock with exercise prices ranging from $4.38-$16.88 per
share (fair market value on the respective dates of grant) as follows:
Mr. Crane, 34,500 shares; Mr. Hug, 34,500 shares; Mr. Segrest, 34,500
shares; Mr. Halpin, 15,000 shares; and Mr. Thawley, 34,500 shares.
(3) Excludes 660,000 shares of Common Stock beneficially owned by Motorola,
Inc., for which Mr. Lyon (an employee of Motorola, Inc.) serves as a
director pursuant to Motorola, Inc.'s contractual right to nominate one
director of the Company.
(4) Includes options to purchase Common Stock as follows: Mr. Drury 15,000
shares; Mr. Godsey 14,000 shares; and Mr. Tuder 12,000. See also section
entitled "EXECUTIVE COMPENSATION."
(5) Includes 785,539 shares which may be acquired upon exercise of stock
options.
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ELECTION OF DIRECTORS
Eight directors are to be elected at the meeting. To be elected a
director, each nominee must receive a plurality of all of the votes cast at the
meeting for the election of directors. Should any nominee become unable or
unwilling to accept nomination or election, the proxy holders may vote the
proxies for the election in his stead of any other person the Board of Directors
may recommend. Each nominee has expressed his intention to serve the entire
term for which election is sought.
A brief description of each nominee for director of the Company is provided
below. Directors hold office until the next annual meeting of the shareholders
or until their successors are elected and qualified.
R. STEPHEN POLLEY, 46, was hired as President and Chief Operating Officer
of the Company and was appointed a director by the Board of Directors in 1993.
Effective June 1, 1994, Mr. Polley was also appointed Chief Executive Officer
and Chairman of the Board of the Company. Mr. Polley is also the sole member of
the New Employee Stock Option Committee of the Board of Directors. From August
1992 to June 1994, Mr. Polley served as a director for Computer Automation, Inc.
Computer Automation provides 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.
S. THOMAS THAWLEY, 55, is a co-founder of the Company and has served as
Secretary and a director of the Company since its inception in 1977. Through
November 1991 he also served as Executive Vice President of the Company.
DAVID H. SEGREST, 52, was elected a director in 1983. He has been engaged
in the practice of law since 1970 and has served as a partner of Gardere &
Wynne, L.L.P., and its predecessors since 1975. Gardere & Wynne, L.L.P., has
served as counsel to the Company since 1978. Mr. Segrest is a member of the
Audit Committee and the Compensation Committee of the Board of Directors.
DALE CRANE, 49, was elected a director in 1983. He has been engaged in
business and financial consulting and real estate development since 1976 as
owner of The Dale Crane Company. Mr. Crane is a member of the Audit Committee
and the General Stock Option Committee, and is Chairman of the Compensation
Committee of the Board of Directors.
PAUL N. HUG, 53, was elected a director in 1983. He has been a certified
public accountant engaged in public accounting practice as owner of Paul Hug &
Co. CPA's since 1988. Mr. Hug is a member of the Compensation Committee and the
General Stock Option Committee, and is Chairman of the Audit Committee of the
Board of Directors.
JAMES E. HALPIN, 46, was elected a director in 1996. He is the Chief
Executive Officer of CompUSA Inc. Mr. Halpin has served as President and a
director of CompUSA since May 1993 and as Chief Executive Officer since
December 1993. Mr. Halpin also served as Chief Operating Officer from May 1993
to January 1995. From 1990 to November 1992, Mr. Halpin was President of
HomeBase, a home center warehouse retailer. Mr. Halpin is a member of the
Compensation Committee of the Board of Directors.
ROBERT H. LYON, 62, was elected a director in March 1989. He is employed
as the Vice President of Engineering of Motorola, Inc.'s Computer Group. For
more than the past five years he has held a number of managerial positions in
design and manufacturing at Motorola.
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GARY W. FIEDLER, 52, was appointed to the Board of Directors in 1997. He
has been President and Chief Operating Officer of Innovative Systems, Inc.
since 1996. Previous to his current position Mr. Fiedler was Chief Executive
Officer for The Richbell Group in 1995, he was Executive Vice President for
P.N.C. from 1994 to 1995, he was a Business Consultant from 1993 to 1994, and
Chairman, President and CEO for Equimark from 1990 to 1993. Mr. Fiedler is a
member of the Audit Committee.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established four committees, the Audit
Committee, the Compensation Committee, the General Stock Option Committee, and
the New Employee Stock Option Committee. The Audit Committee is composed of Mr.
Hug, Chairman, Mr. Crane, Mr. Segrest and Mr. Fiedler. The Audit Committee
met four times during (or with regard to) fiscal 1996. The Audit Committee's
responsibilities are described below under the caption "AUDIT COMMITTEE
CHAIRMAN'S LETTER". The Compensation Committee is composed of Mr. Crane,
Chairman, Mr. Hug, Mr. Halpin and Mr. Segrest. The Compensation Committee met
two times during (or with regard to) fiscal 1996 and reviewed the executive
compensation plan of the Company in light of industry practices and
circumstances unique to the Company. The General Stock Option Committee is
composed of Mr. Hug, Chairman, and Mr. Crane. The General Stock Option Committee
has the authority, as does the full Board of Directors, to grant stock options
under the Amended and Restated Stock Option Plan. The General Stock Option
Committee met one time during (or with regard to) fiscal 1996. The New Employee
Stock Option Committee is composed of one member, Mr. Polley. The New Employee
Stock Option Committee has the authority to grant stock options under the
Amended and Restated Stock Option Plan to newly hired employees of the Company.
It is not intended that the New Employee Stock Option Committee will grant
options to officers or directors of the Company.
The Board of Directors held nine meetings during the fiscal year ended
December 31, 1996. None of the directors attended fewer than 75% of the
meetings of the Board of Directors and its committees on which they served.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
The Company compensates six of its independent directors, Mr. Crane, Mr.
Hug, Mr. Halpin, Mr. Fiedler, Mr. Segrest and Mr. Thawley, based upon the number
of meetings attended, plus an annual retainer. This amount is reasonably
estimated to be approximately $25,000 per year, per director. The remaining
directors do not receive cash compensation.
DIRECTORS STOCK OPTIONS
In April 1996, each incumbent director, with the exception of Mr. Lyon was
granted an option under the Directors Stock Option Plan for 5,000 shares of
Common Stock (an aggregate of 30,000 shares). These options have an exercise
price of $14.875 per share (fair market value on the date of grant) and will
fully vest at 5 p.m. on the day preceding the 1997 annual meeting of
shareholders. In January 1997, Mr. Fiedler was granted an option under the
Directors Stock Option Plan for 10,000 shares of Common Stock. This option has
an exercise price of $11.125 per share (fair market value on the date of grant)
and will fully vest at 5 p.m. on the day preceding the 1997 annual meeting of
shareholders. Mr. Lyon, in accordance with Motorola, Inc.'s policy, has elected
not to accept any of the options which otherwise would have been granted under
the Directors Stock Option Plan.
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AUDIT COMMITTEE CHAIRMAN'S LETTER
The Audit Committee (under this caption, the "Committee") of the Board of
Directors is composed of Mr. Hug, Chairman, Mr. Fiedler, Mr. Crane, and Mr.
Segrest.
The purpose of the Audit Committee is to assist the Board of Directors in
carrying out its responsibility to oversee the Company's internal controls and
financial reporting process. The Committee may take whatever actions it deems
necessary to carry out its function. At a minimum, however, the Committee is
charged with taking the following actions:
1. Meeting privately with the independent public accountants prior to the
public release of quarterly and annual operating results;
2. Meeting privately with the independent public accountants as soon as
possible after receipt of the final audit report;
3. At least annually, meeting privately with the Company's outside counsel;
4. At least annually, meeting privately with the Company's Chief Accounting
Officer;
5. At least annually, meeting with the President, Chief Financial Officer and
Chief Accounting Officer to discuss (a) any significant financial reporting
issues discussed with the independent public accountants since the last
meeting, (b) any significant legal issues discussed with the Company's
outside legal counsel since the last meeting, and (c) any other matters
which management or the Committee requests be discussed;
6. At least annually, reporting to the Board of Directors its activities since
the last meeting or any other matters which the Committee feels should be
brought to the Board's attention;
7. Confirming management's selection of the independent public accountants;
and
8. Writing a letter to be included in the Company's Annual Report or Proxy
Statement describing the Committee's responsibilities and activities during
the year.
The Committee took all these actions during (or with regard to) the fiscal
year ended December 31, 1996. In its private meetings with the independent
public accountants, the Committee inquired as to such things as its overall
level of comfort with the Company's financial statements and internal controls,
whether it considered management's determination of reserves and other estimates
used in preparing the financial statements to be reasonable, whether there had
been any disagreement (resolved or not) with management regarding any financial
reporting issue, and if there were any other matters which needed to be brought
to the Committee's attention.
February 6, 1997 Paul N. Hug
Chairman
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AMENDMENTS OF AMENDED AND RESTATED STOCK OPTION PLAN
In 1984, the Company adopted a stock option plan for employees, which was
amended and restated in 1994 (the "Employee Plan"), and also amended in 1995.
All employees of the Company are eligible for grants including the President,
Executive Vice Presidents, Vice Presidents and other executives of the Company,
and the Company receives no consideration as a result of option grants or
extensions. The Employee Plan is administered by the Board of Directors. The
Board of Directors has delegated the authority to grant stock options under the
Employee Plan to a General Stock Option Committee and a New Employee Stock
Option Committee. See also "ELECTION OF DIRECTORS-COMMITTEES AND MEETINGS OF
THE BOARD OF DIRECTORS."
Incentive options ("Incentive Options") may be granted for a term of up to
five years in the case of employees who own in excess of 10% of the Company's
outstanding stock and up to ten years in the case of all other employees.
Nonqualified stock options ("Nonqualified Stock Options") may be granted for a
term of up to ten years to all employees. Nonqualified Stock Options may be
granted at less than fair market value. Incentive Options may be granted to
purchase shares at not less than their fair market value as of the date of
grant, or 110% of fair market value in the case of any employee holding in
excess of 10% of the outstanding stock as of the date of the grant. Options
granted under the Employee Plan cannot be transferred other than by will or by
the laws of descent and distribution. The fair market value of the Common Stock
as of March 1, 1997, was $8.75 per share.
The Board of Directors has adopted amendments to the Employee Plan
("Amendments") (see Exhibit A), subject to the approval of the shareholders at
the annual meeting. The Employee Plan currently covers 1,350,000 shares of
Common Stock and all available stock options thereunder have been granted. The
purposes of the Amendments are to increase the aggregate number of shares of
Common Stock issuable upon exercise of options granted under the Employee Plan
by 1,000,000 shares to a total of 2,350,000 shares and to provide that any and
all options may be granted to any one or more participants. Approval of the
Amendments requires the affirmative vote of the holders of a majority of the
shares of Common Stock represented at the meeting.
The purpose of the Employee Plan is to promote the interests of the Company
and its Shareholders by (i) attracting and retaining key employees, (ii)
motivating such individuals by means of performance-related incentives to
achieve longer-range performance goals and (iii) encouraging such persons to
become owners of Common Stock.
The primary purpose of the increase in shares available for grant
under the Employee Plan is to enable the Company to comply with contractual
obligations related to its acquisition of Synaptel S.A., the French-based ISDN
and remote access company acquired in June 1996. The Company agreed, subject to
shareholder approval, to provide up to 450,000 stock options to retain and
attract employees of Synaptel.
In addition, competition for highly qualified individuals within the
Company's industry is intense, and to successfully attract and retain the best
candidates, the Company must continue to offer a competitive equity incentive
program as an essential component of its compensation packages. Without the
proposed increase in shares available for grant, the Company will be unable to
comply with the Synaptel stock option obligation, or to continue to attract and
retain the best individuals on a world-wide basis.
The Employee Plan provides that if an optionee dies or becomes disabled
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 his option, the option may be
exercised, to the
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extent of the shares with respect to which the option could have been
exercised by the optionee on the date of the optionee's death or disability,
by (i) the optionee'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 optionee in the event of the optionee's death, or (ii) the optionee or
his personal representative in the event of the optionee'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 optionee's death or disability
whichever first occurs.
Shares to be optioned and sold under the Employee Plan 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 Employee Plan may be reoffered under the Employee Plan.
The Employee Plan may be amended or discontinued by the Board of Directors
without the approval of the shareholders of the Company, except that any
amendment that would (a) materially increase the benefits accruing to
participants under the Employee Plan, (b) materially increase the number of
securities that may be issued under the Employee Plan, or (c) materially modify
the requirements or eligibility for participation in the Employee Plan must be
approved by the shareholders of the Company.
Unless sooner terminated by action of the Board of Directors, the Employee
Plan will terminate on November 8, 2004.
Incentive Options granted under the Employee Plan are currently entitled to
"incentive stock option" treatment for federal income tax purposes provided by
Section 422 of the Internal Revenue Code. The Company will not be entitled to a
deduction upon any exercise of an incentive option. The optionee's gain on
exercise (the excess of the fair market value at the time of exercise over the
exercise price) of an Incentive Option is a tax preference item and, while not
being included in ordinary income for normal income tax purposes, is included in
taxable income for purposes of calculating alternative minimum tax. The gain
realized upon the subsequent disposition of the stock acquired upon exercise of
the Incentive Option will be entitled to capital gain treatment, provided that
no such disposition is made within two years after the Incentive Option was
granted or one year after the Incentive Option was exercised. If such holding
period requirements are not satisfied, the optionee will recognize ordinary
income equal to the lesser of (i) the fair market value of the stock on the date
of exercise minus the exercise price or, (ii) the amount realized on the
disposition minus the exercise price, and may receive a credit against income
tax to the extent alternative minimum tax liability was incurred upon exercise.
If the optionee must recognize ordinary income, the Company will be entitled to
a corresponding deduction.
Under present federal income tax laws, the grant of Nonqualified Stock
Options under the Employee Plan will not result in taxable income to the
optionee. Generally, the exercise of a Nonqualified Stock Option under the
Employee Plan will result in recognition of ordinary income following exercise
in an amount equal to the excess of the then fair market value of shares
acquired over the exercise price for those shares. The Company will be entitled
to a corresponding deduction at that time.
The foregoing statements are based upon federal income tax laws and
regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, change.
The amendments to the Employee Plan are being submitted for shareholder
approval pursuant to the requirements of the National Association of Security
Dealers for securities traded on the National Market System, and of Sections
162(m) and 422 of the Internal Revenue Code. Section 162(m) of the Internal
Revenue Code limits the Company's tax deduction for compensation expense to any
one executive officer to $1 million per year, except that compensation under
certain shareholder-approved incentive compensation plans is not subject to this
limit; this Plan is being amended subject to shareholder approval
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to conform with this exception to Section 162(m). Section 422 of the
Internal Revenue Code requires shareholder approval in order for options to
be treated as incentive stock options. Approval of the amendments will
require the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or by proxy and entitled to be voted at the
meeting. THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENT AND RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE EMPLOYEE
PLAN.
EXECUTIVE OFFICERS
As of March 1, 1997, the executive officers of the Company, their respective
ages, positions held and tenure as officers are listed below:
EXECUTIVE
OFFICERS OF
THE COMPANY
NAME AGE POSITION(S) HELD WITH THE COMPANY SINCE
---- --- --------------------------------- -----
R. Stephen Polley 46 Chairman, Chief Executive Officer, 1993
Chief Operating Officer and President
Robert L. Drury 49 Chief Financial Officer, 1992
Vice President of Finance and Treasurer
Earnest Godsey 49 Vice President of Business Development 1992
John E. Tuder 38 Vice President of Engineering 1995
R. STEPHEN POLLEY (see Election of Directors for biographical description)
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.
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.
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.
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EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee (under this caption, the "Committee") is
responsible for structuring and monitoring the Company's executive compensation
program. The Committee is composed of four non-employee members of the Board of
Directors: Mr. Crane, Chairman, Mr. Halpin, Mr. Hug and Mr. Segrest.
Recommendations of the Committee are ultimately reviewed, considered and
approved by the Board of Directors; however, after the executive compensation
program has been approved by the Board of Directors, the Committee performs
ministerial functions effecting and implementing aspects of the program on
behalf of the Board of Directors.
The Committee views its primary objective to be the structuring of a
compensation strategy designed to align the interests of executives with the
interests of shareholders by creating incentives which are performance-based
and tied to the attainment of overall Company goals. The markets in which the
Company competes are highly competitive and to succeed in them over the long
term the Company must be able to attract, motivate and retain executives with
extraordinary qualifications and talents. The Committee evaluates the
compensation strategy and compensation plans accordingly.
Salient components of the executive compensation program include annual
salary, annual bonus plan and stock option grants.
At this time, based on the Company's current executive compensation
structure, the Company does not believe it is necessary to adopt a policy with
respect to qualifying executive compensation in excess of $1 million for
deductibility under Sections 162(m) of the Internal Revenue Code, except with
respect to the Amended and Restated Stock Option Plan.
ANNUAL SALARY
The Committee attempts to establish annual salary levels that are
appropriate with regard to (i) competitive salary levels, (ii) qualifications
and experience, and (iii) the longevity, performance and responsibility of the
executive. At least annually, the Committee reviews executive salaries and
recommends adjustments where appropriate.
EXECUTIVE BONUS PLAN
The executive bonus plan is intended to link executive compensation with
the attainment of (i) defined Company goals on a quarterly and annual basis, and
(ii) individual personal objectives of the executive.
Each fiscal year the Committee, after consulting with management of the
Company, establishes quarterly and annual financial targets for the Company.
Also, the Committee approves specific personal objectives of each executive.
Personal objectives typically are goals benefiting the Company for which the
particular executive's contribution is significant and identifiable. A target
annual bonus amount is established based upon these financial targets and
personal objectives. The actual payment of bonuses is primarily dependent upon
the extent to which these Company-wide and personal bonus objectives are
achieved.
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STOCK OPTION GRANTS
Through the granting of stock options the Company intends to align the
executives' long term interests with those of the shareholders of the Company by
tying executive compensation to the long term performance of the Company's stock
price. This is the Company's principal long-term incentive to executives.
The Committee recommends to the General Stock Option Committee the number
of shares to be granted to an executive based upon several factors including,
but not limited to, management's recommendation, the executive's salary level,
performance, position, contribution to the management team, and contribution to
the overall success of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1996, Mr. Polley received a base salary of $200,000 under an
employment agreement with the Company. Additionally, Mr. Polley participated in
the 1996 annual bonus plan which established specific operating objectives
related to Company-wide financial performance plus certain defined personal
goals of the CEO, including development and implementation of key product and
strategic plans of the Company. As a result of the Company's financial
performance and Mr. Polley attaining all of his personal bonus objectives, he
was awarded an annual bonus of $82,000, which amount was consistent with the
formula provided for in the plan adopted by the Board of Directors.
SUMMARY
The Compensation Committee, in its judgment, has established executive
compensation levels which reflect the Committee's desire to reward executives
for individual contribution to the attainment of the Company's goals while
linking each executive's financial opportunity with increased value to the
shareholders.
THE COMPENSATION COMMITTEE
Dale Crane
James E. Halpin
Paul N. Hug
David H. Segrest
10
<PAGE>
EMPLOYMENT AGREEMENTS
The Board of Directors approved Mr. Polley's current employment agreement,
effective September 1996, pursuant to which the Company employs Mr. Polley as
its Chairman of the Board, Chief Executive Officer, Chief Operating Officer and
President until September 1999, at a base salary of $200,000 per year. After
the expiration of the term of employment, the employment agreement will continue
for successive one-year terms, unless either Mr. Polley or the Company gives
notice to the other party more than 30 days prior to the expiration of the term
that the agreement will not be renewed. In addition, in accordance with his
employment agreement, Mr. Polley (i) received in 1996 a non-qualified stock
option for 200,000 common shares, (ii) is entitled to an annual bonus based upon
the guidelines contained in the Company's Executive Bonus Plan, with his "annual
bonus target" being established by the Compensation Committee, and (iii) is
entitled to certain benefits available to officers of the Company generally.
Mr. Polley's employment agreement permits the Company to terminate Mr.
Polley without further compensation for overt misconduct. The Company is also
able to terminate Mr. Polley for any reason or no reason upon 30 days written
notice to Mr. Polley. If the Company terminates Mr. Polley for any reason other
than overt misconduct, then Mr. Polley will be entitled to (i) receive severance
compensation in the amount of one year's base, (ii) receive a pro rata payment
of his bonus for the year in which he is terminated, and (iii) payment of health
insurance premiums for the same term that he receives severance compensation
payments.
In the event of a "change in control" of the Company, all outstanding stock
options of certain of the named executive officers, including Mr. Polley, will
become exercisable, subject to certain restrictions. A "change in control"
under these arrangements is generally defined as a tender offer or exchange
offer by any person or entity for the common stock of the Company whereby such
person or entity would own more than 50% of the outstanding common stock of the
Company.
In addition, if the employment of certain of the named executive officers
is terminated following the accumulation by one investor of 30% or more of the
outstanding common stock of the Company then all outstanding stock options of
that named executive officer will become exercisable, subject to certain
restrictions.
The Company also entered into separate employment agreements with certain
of the named executive officers in addition to Mr. Polley. None of the separate
employment agreements provide for their continuing service. Each of the
employment agreements provides for employment at will, set forth the named
executive officers base salary and eligibility for annual bonuses based upon
guidelines established by the Company, and include confidentiality provisions
and covenants not to compete with the Company for varying terms following
termination of employment.
11
<PAGE>
SUMMARY COMPENSATION TABLE
A summary compensation table has been provided below and includes
individual compensation information on the Chief Executive Officer and certain
other executive officers (collectively, the "Named Executive Officers") during
fiscal 1996.
<TABLE>
Long-term
Annual Compensation (1) Compensation
--------------------------------------------------------
Other Securities
Annual Underlying All Other
Salary Bonus Compensation Options/SAR's Compensation (2)
Year ($) ($) ($) (#) ($)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R. Stephen Polley 1996 200,000 82,000 - 205,000 8,547
Chairman of the Board, 1995 200,000 96,000 - 155,000 8,868
Chief Executive Officer, 1994 170,000 84,000 - 162,500 8,778
Chief Operating Officer and
President
Robert L. Drury 1996 140,000 42,000 - 25,000 8,547
Chief Financial Officer, 1995 110,000 49,000 - 10,000 7,548
Vice President of Finance 1994 99,167 42,000 - 30,000 6,104
and Treasurer
Ernest Godsey 1996 110,000 42,000 - 25,000 7,210
Vice President of 1995 110,000 49,000 - 10,000 7,548
Business 1994 95,000 5,000 - 30,000 9,297
John Tuder 1996 137,000 22,000 - 25,000 4,724
Vice President of 1995 124,000 4,000 - 30,000 2,124
Engineering
</TABLE>
(1) The table does not include the cost to the Company of benefits furnished
to certain officers, including premiums for life and health insurance. No
executive officer named above received other compensation in excess of the
lesser of $50,000 or 10% of such officers' salary and bonus compensation.
(2) "All Other Compensation" consists of matching and discretionary (as
defined) payments by the Company pursuant to its 401(k) plan as well as
payment of accrued, but unused, vacation benefits pursuant to Company
policy.
12
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to stock options/SARs
granted to the Named Executive Officers during the fiscal year ended December
31, 1996. The potential realized value reported below assumes compounded
annual rates of return over the term of the options.
<TABLE>
Percent of
Total Options/ Potential realizable value
Securities SARs Granted at Assumed Annual Rates
Underlying to Employees of Stock Price Appreciation
Options/SARs in Fiscal Exercise Expi- for Option Term
Granted (1) Year Price ration 5 Percent 10 Percent
Name (#) (%) ($) Date ($) ($)
- ---- ------------ -------------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Stephen Polley 5,000 1% 14.88 4/11/01 18,155 42,387
200,000 51% 15.00 8/16/06 746,458 2,965,608
Robert L. Drury 25,000 6% 11.50 8/16/06 180,807 458,201
Ernest E. Godsey 25,000 6% 11.50 8/16/06 180,807 458,201
John Tuder 25,000 6% 11.50 8/16/06 180,807 458,201
</TABLE>
(1) The number of securities included in this table is inclusive of new
repricing grants. See table under the caption "TEN YEAR OPTION/SAR
REPRICING."
13
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table discloses incentive stock option exercises for the
Named Executive Officers during the fiscal year ended December 31, 1996. In
addition, the number and value of unexercised options/SARs that were outstanding
at December 31, 1996 are summarized in the table. A distinction is made between
options/SARs that were exercisable (vested) at December 31, 1996 and those
options/SARs that were not exercisable at December 31, 1996.
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs Options/SARs
Acquired Value at Fiscal Year End at Fiscal Year End
On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name (#) ($) (#) ($)
- ------------------ ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
R. Stephen Polley - - 153,334 / 361,666 $459,212 / $366,663
Robert L. Drury - - 15,000 / 48,000 60,360 / 85,080
Ernest E. Godsey - - 14,000 / 45,000 54,360 / 67,080
John Tuder - - 6,000 / 49,000 2,580 / 10,320
</TABLE>
14
<PAGE>
TEN YEAR OPTION/SAR REPRICING
The following table discloses the impact of all incentive stock option
repricings during the past 10 years for the Named Executive Officers. The
repricing that occurred in October 1993 was offered to all grantees of
incentive stock options and gave the holder the right to surrender existing
option(s) for new options which were priced at the fair market value of the
Company's Common Stock on the date of the repricing. All repriced options
are subject to normal vesting terms and therefore, cumulative vesting has
been forfeited for all options that were surrendered.
<TABLE>
Length of
Number of Market Original
Securities Price of Exercise Option Term
Underlying Stock at Price at Remaining
Options/SARs Time of Time of New at Date of
Repriced or Repricing/ Repricing/ Exercise Repricing/
Amended Amendment Amendment Price Amendment
Name Date (#) ($) ($) ($) (months)
- ---------------- ---------- ------------ ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert. L. Drury 6/21/1994 15,000 5.88 6.63 5.88 71
10/20/1993 20,000 4.00 6.88 4.00 62
Ernest E. Godsey 6/21/1994 15,000 5.88 6.63 5.88 71
10/20/1993 20,000 4.00 6.88 4.00 62
</TABLE>
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total shareholder return on
Common Stock during the fiscal years ended December 31, 1996 and 1995, October
31, 1995, 1994, 1993 and 1992 with the cumulative total return on the NASDAQ
market index and a peer group index. The peer group consists of companies with
the same four-digit SIC code as the Company (3577). The Company relied upon
information provided by another firm with respect to the peer group stock
performance. The Company did not attempt to validate the information supplied
to it other than review it for reasonableness. The comparison assumes $100 was
invested on October 31, 1991 in the Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
COMPARISON OF 62 MONTH CUMULATIVE TOTAL RETURN*
AMONG INTERPHASE CORPORATION, THE NASDAQ STOCK MARKET-US INDEX
AND A PEER GROUP
<TABLE>
[PERFORMANCE GRAPH]
COMPANY OR INDEX 1991 1992 1993 1994 10/1995 12/1995 12/1996
- ---------------- ---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interphase Corp. 100 65.00 35.00 100.00 96.00 97.00 83.00
Peer Group 100 95.00 100.00 109.00 134.00 161.00 137.00
NASDAQ Market 100 113.00 145.00 146.00 197.00 200.00 246.00
</TABLE>
16
<PAGE>
CERTAIN TRANSACTIONS
David H. Segrest, a director of the Company, and a member of the
Compensation Committee and the Audit Committee of the Board of Directors of the
Company. Mr. Segrest is also a partner of Gardere & Wynne, L.L.P., the
Company's general counsel. Mr. Segrest and others at Gardere & Wynne, L.L.P.,
provide legal services to the Company and are typically compensated at
prevailing hourly rates. During fiscal 1996, the Company paid Mr. Segrest (for
services as a director) and Gardere & Wynne, L.L.P., approximately $690,000 for
services provided.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the Common
Stock to file reports of ownership and changes in ownership on Forms 3, 4 and 5
with the Securities and Exchange Commission and furnish the Company with a copy.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors, and greater
than ten percent shareholders complied with all filing requirements applicable
to them during the reporting period ended December 31, 1996, except that Form 5
was late for the following: Mr. Crane, Mr. Godsey, Mr. Halpin, Mr. Hug, Mr.
Polley, Mr. Segrest, and Mr. Thawley.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP served as the independent auditors of the Company for
the fiscal year ended December 31, 1996. A representative of ARTHUR ANDERSEN
LLP is expected to be present at the annual meeting and will have the
opportunity to make a statement and will be available to answer appropriate
shareholder questions.
SHAREHOLDERS' PROPOSALS
Any proposals that shareholders of the Company desire to have presented at
the 1998 annual meeting of shareholders must be received by the Company at its
principal executive offices no later than December 12, 1997.
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
form of proxy and the material used in the solicitation thereof will be borne by
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by directors, officers and employees
of the Company.
Arrangements may also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of Common Stock held of record by such persons, and the
Company may reimburse them for reasonable out-of-pocket expenses incurred by
them in connection therewith.
The Annual Report to Shareholders of the Company for 1996, which includes
financial statements, accompanying this Proxy Statement, does not form any
part of the material for the solicitation of proxies.
17
<PAGE>
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
SOLICITED HEREBY A COPY OF THE COMPANY'S 1996 FORM 10-K UPON WRITTEN REQUEST
AS SET FORTH BELOW. EXHIBITS TO THE FORM 10-K ARE ALSO AVAILABLE UPON
WRITTEN REQUEST UPON PAYMENT OF A REASONABLE CHARGE TO COVER THE COMPANY'S
COST IN PROVIDING SUCH EXHIBITS. WRITTEN REQUESTS SHOULD BE SENT TO INVESTOR
RELATIONS, INTERPHASE CORPORATION, 13800 SENLAC, DALLAS, TEXAS, 75234.
By Order of the Board of Directors
S. THOMAS THAWLEY
SECRETARY
Dallas, Texas
April 16, 1997
18
<PAGE>
EXHIBIT A
The first sentence of Sections 5 of the Amended and Restated Stock Option
Plan of the Company is hereby amended to read as follows:
The Board may not grant options under the Plan for more than
2,350,000 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, and the total number of shares
subject to option under the Plan represents the maximum number of
shares for which options may be granted to any one participant in
the Plan during the term of the Plan.
19
<PAGE>
FORM OF PROXY CARD FOR INTERPHASE CORPORATION 1997 ANNUAL MEETING
PROXY
INTERPHASE CORPORATION
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Meeting of Shareholders of Interphase Corporation (the "Company") to be held
at the offices of the Company, 13800 Senlac, Dallas, Texas 75234, on May 14,
1997 at 10:00 a.m., local time, and the Proxy Statement in connection
therewith, and (b) appoints R. Stephen Polley and S. Thomas Thawley, and each
of them, the undersigned's proxies with full power of substitution, for and
in the name, place and stead of the undersigned, to vote upon and act with
respect to all of the shares of Common Stock of the Company standing in the
name of the undersigned or with respect to which the undersigned is entitled
to vote and act at said meeting or at any adjournment thereof, and the
undersigned directs that this proxy be voted as follows:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS / / FOR nominees listed below except as marked to the contrary below
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
Dale Crane, Gary W. Fiedler, James F. Halpin, Paul N. Hug,
Robert H. Lyon, R. Stephen Polley, David H. Segrest and S. Thomas Thawley
INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the space below.
--------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
2. PROPOSAL TO AMEND THE AMENDED AND RESTATED STOCK OPTION PLAN TO INCREASE THE AGGREGATE NUMBER OF
SHARES ISSUABLE UPON EXERCISE OF OPTIONS THEREUNDER FROM 1,350,000 TO 2,350,000 SHARES AND TO PROVIDE THAT
ANY AND ALL OPTIONS MAY BE GRANTED TO ANY ONE OR MORE PARTICIPANTS.
/ / FOR / / AGAINST / / ABSTAIN
- ----------------------------------------------------------------------------------------------------------------------
3. In the discretion of the proxies, on any other matter that may properly come before the meeting or any
adjournment thereof.
(CONTINUED AND TO BE DATED AND SIGNED ON THE REVERSE SIDE)
</TABLE>
<PAGE>
(continued from other side)
If more than one of the proxies above shall be present in person or by
substitute at the meeting or any adjournment thereof, the majority of said
proxies so present and voting, either in person or by substitute, shall
exercise all of the powers hereby given.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS
MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR AND FOR THE
PROPOSAL TO AMEND THE AMENDED AND RESTATED STOCK OPTION PLAN.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote upon or act with respect to such stock and hereby ratifies and confirms
all that said proxies, their substitutes, or any of them, may lawfully do by
virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY.
Dated:
---------------------------------------
---------------------------------------
Signature
---------------------------------------
(Signature if held jointly)
Please date the proxy and sign your
name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, the proxy should be
signed by a duly authorized officer.
Please sign the proxy and return it
promptly whether or not you expect to
attend the meeting. You may
nevertheless vote in person if you do
attend.
