Document:

exv10w3

 

Exhibit 10.3

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

NAVARRE CORPORATION

WARRANT

			
	Warrant No. 2006-<<No>>
	 	Original Issue Date: March 21, 2006

     Navarre
Corporation, a Minnesota corporation (the “Company”), hereby certifies that, for value
received, <<Investor>> or its registered
assigns (the “Holder”), is entitled to purchase from the Company up to
a total of <<Warrants>> shares of common stock, no par value (the “Common
Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the
“Warrant Shares”) at an exercise price equal to
$5.00 per share (as adjusted from time to time as provided in
Section 9, the “Exercise Price”), at
any time and from time to time on and after the six month anniversary of the Original Issue Date
and through and including September 21, 2011 (the
“Expiration Date”), and subject to the following
terms and conditions:

     1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Securities Purchase Agreement to which the Company and the original Holder are parties (as
amended from time to time, the “Purchase Agreement”).

     “Original Issue Date” means the Original Issue Date first set forth on the first page of this
Warrant.

     2. Registration of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.

 

 

     3. Registration of Transfers. The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its address specified
herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new Warrant, a
“New Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed
the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

     4. Exercise and Duration of Warrants.

          (a) This Warrant shall be exercisable by the registered Holder at any time and from time to
time on or after the six month anniversary of the Original Issue Date and through and including the
Expiration Date. At 6:30 p.m. (New York City time) on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value. Except as set forth
below in Section 4(b), the Company may not call or redeem any portion of this Warrant without the
prior written consent of the affected Holder.

          (b) Subject to the provisions of this Section 4(b), if at any time following the one-year
anniversary of the Original Issue Date, (i) the VWAP (as defined below) of the Common Stock for
each of the 30 consecutive Trading Days after such fees and anniversary is greater than $8.50
(subject to equitable adjustment as a result of the events set forth in Section 9), (ii) the
Warrant Shares are either registered for resale pursuant to an effective registration statement
naming the Holder as a selling stockholder thereunder (and the prospectus thereunder is available
for use by the Holder as to all Warrant Shares) or freely transferable without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act, as determined by counsel to the
Company pursuant to a written opinion letter addressed and in form and substance reasonably
acceptable to the Holder and the transfer agent for the Common Stock, and (iii) the Company shall
have complied in all material respects with its obligations under this Warrant and the Transaction
Documents and the Common Stock shall at all times be listed or quoted on a Trading Market, then the
Company may in its sole discretion, elect to require the exercise of all (but not less than all) of
the then unexercised portion of this Warrant at the Exercise Price, on the date that is the fifth
(5th) day after written notice thereof (a “Call Notice”) is received by the Holder (the
“Call Date”) at the address last shown on the records of the Company for the Holder or given by the
Holder to the Company for the purpose of notice. The Company and the Holder agree that, if and to
the extent Section 11 of this Warrant would restrict the ability of the Holder to exercise this
Warrant in full in the event of a delivery of a Call Notice, then notwithstanding anything to the
contrary set forth in the Call Notice, the Call Notice shall be deemed automatically amended to
apply only to such portion of this Warrant as may be exercised by the Holder by the Call Date in
accordance with such Sections as are then in effect. The Holder will promptly (and, in any event,
prior to the Call Date) notify the Company in writing following receipt of a Call Notice if Section
11 would restrict its exercise of the Warrant, specifying therein the number of Warrant Shares so
restricted. The Company covenants and agrees that it will honor all Exercise Notices tendered
through 6:30 p.m. (New York City time) on the Call Date. “VWAP” for purposes of this section means
on any particular Trading Day or
 

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for any particular period, the volume weighted average trading price per share of Common Stock
on such date or for such period as reported by Bloomberg L.P., or any successor performing similar
functions.

     5. Delivery of Warrant Shares.

          (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised or
delivery is required by the Warrant transfer agent and such transfer agent is not the Company.
Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the
attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment
of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to
purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after
the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the
Warrant Shares issuable upon such exercise. The Company shall, upon request of the Holder and
subsequent to the date on which a registration statement covering the resale of the Warrant Shares
has been declared effective by the Securities and Exchange Commission, use its best efforts to
deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if its current
transfer agent cannot deliver Warrant Shares electronically through the Depository Trust
Corporation. A “Date of Exercise” means the date on which the Holder shall have delivered to the
Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions
set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

          (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

          (c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a) and Purchaser
provides written notice of the same to the Company, and if after such third Trading Day and prior
to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company
shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of
the Common Stock on the Date of Exercise and (2) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not
honored or deliver to the Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations hereunder. The Holder
shall provide the Company written notice indicating the amounts payable to the Holder in respect of
the Buy-In.

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          (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing Warrant
Shares upon exercise of the Warrant as required pursuant to the terms hereof.

     6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon exercise
of this Warrant shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the Company; provided,
however, that the Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a
name other than that of the Holder. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon
exercise hereof.

     7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the
Company’s obligation to issue the New Warrant.

     8. Reservation of Warrant Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

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     9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this Section
9.

          (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

          (b) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (4) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the
“Alternate Consideration”). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder’s
option and request, any successor to the Company or surviving entity in such Fundamental
Transaction shall, either (1) issue to the Holder a new warrant substantially in the form of this
Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase
the Alternate Consideration for the aggregate Exercise Price upon exercise thereof, or (2) purchase
the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after
 

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such request (or, if later, on the effective date of the Fundamental Transaction), equal to
the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such
request. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with the provisions of
this paragraph (b) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

          (c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to this Section 9, the number of Warrant Shares that may be purchased upon exercise
of this Warrant shall be increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such adjustment.

          (d) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue or sale of Common
Stock.

          (e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company at its expense will promptly compute such adjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in detail the facts upon which such adjustment is
based. Upon written request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company’s Transfer Agent.

          (f) Notice of Corporate Events. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits shareholder approval for any Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction (but only to the extent such disclosure would not result in the dissemination of
material, non-public information to the Holder), at least 20 calendar days prior to the applicable
record or effective date on which a Person would need to hold Common Stock in order to participate
in or vote with respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

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     10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of the
following manners:

          (a) Cash Exercise. The Holder may deliver immediately available funds; or

          (b) Cashless Exercise. If an Exercise Notice is delivered at a time when a
registration statement permitting the Holder to resell the Warrant Shares is not then effective or
the prospectus forming a part thereof is not then available to the Holder for the resale of the
Warrant Shares, then the Holder may notify the Company in an Exercise Notice of its election to
utilize cashless exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:

	 	 	 	 	 
	 

	 	 	 	X = Y [(A-B)/A]
	 
	 	 	 	 
	 

	 	where:	 	 
	 
	 	 	 	 
	 

	 	 	 	X = the number of Warrant Shares to be issued to the Holder.
	 
	 	 	 	 
	 

	 	 	 	Y = the number of Warrant Shares with respect to which this Warrant
is being exercised.
	 
	 	 	 	 
	 

	 	 	 	A = the average of the closing prices for the five Trading Days
immediately prior to (but not including) the Exercise Date.
	 
	 	 	 	 
	 

	 	 	 	B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued.

     11. Limitation on Exercise.

          (a) Notwithstanding anything to the contrary contained herein, the number of Warrant Shares
that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by such Holder and
its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the
total number of issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitation set forth in this paragraph and
determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is
permitted under this paragraph. This provision shall not restrict the number of shares of Common
Stock which a Holder may receive or beneficially own in order to determine the amount of securities
or other consideration

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that such Holder may receive in the event of a Fundamental Transaction as contemplated in
Section 9 of this Warrant. By written notice to the Company, an Investor may waive the provisions
of this Section 11(a) as to itself but any such waiver will not be effective until the
61st day after delivery thereof and such waiver shall have no effect on any other
Investor.

          (b) Notwithstanding anything to the contrary contained herein, the number of Warrant Shares
that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by such Holder and
its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the
total number of issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitation set forth in this paragraph and
determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is
permitted under this paragraph. This provision shall not restrict the number of shares of Common
Stock which a Holder may receive or beneficially own in order to determine the amount of securities
or other consideration that such Holder may receive in the event of a Fundamental Transaction as
contemplated in Section 9 of this Warrant. This restriction may not be waived.

     12. No Fractional Shares. No fractional Warrant Shares will be issued in connection
with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be
issuable, the Company shall pay cash equal to the product of such fraction multiplied by the
closing price of one Warrant Share as reported by the applicable Trading Market on the date of
exercise.

     13. Notices. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New
York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any
Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given. The addresses for such communications shall be: (i) if to the Company, to the
address set forth in the Purchase Agreement, or (ii) if to the Holder, to the address or facsimile
number appearing on the Warrant Register or such other address or facsimile number as the Holder
may provide to the Company in accordance with this Section.

     14. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon
30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent

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shall be a party or any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall be a successor
warrant agent under this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

     15. Miscellaneous.

          (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their
respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant
shall be construed to give to any Person other than the Company and the Holder any legal or
equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in
writing signed by the Company and the Holder and their successors and assigns.

          (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party
hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York
Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not
to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any
New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in effect for notices
to it under this Warrant and agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Warrant or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions of this Warrant,
then the prevailing party in such Proceeding shall be reimbursed by the other party for its
attorney’s fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

          (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

          (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties

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will attempt in good faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Warrant.

          (e) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a shareholder with respect to the Warrant Shares.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 	 	 
	 	 	NAVARRE CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

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EXERCISE NOTICE

NAVARRE CORPORATION

WARRANT DATED MARCH 21, 2006

The
undersigned Holder hereby irrevocably elects to purchase
                     shares of Common Stock
pursuant to the above referenced Warrant. Capitalized terms used herein and not otherwise defined
have the respective meanings set forth in the Warrant.

(1) The undersigned Holder hereby exercises its right to purchase                      Warrant Shares
pursuant to the Warrant.

(2) The Holder intends that payment of the Exercise Price shall be made as (check one):

	 	 	 	 	 
	 

	 	___
	 	“Cash Exercise” under Section 10
	 
	 	 	 	 
	 

	 	___
	 	“Cashless Exercise” under Section 10

(3) If the holder has elected a Cash Exercise, the holder shall pay the sum of $                     to the
Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder                     
Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company
that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in
excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to which
this notice relates.

     By its delivery of this Exercise Notice, the undersigned represents and warrants to the
Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act of
1933.

	 	 	 	 	 	 	 
	Dated:
__________, ________	 	Name of Holder:
	 
	 	 	 	 	 	 
	 

	 	(Print)	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	Date

	 	Number of Warrant

Shares Available to
be Exercised
	 	Number of Warrant
Shares 
Exercised
	 	Number of Warrant Shares

 Remaining to
be Exercised
	 

 

 

NAVARRE CORPORATION

WARRANT ORIGINALLY ISSUED MARCH 21, 2006

WARRANT NO. 2006-<<NUM>>

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                             the right represented by the within Warrant to purchase
                    
shares of Common Stock of Navarre Corporation to which the within Warrant relates and
appoints                                          attorney to transfer said right on the books of the Company with full
power of substitution in the premises.

	 	 	 	 	 
	Dated:
___________, ____
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

	 

	 	 	 	(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
	 
	 	 	 	 
	 

	 	 	 	 

	 

	 	 	 	Address of Transferee
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	In the presence of:exv10wxiy

 

Exhibit 10(i)

[THIS AGREEMENT IS SUBJECT TO ARBITRATION]

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as
of the 12th day of March, 2000 (the “Effective Date”), by and between Interphase
Corporation (the “Corporation”) and Gregory B. Kalush (the “Executive”).

     WHEREAS, the Corporation desires to continue its employment relationship with the
Executive on certain terms and conditions as set forth herein; and

     WHEREAS, the Executive is willing to accept such employment;

     WHEREAS, the Corporation and the Executive previously entered into a written
employment agreement dated March 12, 1999 (the “1919 Agreement”) and now desire to
supersede and replace the 1999 Agreement with this Agreement.

     NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and
promises hereinafter contained, do hereby agree as follows:

     1. Employment. The Corporation hereby employs the Executive in the capacity
of President and Chief Executive Officer, and the Executive hereby accepts the employment,
on the terms and conditions hereinafter set forth.

     2. Duties. The Executive’s general duties and responsibilities as President
and Chief Executive Officer shall be overseeing the general operations of the Corporation.
Executive will also serve as Chairman of the Board, or any such other position to which he
is appointed by the Board of Directors of the Corporation.

     3. Term. The Executive’s employment with the Corporation will be for a term
of three (3) years from the Effective Date, subject to the termination provisions in
Section 10. After the expiration of the three-year term, this Agreement, and Executive’s
employment hereunder, will

 

 

continue for successive two (2) year terms, unless, as provided in Section 10(a), more than thirty
(30) days prior to the expiration of the then current term (i.e., initial or renewal) of this Agreement,
either
the Executive or the Corporation gives notice to the other party that
this Agreement will not be renewed.

     4. Salary
and Other Compensation. As compensation for the services to be rendered by
the Executive to the Corporation pursuant to this Agreement, the Executive shall be paid the
following compensation and other benefits:

	 	a.	 	Base Salary: A Base Salary at an annual rate of $250,000.00,
payable in semi-monthly installments will be paid to the Executive. The Base
Salary may not be decreased at any time during the term of the
Executive’s employment hereunder and shall be reviewed annually throughout the
term of this Agreement by the Board of Directors or Compensation
Committee of the
Board of Directors.
	 
	 	b.	 	Bonus: The Executive shall be eligible for an annual Executive
Bonus based upon the guidelines contained in the Corporation’s Executive Bonus
Plan. The Executive’s “annual bonus target” for the period January 1, 2000
through December 31, 2000 shall be $200,000 and thereafter shall be established
by the Board of Directors or the Compensation Committee of the Board
of Directors
of the Corporation (if such authority is delegated to
the Compensation Committee).
	 
	 	c.	 	Stock Options:

     i)
Options: As provided in the 1999 Agreement, the
Corporation, in accordance with the Corporation’s Amended and Restated

2

 

Stock Option Plan, granted to the Executive stock options to purchase
100,000 shares of common stock of the Corporation (the “Option”). Since the
date of the grant of the Option, the vesting schedule for the shares covered thereby has
been accelerated. Accordingly, and in accordance with prior action of the Board of
Directors, the Option will vest as follows:

	 	A)	 	33,334 of the total options will vest on March 12, 2000;
	 
	 	B)	 	An additional 33,333 of the total options will vest on
March 12, 2001;
	 
	 	C)	 	The remaining 33,333 options will vest on March 12, 2002.

The exercise price, term and other
relevant provisions of the Option (including, but
not limited to, which options will be incentive stock options and which will be
nonqualified options) will be contained in Option Agreement # 1083 and 1085
executed by the Executive. In the event of any conflict between the terms of this Section 4c. and
the Option Agreement, the Option Agreement shall control.

	 	d.	 	Expense Reimbursements: The Corporation agrees to
reimburse the Executive, in accordance
with the Corporation’s policies regarding reimbursement of business expenses, for the
reasonable and necessary business expenses incurred by the Executive in the performance of his
duties.
	 
	 	e.	 	Office Furnishings: The Corporation agrees to provide
a personal computer and office space and furnishings to the Executive
commensurate with the Corporation’s decor and culture.

3

 

	 	f.	 	Executive Benefit Plans: The Executive shall be allowed to
participate, to the extent he may be eligible, in any profit sharing,
retirement, insurance or other
Executive Benefit Plan maintained by the Corporation.

     5. Indemnification.
The Corporation agrees to provide the Executive with coverage under
its Director’s and Officer’s liability insurance policy. The Corporation also agrees to
indemnify and defend the Executive in accordance with the Corporation’s Articles of Incorporation
and Bylaws.

     6. Health Insurance.  The Corporation also agrees to provide coverage to the
Executive under the Interphase Executive Health Insurance Plan. The Corporation, in its discretion,
may apply for and procure in its own name and for its own benefit, life insurance on the life of the
Executive in any amount or amounts considered advisable by the Corporation, and the Executive shall
submit to any medical or other examination and execute and deliver any application or other
instrument in writing, reasonably necessary to effectuate such insurance.

     7. Vacations and Leave.  The Executive shall be entitled to four (4) weeks of
vacation per year and ten (10) sick days per year and any other paid leave benefits provided for in
the Corporation’s Employee Handbook.

     8. Non-Disclosure
of Confidential Information.  The Executive acknowledges that in and
as a result of his employment by the Corporation, he will be making
use of, acquiring, and/or adding
to confidential information of a special and unique nature and value
relating to such matters as the
patents, copyrights, proprietary information, trade secrets, systems, product
developments, procedures, manuals, confidential reports, lists of customers (which are deemed for
all purposes confidential and proprietary) of the Corporation and its Affiliates (an “Affiliate” of
the Corporation being defined as any person controlling, controlled by, or under common control with
the Corporation), as well as the nature and type of services rendered by the Corporation and its

4

 

Affiliates, the equipment and methods used and preferred by the customers of the Corporation and
its Affiliates, and the fees paid by them. The Corporation and its Affiliates are sometimes
hereinafter
referred to as the “Interphase Group.” The Executive further agrees that if a third party
(e.g., vendors, customers and manufacturers) contracts with the Interphase Group or any member
thereof the information obtained or received from a third party including, but not limited to its
patents, copyrights, proprietary information, trade secrets, systems, product development,
procedures, manuals, and confidential reports will be treated in the same manner and be subject to
the same protection as other Confidential Trade Secret Information (as hereinafter defined) of the
Interphase Group.

     As a material inducement to the Corporation to enter into this Agreement and to pay the
Executive the compensation and benefits stated herein and as a condition of employment and
continued employment, the Executive shall keep confidential all such confidential and proprietary
information which the Executive learns or acquires as a result of his employment with the
Corporation (collectively, “Confidential Trade Secret Information”). By way of example,
“Confidential Trade Secret Information” may consist of any idea, process, design, concept,
formula, pattern, device, development, customer information or compilation of information which is
used in the business of the Interphase Group, which gives the Interphase Group an advantage over a
competitor who does not know or use it.

     The Executive agrees (i) that the remedy at law for any breach or threatened breach of this
Section 8 is inadequate and (ii) that, in the event of breach or threatened breach of this Section
8, the Corporation (or any other member of the Interphase Group) shall be entitled to injunctive
relief and specific performance to enforce this Section 8. Injunctive relief and/or specific
performance will be in addition to whatever other remedy is available to the Corporation (or other
member of the

5

 

Interphase Group) at law, under this Agreement or otherwise. The Executive agrees that damages for
use of any identified Confidential Trade Secret Information in violation of this Section 8 shall
be 100% of the gross amount of revenue derived or resulting from unauthorized use of such
information.

     9. Covenants
Not to Compete. The Executive acknowledges that the services he is to
render to the Corporation are of a special and unusual character with a unique value to the
Interphase Group, the loss of which cannot adequately be compensated by damages in an action at
law. Accordingly, the Executive agrees that during the term of his employment with the Corporation
and for a period of two (2) years immediately following the date of termination, for whatever
reason, of his employment with the Corporation:

	 	a.	 	The Executive shall not, directly or indirectly, without the
express written consent of the Corporation, (i) solicit or induce, or attempt to
solicit or induce, any current or future employee of the Interphase Group, or
any member thereof, to leave or cease his relationship with the Interphase
Group, for any reason whatsoever, and/or (ii) hire any current or future
employee of the Interphase Group or any member thereof on Executive’s behalf or
on behalf of any subsequent employer of Executive.
	 
	 	b.	 	The Executive shall not, directly or indirectly, within the
Restricted Territory (as hereinafter defined), without the express written
consent of the Corporation: (i) engage, as an owner, employer, consultant or
otherwise, in any business or activity that is competitive with the business of
the Interphase Group; and/or (ii) be employed by, or provide competitive
services or assistance to, a Competing Business (as hereinafter defined) which
would

6

 

	 	 	 	potentially involve, directly or indirectly, the use and/or
disclosure of Confidential Trade Secret
Information, as defined in Section 8. For purposes
of this Section 9 the “Restricted Territory” shall mean North America, Europe, Japan, Korea,
Australia, Thailand, China, Singapore and India. For purposes of this Section 9, a “Competing
Business” means any person or firm that offers services or products that are directly competitive
with those marketed, offered for sale and/or under any stage of development by the Interphase
Group, or any member thereof, as of the date of the Executive’s separation from employment with
the Corporation. If the Executive desires to work for a Competing Business in an area that is not
competitive with the business of the Interphase Group, the Executive must give written notice to
the Board of Directors of the Corporation and obtain its approval that the employment will not violate the terms and conditions of this section before beginning employment with the Competing
Business.

	 	c.	 	The Executive shall not, directly or indirectly, solicit or attempt to solicit the
existing or prospective customers of the Interphase Group to purchase
services or products that are
competitive with those marketed, offered for sale and/or under any stage of development by the
Interphase Group as of the date of the Executive’s separation from employment with the
Corporation. For purposes of this Agreement, existing customers shall mean those persons or firms
to whom the Interphase Group, or any member thereof, has made a sale in the preceding twelve (12)
months prior to the Executive’s separation from employment; prospective customers shall mean those
persons or firms that

7

 

	 	 	 	the Interphase Group, or any member thereof, has solicited to purchase, and/or with whom
the Interphase Group, or any member thereof, has negotiated to sell, the products or
services of the Interphase Group within the preceding twelve (12) months prior to the
Executive’s separation from employment. 

	 	d.	 	In the event that, notwithstanding the foregoing, any of the
provisions of this Section 9
shall be held to be invalid or unenforceable, the remaining provisions thereof shall
nevertheless continue to be valid and enforceable as though the invalid or unenforceable
provisions had not been included therein. In the event that any provision of this Section
relating to the time period and/or the areas of restriction and/or related aspects shall be
declared by a court of competent jurisdiction to exceed the maximum
restrictiveness such court
deems reasonable and enforceable, the time period and/or areas of restriction and/or related
aspects deemed reasonable and enforceable by the court shall become and thereafter be the
maximum restriction in such regard, and the restriction shall remain enforceable to the fullest
extent deemed reasonable by such court.
	 
	 	e.	 	The Executive agrees; (i) that the remedy at law for any
breach or threatened breach of this
Section 9 is inadequate and (ii) that, in the event of
breach or threatened breach of this
Section 9, the Corporation shall be entitled to injunctive relief and specific performance to
enforce this Section 9. Injunctive relief and/or specific performance will be in addition to
whatever other remedy is available to the Corporation at law, under this Agreement or

8

 

	 	 	 	otherwise. The Executive agrees that the damages for breach of this Section
9 shall be 100% of the gross amount of revenue derived or resulting from the
breach of the covenant in this Section 9.

     10. Termination. This Agreement, and the Executive’s employment hereunder, will
terminate as follows:

	 	a.	 	Non-renewal of Employment Agreement. The Executive is notified
by the Corporation, or the Executive gives notice to the Corporation, more than
30 days prior to the expiration of the then current (i.e., initial or renewal)
term that this Agreement will not be renewed. Notice of non-renewal of
this Agreement shall be communicated by dated, written “Notice of Non-Renewal”
sent by Registered Mail, signed receipt requested.
	 
	 	b.	 	Death. The Executive’s employment hereunder shall automatically
terminate upon his death.
	 
	 	c.	 	Disability. The Corporation may terminate the Executive’s
employment thereunder in the event of the Executive’s Disability (as hereinafter
defined). For purposes of this Agreement, “Disability” shall mean that, as a
result of the Executive’s incapacity due to illness or injury, the Executive
shall have been absent from his duties under this Agreement on a substantially
full-time basis for a period of three or more consecutive months, and
thereafter, within 30 days after the Corporation notifies the Executive in
writing that it intends to replace him, the Executive shall not have returned to
the performance of such duties on a full-time basis. Should the Executive be
diagnosed as permanently disabled by his treating physician, the Corporation can
terminate

9

 

	 	 	 	his employment for “Disability” without waiting for the expiration of the three-month
period. Without limiting the foregoing, until the Corporation
terminates the Executive’s employment hereunder on account of Disability, the Executive
shall receive his full compensation as provided in Section 4 of this Agreement.

	 	d.	 	By the Executive. The Executive may resign at any time
upon thirty days written notice to the
Board of Directors of the Corporation.
	 
	 	e.	 	By the Corporation.

     i) The Corporation may terminate the Executive immediately for “Overt
Misconduct” For purposes of this Agreement, “Overt Misconduct” means (a) any act or course
of conduct by the Executive constituting a criminal act or (b) an act by the Executive
that is not authorized by the Board of Directors of the Corporation, or a committee
thereof, and which results in gain to or personal enrichment of the Executive at the
expense of the Corporation, or (c) the commission by the Executive of an act or course of
conduct involving moral turpitude, or (d) a breach by Executive of either or both of
Sections 8 or 9 of this Agreement, or (e) the Executive’s intentional violation of
reasonable written instructions or policies established by the
Corporation’s Board of
Directors with respect to the operation of the Corporation’s business and affairs, or the
Executive’s failure to carry out reasonable written instructions or policies of the Board
of Directors, or a material breach (other than a breach of Sections 8 or 9) by the
Executive of this Agreement, provided that before a termination of the Executive pursuant

10

 

to this subsection 10(e)(i)(e) shall be considered for “Overt Misconduct,”
the Corporation’s Board of Directors must give the Executive written notice
and
fifteen (15) days to cure such violation or failure.

     ii)
In the event the Corporation asserts that the Executive has
committed an act of Overt Misconduct, the termination notice must specify in
detail the misconduct alleged, and the witnesses or other basis for such
allegation.

	 	f.	 	Notice of Termination. Notice of termination shall be
communicated by dated, written “Notice of Termination” sent by Registered
Mail, signed receipt requested.

     11. Payments Upon Termination. Payments to the Executive upon termination of
employment (“Termination Payments”) shall be as follows:

	 	a.	 	Upon Resignation by the Executive. In the event of a
resignation by the Executive, the Executive shall be entitled to his earned,
but unpaid, base salary through his last date of employment and to exercise
vested stock options in accordance with the terms of the Executive’s stock
option grant agreements. Executive will also be entitled to any unpaid expense
reimbursements for expenses incurred prior to his resignation. Executive will
also be entitled to compensation for any accrued, but unused vacation as of the
date of his resignation. Executive’s election not to renew this Agreement as
described in Section 10(a) shall be deemed for purposes of this Section 11 to
be a “resignation” by Executive.

11

 

	 	b.	 	Upon Non-Renewal of Executive’s Employment Agreement by the Corporation or
Termination Without Cause. In the event that the
Corporation elects not to renew this Agreement, or terminates the Executive without
cause then the Executive shall be entitled to the following severance plan (which
severance plan shall be in lieu of any damages sustained by the Executive in the event of
termination without cause and the Executive waives such damages):

     i) The Executive shall receive severance payments in the amount of three years’ base
salary, payable in semi-monthly installments at the current effective base salary rate at
the time of non-renewal of this agreement. Such severance payments will be reduced by any
compensation (e.g., base salary, bonus, commission or similar payments) that the Executive
receives from other employment (including, but not limited to, self employment by the
Executive) during the three (3) year severance pay period. The Executive agrees to keep the
Corporation fully informed of such compensation received from other employment;

     ii) Executive will also be entitled to any unpaid expense reimbursements for expenses
incurred prior to his resignation.

     iii) Executive will also be entitled to compensation for any accrued, but unused
vacation as of the date of termination (or non-renewal).

     iv) The exercise period of the Executive’s Nonqualified Stock Options (as defined
herein) that are vested on the date this Agreement expires

12

 

will be extended for three years, beginning on the date this Agreement
expires; and

     v) If any of the Executive’s Incentive Stock Options (as defined
herein), which are vested on the date this Agreement expires are not exercised prior to
their termination, then the Corporation shall grant a fully-vested nonqualified stock
option to the Executive for the same number of vested shares not exercised and at the same
exercise price, with a three-year exercise period beginning on the date this Agreement
expires.

	 	c.	 	Upon Disability of the Executive. In the event of termination of the Executive’s employment
by reason of Disability, the Executive shall be entitled:

     i) To his earned, but unpaid, base salary through his last date of employment;

     ii) To severance payments in the amount of two year’s base salary, payable in
semi-monthly installments at the current base salary rate as of the Executive’s
disability;

     iii) To payment of two years of the Executive’s annual bonus under the Corporation’
Executive Bonus Plan. For this purpose, the annual bonus amount will be the greater of
the prior fiscal year’s Executive Bonus payment or 100% of the Executive’s Bonus Plan
target for the year in which his employment terminates;

     iv) To payment of any unpaid expense reimbursements for expenses incurred prior to
his termination for disability.

13

 

     v) To payment for any accrued, but unused vacation as of the date of termination for
disability.

     vi) To exercise vested stock options in accordance with the terms of the Executive’s stock
option grant agreements, except as provided in the next two sentences. Upon termination of
employment by reason of the Executive’s Disability, the exercise period of all nonqualified stock
options (the “Executive’s Nonqualified Stock Options”) which have been or may be granted to the
Executive pursuant to the Corporation’s Incentive Stock Option Plan, as amended from time to time
(the “Plan”), or otherwise, but specifically excluding the Executive’s Incentive Stock Options and
stock options which have been or may be granted to the Executive pursuant to the Corporation’s
Directors Stock Option Plan, and which are vested on the date of the Executive’s Disability, will
be extended three (3) years, beginning on the date of the Executive’s Disability. After the
Executive’s Disability, and termination of employment by reason thereof, if any of the incentive
stock options (the “Executive’s Incentive Stock Options”) which have been or may be granted to the
Executive pursuant to the Plan, or otherwise (but specifically excluding the Executive’s
Nonqualified Stock Options and stock options which have been or may be granted to the Executive
pursuant to the Corporation’s Directors Stock Option Plan), which are vested are not exercised
prior to their termination, then the Corporation shall grant a fully-vested nonqualified stock
option to the Executive for the same number of

14

 

vested shares not exercised and at the same exercise price, with a three-year
exercise period beginning on the date of the Executive’s Disability.

	 	d.	 	Upon Death. In the event the Executive’s employment is terminated by reason of
his death, the Executive’s estate shall be entitled:

     i)
To the Executive’s earned, but unpaid base salary through his last date of
employment;

     ii) To payments in the amount of two year’s base salary of the Executive,
payable in semi-monthly installments at the base salary rate at the time of his
termination by reason of death;

     iii)
To a payment equal to two years of the Executive’s annual bonus under the
Corporation’s Executive Bonus Plan. For this purpose, the annual bonus amount will
be the greater of the prior fiscal year’s Executive Bonus
payment or 100% of the
Executive’s Bonus Plan target for the year in which his employment terminates due
to death.

     iv) To payment of any unpaid expense reimbursements for expenses incurred
prior to his termination for death.

     v) To payment for any accrued, but unused vacation as of the date of
termination for death.

     vi) The exercise period of the Executive’s Nonqualified Stock
Options that are vested on the date of the Executive’s death will be extended
for three years, beginning on the date of the Executive’s death. If any of the
Executive’s Incentive Stock Options which are vested on the date of the
Executive’s death are not exercised prior to their termination, then the

15

 

Corporation shall grant a fully-vested nonqualified stock option to
the Executive for the same number of vested shares not exercised and at the
same exercise price, with a three-year exercise period beginning on the date
of the Executive’s death.

	 	e.	 	Upon Termination for Overt Misconduct. The Executive shall be
entitled to his earned, but unpaid, base salary through his last date of
employment, to any unpaid expense reimbursements incurred while performing his
executive duties and to any earned by unused vacation as of the date of
termination and to exercise vested stock options in accordance with the terms
of the Executive’s stock option grant agreements.

     12. Acquisition
of Shares by One Investor. Notwithstanding any provision herein to
the contrary, if at any time during the term of this Agreement one investor (including all
affiliates, as defined in Rule 405 promulgated pursuant to the Securities Act of 1933, as amended,
of such investor) accumulates 20% or more of the outstanding common stock of the Corporation (such
event being hereinafter referred to as the “Acquisition”), then in lieu of any other severance
program provided for in this Agreement (e.g., the provisions of Section 1l(a)-(d) of this
Agreement shall thereafter be inapplicable in the event of termination of the Executive’s
employment for whatever reason), (i) the Executive shall, immediately following the Acquisition,
receive a payment in the amount of two (2) years’ base salary at the current base salary amount,
(ii) the Executive shall also receive an immediate payment equal to two years of the Executive’s
annual bonus (determined as provided below) under the Corporation’s Executive Bonus Plan, and
(iii) all of the stock options (the “Executive Stock Options”) which have been granted pursuant to
the Plan, or otherwise, shall be accelerated on the date of the
Acquisition. The annual bonus
amount will be the greater of the prior

16

 

fiscal year’s Executive Bonus payment or 100% of the Executive’s Bonus Plan target for the fiscal
year in which the Acquisition occurs. The Executive Stock Options as so accelerated are hereinafter
referred to as the “Advanced Options.” Further, upon the date of the Acquisition, the exercise
period of the Executive’s Nonqualified Stock Options that are vested on such date, including the
Advanced Options that fall within the definition of the Executive’s Nonqualified Stock Options,
will be extended for three (3) years, beginning on the date of the Executive’s termination. If any
of the Executive’s Incentive Stock Options, including the Advanced Options that fall within the
definition of the Executive’s Incentive Stock Options, which are vested are not exercised prior to
their termination, then the Corporation shall grant a fully-vested nonqualified stock option to
the Executive for the same number of vested shares not exercised and at the same exercise price,
with a three-year exercise period beginning on the date of the Acquisition.

     13. Tender or Exchange Offer. In the event any person or entity makes a tender offer
or exchange offer for the common stock of the Corporation whereby such person or entity would own
more than 20% of the outstanding common stock of the Corporation (the “Tender Offer”), then
immediately upon the making of the Tender Offer, all of the Executive’s Stock Options that are not
yet exercisable shall be accelerated and the Executive shall have the right, in accordance with
the terms of this Section 13, to immediately exercise any then unexercised portion of all of the
Executive’s Stock Options. The unexercisable portion of the Executive’s Stock Options that are
accelerated in accordance with this Section 13, other than the Executive’s Stock Options that are
scheduled to vest on or after the date the Tender Offer is made and on or before the date the
Tender Offer is completed or the date it is determined the Tender Offer will not be completed,
shall be referred to herein as the “Accelerated Options.” For the purpose of participating in the
Tender Offer, the Executive hereby agrees not to exercise those Accelerated Options for which the
exercise price

17

 

per share of such options is greater than the fair market value per share of the Tender Offer. Any
common stock of the Corporation issued to the Executive in connection with his exercise of the
Accelerated Options (the “Accelerated Common Stock”) and the Accelerated Options shall be subject
to the following restrictions (the “Restrictions”): (i) the Accelerated Common Stock shall be
tendered to the tender offeror pursuant to the Tender Offer; (ii) if the Tender Offer is not
completed, then the Executive will transfer the Accelerated Common Stock back to the Corporation,
the Corporation will return to the Executive the exercise price for the Accelerated Common Stock,
the acceleration of the Accelerated Options will be rescinded, and the Executive will be placed
in the same position with respect to the Accelerated Options as he would have been had the Tender
Offer never been made and the acceleration had never occurred; and (iii) any assignee or
transferee of the Accelerated Common Stock by will or by the laws of descent and distribution or
otherwise shall be subject to the restrictions described in clauses (i) and (ii) of this Section
13. The purpose of rescinding the acceleration of the Accelerated Options if the Tender Offer is
not completed is to continue to promote and encourage the Executive’s loyalty to the Corporation.
Notification of the Restrictions shall be given to the Corporation’s stock transfer agent upon
issuance of any Accelerated Common Stock and shall be placed upon the certificate or certificates,
if any, representing any Accelerated Common Stock.

     14. Gross
Up Payment.

	 	a.	 	Excess Parachute Payment. If Executive incurs the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
“Code”) on “excess parachute payments” within the meaning of Section
28OG(b)(1) of the Code as the result of the receipt of any payments under this
Agreement, the Corporation shall pay to Executive a gross up payment (the
“Gross Up

18

 

	 	 	 	Payment”) such that the net amount retained by Executive, after
deduction of (1) any such excise tax upon any payments under this Agreement
(other than
payments provided by Section 11 and this Section 14) and (2) any federal, state and
local income and employment taxes (together with penalties and interest) and excise tax
upon the payments provided by this Section 14 shall be equal to the amount of the
payments that Executive is entitled to receive under this Agreement (other than payments
provided by this Section 14).
	 
	 	b.	 	Applicable Rates. For purposes of determining the Gross
Up Payment amount, Executive shall be deemed:

     i) to pay federal income taxes at the highest marginal rate of federal
income taxation applicable to individual taxpayers in the calendar year in which
the Gross Up Payment is made (which rate shall be adjusted as necessary to take
into account the effect of any reduction in deductions, exemptions or credits
otherwise available to Executive had the Gross Up Payment not been received);

     ii) to pay additional employment taxes as a result of the receipt of the
Gross Up Payment in an amount equal to the highest marginal rate of employment
taxes applicable to wages; provided that if any employment tax is applied only
up to a specified maximum amount of wages, such limit shall
be taken into account for purposes of such calculation; and

     iii) to pay state and local income taxes at the highest marginal
rates of taxation in the state and locality of Executive’s residence on the date

19

 

of
the termination, net of the maximum reduction in federal income taxes that
could be obtained from deduction of such state and local taxes.

	 	c.	 	Determination of Gross Up Payment Amount. The determination of the
Gross Up Payment amount shall be made by Arthur Andersen or another nationally
recognized public accounting firm selected by Executive and reasonably acceptable to
the Corporation. If the Excise Tax amount payable by Executive, is different from the
Excise Tax amount computed by the Accountants for purposes of determining the Gross Up
Payment amount, then appropriate adjustments to the Gross Up Payment amount shall be
made. For purposes of determining the Gross Up Payment amount prior to such
determination of the Excise Tax amount, the following assumptions shall be utilized:

     i) that portion of the Termination Payment that is attributable to the items
described in Section 12, and the Gross Up Payment, shall be treated as “parachute
payments” pursuant to Code Section 280G without regard to whether a change in control
satisfies the requirements of Section 28OG(b)(2)(A)(i) of the Code;

     ii) no portion of any payment made pursuant to Section 11, shall be treated as a
parachute payment;

     iii) the amount payable to Executive pursuant to Section 12 shall
be:

20

 

	 	A)	 	deemed to be equal to 150% of the highest annual
base compensation at any time during the Executive’s employment with the Corporation;
	 
	 	B)	 	deemed to have been paid immediately following the
change in control;
	 
	 	C)	 	deemed to include the additional amount payable
under Section 14, if any, for additional taxes payable by
Executive as a
result of the receipt of the payment described in Section 12; and
	 
	 	D)	 	treated 100% as a parachute payment;

     iv)
the “ascertainable fair market value” (as set forth in Prop. Treas. Reg.
§1.28OG-1, Q&A 13) of the Options, the vesting of which was accelerated by the change
in control as provided in the Plan, shall be equal to the product of A) and B) as set
forth below:

	 	A)	 	the number of shares covered by such Options; and
	 
	 	B)	 	the difference between:

	 	(a)	 	the fair market value per share
as of the date of the change in control; and
	 
	 	(b)	 	the exercise price per share of stock subject to such Options; and

     v) for purposes
of applying the rules set forth in Prop. Treas. Reg. §1.28OG-1,
Q&A 24(c) to a payment described in Prop. Treas. Reg. §1.28OG-1, Q&A 24(b), the
amount reflecting the lapse of the obligation to

21

 

continue performing
services shall be equal to the minimum amount allowed for
such payment as set forth in Prop. Treas. Reg. §1.28OG-1, Q&A 24(c)(2)
(or if Prop. Treas. Reg. § 1.28OG-1 has been superseded by temporary or final
regulations, the minimum amount provided for in any temporary or final regulations
that supersede Prop. Treas. Reg. §1.28OG-1 and that are applicable to the
Termination Payment, Gross Up Payment, or both).

	 	d.	 	Time For Payment. The
Corporation shall pay the estimated Gross Up Payment amount in cash to Executive
concurrent with or as soon as reasonably practicable after the payment by the
Corporation of the amounts to which the excise tax relates. The Corporation and
Executive agree to reasonably cooperate in the determination of the actual Gross Up
Payment amount. Further, the Corporation and Executive agree to make such
adjustments to the estimated Gross Up Payment amount as may be necessary to equal
the actual Gross Up Payment amount, which in the case of Executive shall refer to
refunds of prior overpayments and in the case of Corporation shall refer to makeup
of prior underpayments.

     15. Outplacement
Services. If Executive is terminated by the Corporation for any
reason other than Overt Misconduct, the Corporation agrees to reimburse Executive for any
outplacement consulting fees and expenses incurred by Executive during the two year period
following such termination; provided that the aggregate amount reimbursed by the Corporation shall
not exceed 15% of Executive’s Base Salary in effect immediately prior such termination. In
addition and as to each reimbursement payment, to the extent that any reimbursement under this
Section 15 is not deductible by Executive for federal, state and local income tax purposes,
Corporation shall pay

22

 

Executive an additional amount such that the net amount
retained by Executive, after deduction of
any federal, state and local income tax on the reimbursement and such additional amount, shall be
equal to the reimbursement payment. All amounts under this Section 15 shall be paid by
Corporation within 15 days after Executive’s presentation to Corporation of any statements of such
amounts and thereafter shall bear interest at the lesser of eighteen percent (18.0%) per annum or
the maximum rate allowed by law until paid by Corporation.

     16. Withholding. All payments
required to be made to
Executive by Corporation shall be
subject to the withholding of such amounts, if any, relating to Federal, state and local taxes as
may be required by law.

     17. Arbitration. Any
dispute, controversy or claim arising out of or relating to
this Agreement, or breach thereof, except for requests for injunctive relief, specific performance
and declaratory relief shall be settled by the following arbitration procedure: The parties hereto
shall expeditiously seek to resolve between themselves such dispute, controversy or claim. If they
shall fail to reach such a resolution, within 20 days of such failure, each party shall appoint one
arbitrator. Within 20 days after both arbitrators have been appointed, the arbitrators shall jointly
appoint a third  arbitrator. Within 30 days after the appointment of the third arbitrator, the
three-person arbitration panel shall consider all relevant evidence concerning such dispute,
controversy or claim and reach its award or decision concerning such dispute, controversy or claim.
Any arbitration must take place  in Dallas, Texas. In reaching their award or decision, the
arbitrators shall have no authority to change or modify any provision of this Agreement. The
prevailing party shall be entitled to reimbursement for all legal fees and expenses incurred in
conjunction with the arbitration, and the non-prevailing party will be responsible to pay the fees
and costs of the arbitrators. Judgment upon any award rendered by the arbitrators may be entered in
any United States District Court.

23

 

     18. Resignation
Upon Termination. In the event of termination of the
Executive’s employment with the Corporation, for whatever reason, the Executive hereby agrees to
resign from all positions held in the Corporation, and in any member of the Interphase Group,
including, without limitations, any position as a director, officer, agent, trustee or consultant of
the Corporation.

     19. Right
to Obtain Insurance. The Corporation may, at its option, fund all or any
portion of its severance obligations through life, disability or other appropriate insurance on the
Executive. In regard to the foregoing, the Executive agrees to fully cooperate with the Corporation
in connection with the Corporation’s efforts to obtain any such insurance. Such cooperation shall
include, but shall not be limited to, submission to any medical or other examination and execution
of applications or other instruments reasonably necessary to effectuate such insurance. The
Executive acknowledges the Corporation is not obligated to acquire insurance pursuant to this
Section 19, such decision being solely at the Corporation’s discretion.

     20. Waiver. A party’s failure to insist on compliance or enforcement of any provision
of this Agreement shall not affect the validity or enforceability or constitute a waiver of
future enforcement of that provision or of any other provision of this Agreement by that party or
any other party.

     21. Governing
Law. This Agreement shall in all respects be subject to, and governed
by, the laws of the State of Texas.

     22. Severability. The invalidity or unenforceability of any provision in the
Agreement shall not in any way affect the validity or enforceability of any other provision and this
Agreement shall be construed in all respects as if such invalid or unenforceable provision had never
been in this Agreement.

24

 

     23. Notice.
Any and all notices required or permitted herein shall be deemed delivered
if delivered personally or if mailed by registered or certified mail to the Corporation at
its principal place of business and to the Executive at the address hereinafter set forth following
the Executive’s signature, or at such other address or addresses as either party may hereafter
designate in writing to the other. 

     24. Assignment. This Agreement, together with any amendments hereto, shall be
binding upon and shall inure to the benefit of the parties hereto and their respective successors,
assigns, heirs and personal representatives, except that the rights and benefits of either of the
parties under this Agreement may not be assigned without he prior written consent of the other
party.

     25. Amendments.
This Agreement may be amended at any time by mutual consent of the
parties hereto. Any such amendment to be valid must be in writing and
signed by the Corporation
and the Executive.

     26. Survival. The provisions of Sections 8, 9, 17 and any other provisions of
this Agreement which by its terms is intended to so survive, will survive termination or expiration
of this Agreement.

     27. Entire
Agreement. This Agreement contains the entire agreement and
under standing by and between the Executive and the Corporation with respect to the employment of
the Executive, and no representations, promises, agreements, or understandings, written or oral,
relating to the employment of the Executive by the Corporation not contained herein shall be of any
force or effect. This Agreement supersedes and replaces, in all respects, the 1999 Agreement.
Notwithstanding the above, any stock option agreements existing between the Corporation and the
Executive as of the date of this Agreement shall not be superseded by this Agreement.

25

 

     28. Burden
and Benefit. This Agreement shall be binding upon, and shall inure
to the benefit of, the Corporation and the Executive, and their respective heirs, personal and
legal
representatives, successors, and assigns.

     29. References
to Gender and Number Terms. In construing this Agreement,
feminine or
neuter pronouns shall be substituted for those masculine in form and vice versa, and plural
terms shall be substituted for singular and singular for plural in any place which the context so
requires.

     30. Headings.
The various headings in this Agreement are inserted for convenience
only and are not part of this Agreement.

     IN WITNESS WHEREOF, the Corporation and the Executive have duly executed this Agreement
effective as of the Effective Date.

	 	 	 	 	 	 	 	 	 
	INTERPHASE CORPORATION:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ James F. Halpin
	 	 	 	 	 	/s/ Gregory B. Kalush
	 

	 	 
	 	 	 	 	 	 
	 

	 	James F. Halpin
	 	 	 	 	 	GREGORY B. KALUSH
	 

	 	Chairman, Compensation Committee
	 	 	 	 	 	CEO, President and
	 

	 	 	 	 	 	 	 	Chairman of the Board
	 
	 	 	 	 	 	 	 	 
	Address for Notice Purposes:	 	 	 	Address for Notice Purposes:
	 
	 	 	 	 	 	 	 	 
	Board of Directors	 	 	 	 	 	 
	Interphase Corporation	 	 	 	 	 	 
	13800 Senlac	 	 	 	 	 	 
	Dallas, Texas 75234	 	 	 	 	 	 

26

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