LANTRONIX, INC. 15353 Barranca Parkway Irvine, California 92618
Exhibit
10.1
LANTRONIX,
INC.
00000
Xxxxxxxx Xxxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
(000)
000-0000
Xx. Xxxxx
X. Xxxxx
0000
Xxxxxx Xxxxx
Xxxxxxxxxx,
Xxxxxxxxxx 00000
Re: Employment at Lantronix
Inc.
Dear
Xxxxx:
This
letter ("Agreement") will confirm our understanding and agreement regarding your
employment with Lantronix Inc. ("Lantronix" or the "Company"), commencing
February 19, 2008 ("Commencement Date"). This Agreement completely
supersedes and replaces any existing or previous oral or written discussions,
understandings or agreements, express or implied, between you and the Company
regarding your employment.
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1.
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Position;
Exclusivity. The Company hereby agrees to employ you as
its President and Chief Executive Officer and to appoint you as a member
of the Company's Board of Directors (the "Board"). You accept
such employment pursuant to the terms of this Agreement. You
shall perform such duties and responsibilities as may be determined from
time to time by the Board, which shall be consistent with your position as
a senior officer of the Company. You agree to devote your full
business time, attention and energy to performing your duties and
responsibilities to the Company under this
Agreement.
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2.
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Base
Salary. The Company shall pay you a base salary of
$30,000 per month ($360,000 on an annualized basis), less applicable
withholdings and deductions, paid on the Company's regular payroll
dates. The Board will review your base salary annually, and
may, in its sole discretion, adjust it to reflect performance and other
factors.
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3.
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Bonuses.
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(a)
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The
Company shall advance you a one-time sign-on/short-term retention bonus of
$65,000, payable on the first regular payroll date after the Commencement
Date. The Sign-On Bonus is not earned until you have completed
twelve (12) full months of employment with Lantronix. In the
event you voluntarily terminate your employment or are terminated for
Cause (as defined in Attachment "A"
hereto) by the Company within twelve (12) months from your Commencement
Date, the Sign-On Bonus has not been earned, and you will be required to
repay such amount in full within thirty (30) days of the date of
termination of your employment.
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(b)
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You
shall be eligible to receive a cash incentive bonus of up to $250,000
("Incentive Bonus") for each full fiscal year during which this Agreement
is in effect (this amount will be prorated for the remaining portion of
the current fiscal year ending June 30, 2008), as
follows:
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(i)
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The
Compensation Committee of the Board will define the plan for the Incentive
Bonus annually, determining the objectives for the fiscal year that must
be met to earn the Incentive Bonus. Such objectives may include
(but are not limited to) operating metrics, objective and subjective
leadership dimensions and performance metrics in the operation of the
Company, the achievement of financial objectives set forth in the
Board-approved Annual Business Plan (the "Annual Business Plan") for a
particular fiscal year, or such other objectives as the Compensation
Committee of the Board, in its sole discretion, shall
determine.
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(ii)
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You
must be employed by the Company on June 30th
of each fiscal year to earn and become eligible to receive the Incentive
Bonus as set forth in this Paragraph 2(b) for that fiscal
year. The actual Incentive Bonus for each fiscal year shall be
paid to you by the 15th
day of December following the end of the fiscal year to which the
Incentive Bonus relates (or such earlier or later deadline as may be
required for the bonus payment to be exempt from the requirements of
Section 409A of the Internal Revenue Code as a "short-term deferral" under
the applicable regulations).
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4.
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Stock Option and
Restricted Stock Awards. Subject to the terms of the
Company's 2000 Stock Plan, as amended, and subject to formal approval of
the Board, the Company will grant you (i) a nonstatutory stock option to
purchase Nine Hundred Thousand (900,000) shares of the Company's common
stock and (ii) a restricted stock award for One Hundred Thousand (100,000)
shares of the Company's common stock. None of these options or
restricted shares shall vest until such time as you and the Company enter
into a written stock option agreement with respect to the 900,000 options
and a written restricted stock agreement with respect to the 100,000
restricted shares. The stock option agreement shall provide,
among other things that none of these options shall vest until your
employment with the Company has continued for one (1) year from your
Commencement Date, at which time options to purchase two hundred seventy
thousand (270,000) shares shall vest with an additional two hundred
seventy thousand (270,000) shares vesting on the second anniversary of the
Commencement Date and the remaining three hundred sixty thousand (360,000)
shares vesting on the third anniversary of the Commencement
Date. The restricted stock agreement shall provide, among other
things that none of the restricted shares shall vest until your employment
with the Company has continued for one (1) year from your Commencement
Date, at which time thirty thousand (30,000) shares shall vest with an
additional thirty thousand (30,000) shares vesting on the second
anniversary of the Commencement Date and the remaining forty thousand
(40,000) shares vesting on the third anniversary of the Commencement
Date. The stock option agreement and the restricted stock
agreement shall further provide that notwithstanding the foregoing vesting
schedule, the options and shares shall immediately become vested as to the
percentage of the total number of shares of Common Stock subject to the
options and restricted stock award set forth on the table below (the
"Vesting Percentage") at the end of any period of 120 consecutive days on
which the Common Stock is actively listed, quoted or traded on a national
securities exchange or NASDAQ, and the closing or last price in regular
trading, as applicable, for a share of the Common Stock ("Stock Price") on
each of such trading days equals or exceeds the applicable threshold
amount set forth below (the "Stock Price Threshold"). For
avoidance of doubt, options and shares may vest only once with respect to
any Stock Price Threshold so that, for example, if the Stock Price equals
or exceeds the $1.50 Stock Price Threshold for one hundred twenty (120)
consecutive days and 30% of the shares subject to the option and
restricted stock award vest accordingly, no additional shares subject to
the option and restricted stock award shall vest if the Stock Price
declines below the $1.50 Stock Price Threshold and subsequently increases
above the $1.50 Stock Price Threshold. Furthermore, the Vesting
Percentages do not cumulate.
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Vesting
Percentage/ Number of Shares
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Stock
Price Threshold
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30%/Initial
270,000 Options and 30,000 Restricted Shares
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$1.50
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60%/Additional
270,000 Options and Additional 30,000 Restricted Shares
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$2.50
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100%/Additional
360,000 Options and 40,000 Restricted Shares
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$4.00
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In
the event that you file a Section 83(b) election with the Internal Revenue
Service no later than thirty (30) days after the transfer of the 100,000
restricted shares to you, the Company shall pay you a bonus equal to the
lesser of: (i) $35,000, or (ii) amount equal to the product of
(A) 41.66%, multiplied by (B) the Fair Market Value (as defined in the
Company's 2000 Stock Plan, as amended) of the 100,000 shares on the date
of transfer (which bonus shall be timely paid over by the Company as
withholding with respect to the shares on your behalf) (the "Tax Bonus").
You acknowledge that the Tax Bonus will be taxable compensation income to
you and that the Company will not be obligated to pay your federal or
state income or employment taxes on the Tax Bonus. You agree
that the Company may withhold any such required federal and state income
and employment taxes on the Tax Bonus from your other
compensation. Notwithstanding anything to the contrary
contained herein, in the event you voluntarily terminate your employment
or are terminated for Cause (as defined in Attachment "A"
hereto) by the Company prior to the date on which all shares granted under
the 100,000 share restricted stock award are fully vested, you will be
required to repay such Tax Bonus amount in full within thirty (30) days of
the date of termination of your employment. If you do not
timely file a Section 83(b) election with the Internal Revenue Service for
the 100,000 restricted shares, the Company shall have no obligation to pay
you any Tax Bonus.
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5.
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Employee
Benefits. You shall be entitled to the benefits and
perquisites which the Company generally provides to its other senior
executives under the applicable Company plans and policies (including, in
your case, a monthly automobile allowance of $833.33), and to future
benefits and perquisites made generally available to senior executives of
the Company. Your participation in such benefit plans shall be
on the same basis as applies to other senior executive of the
Company. All such benefits and perquisites are subject to
modification and/or elimination in the Company's
discretion. You shall pay any contributions which are generally
required of senior executives to receive any such
benefits.
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6.
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Employment Taxes and
Withholding. You recognize that the compensation,
benefits and other amounts provided by the Company under this Agreement
may be subject to federal, state or local income taxes. It is
expressly understood and agreed that all such taxes shall be your sole
responsibility. To the extent that federal, state or local law
requires withholding of taxes on compensation, benefits or other amounts
provided under this Agreement, the Company shall withhold the necessary
amounts from the amounts payable to you under this
Agreement.
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7.
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Expenses. During
the term of your employment hereunder, you shall be entitled to receive
prompt reimbursement from the Company (in accordance with the policies and
procedures in effect for the Company's employees) for all reasonable
travel and other expenses incurred by you in connection with your services
hereunder.
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8.
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Relocation. As
of the Commencement Date, it is anticipated that you will commute to the
Company's offices in Southern California from your home in Northern
California for some period of time, following which you intend to relocate
to Southern California. To assist you in this regard, the
Company agrees to reimburse you for your documented actual and reasonable
out-of-pocket costs for (i) temporary housing and travel, (ii) packing and
moving costs, and (iii) closing costs incident to the sale of your home in
Northern California, in a total amount not to exceed
$150,000. Of this amount, the Company shall reimburse you no
more than $35,000 for temporary housing and travel expenses; provided,
however, the Company shall reimburse you for such temporary housing and
travel expenses only to the extent that they are incurred by you on or
before the expiration of twelve (12) months after the Commencement
Date.
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9.
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Unspecified Term,
At-Will Employment and
Termination.
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(a)
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This
Agreement (and your employment) is commenced and will continue for an
unspecified term on an "at-will" basis and may be terminated by the
Company or by you at will at any time with or without Cause (as defined in
Attachment
"A" hereto) or notice; provided,
however, that if your employment is terminated by the Company without
Cause or by you for Good Reason (as defined in Attachment "A"
hereto), in exchange for a full general release of claims against the
Company in a form reasonably acceptable to the Company, the Company will
pay you severance pay in the total amount of one hundred percent (100%) of
the then current total of your annualized base salary and Incentive Bonus
target, less required tax deductions and withholdings, payable on the
Company's regular payroll dates for a period of twelve (12) months
following the date of termination. The amount of severance pay
will be increased to one hundred fifty percent (150%) of your then total
base salary and Incentive Bonus target if such termination without Cause
or for Good Reason occurs within six (6) months after a "Change in
Control" (as defined in Attachment "A"
hereto). The timing of the payments shall be made in accordance
with the foregoing provisions of this Paragraph 9(a) if the sum of the
payments to which you are entitled under this Paragraph 9(a) do not exceed
the lesser of two (2) times your "annualized compensation" (within the
meaning of Treasury Regulations Section 1.409A-1(b)(9)(iii)(A)(1)) or two
(2) times the compensation limit set forth in Section 401(a)(17) of the
Internal Revenue Code, for the calendar year prior to the calendar year in
which you are terminated without Cause or resign for Good
Reason. If the sum of such payments to you under this Paragraph
9(a) would exceed the lesser of two (2) times your annualized compensation
(as defined above) or two (2) times the compensation limit set forth in
Section 401(a)(17) of the Internal Revenue Code, then such excess amount
shall be paid to you prior to later of: (i) the 15th
day of March following the end of the calendar year in which you were
terminated without Cause or you resigned for Good Reason, or (ii) the
15th
day of third month following the end of the Company's taxable year in
which you were terminated by the Company without Cause or you resigned for
Good Reason.
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(b)
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This
Agreement (and your employment) may be terminated immediately and without
notice for Cause without further liability or obligation to you other than
payment of compensation earned by you through the date of
termination.
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10.
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Change in
Control. If a "Change in Control" of the Company occurs
after your Commencement Date, then, subject to the terms of this
Agreement, as an additional benefit, the Company shall accelerate the
vesting of 100% of all unvested stock options granted to you under the
Company's stock option or other benefit
plan.
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11.
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Confidentiality/Non-Solicitation.
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(a)
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In
consideration of the promises and covenants contained in this Agreement,
you acknowledge and agree that you shall continue to be bound by and
comply with each and every term and condition of the Company's Employment,
Confidential Information and Invention Assignment Agreement and any other
proprietary or confidentiality agreement(s) between you and the
Company.
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(b)
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In
consideration of the promises and covenants contained in this Agreement,
you agree that for a period of one (1) year following your date of
termination or resignation, you will not, either directly or indirectly,
or either on your own behalf or on behalf of any other person, recruit or
solicit for hire any individual who is then employed by the
Company.
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(c)
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You
acknowledge and agree that the restrictions contained in this Paragraph
11(a) and (b) are reasonable and appropriate. You further
acknowledge and agree that the restrictions contained in this Paragraph
11(a) and (b) will not preclude you from engaging in any trade, business
or profession that you are qualified to engage
in.
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12.
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Mutual Agreement to
Arbitrate. To the fullest extent allowed by law, any
controversy, claim or dispute between you and the Company (and/or any of
its affiliates, owners, shareholders, directors, officers, employees,
volunteers or agents) relating to or arising out of your employment or the
cessation of that employment will be submitted to final and binding
arbitration as provided in Attachment "B"
hereto.
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13.
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Successors and
Assigns. This Agreement will be assignable by the
Company to any successor or to any other company owned or controlled by
the Company, and will be binding upon any successor to the business of the
Company, whether direct or indirect, by purchase of securities, merger,
consolidation, purchase of all or substantially all of the assets of the
Company or otherwise.
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14.
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Withholding of Taxes;
Tax Reporting. The Company may withhold from any amounts payable
under this Agreement all such federal, state, city and other taxes, and
may file with appropriate governmental authorities all such information,
returns or other reports with respect to the tax consequences of any
amounts payable under this Agreement, as may, in its judgment, be required
by law.
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15.
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Sections 280G, 162(m)
and Compliance with Section
409A.
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(a)
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In
the event that any payment or benefit received by you pursuant to this
Agreement (a “Payment”) would constitute a “parachute payment” within the
meaning of Section 280G of the Internal Revenue Code, and but for this
sentence, be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code (the “Excise Tax”), then such Payment shall be equal
to a reduced amount. Such reduced amount shall be calculated as
either (i) the largest portion of the Payment that would result in no
portion of the Payment being subject to the Excise Tax or (ii) the largest
portion, up to and including the total, of the Payment, whichever amount,
after taking into account all applicable federal, state and local
employment taxes, income taxes, and the Excise Tax (all computed at the
highest applicable marginal rate), results in your receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that
all or some portion of the Payment may be subject to the Excise
Tax. If a reduction in payments or benefits constituting
“parachute payments” is necessary so that the Payment equals the reduced
amount, the reduction shall occur in the following
order: reduction of cash payments; cancellation of accelerated
vesting of stock awards, if applicable; reduction of employee
benefits.
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(b)
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Notwithstanding
anything in this Agreement to the contrary, if the Board determines that
any acceleration, extension or other modification of your stock options
pursuant to this Agreement could reasonably be expected to cause such
options to lose their status as "qualified performance-based compensation"
under Code Section 162(m) and Treasury Regulation Section 1.162-27(e),
such accelerations, extensions or other modifications may be modified to
the extent deemed necessary by the Company's Board to prevent such options
from losing their status as qualified performance-based
compensation.
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(c)
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This
Agreement is intended to be exempt to the extent possible from the
requirements of Internal Revenue Code Section 409A, including current and
future guidance and regulations interpreting such provisions. To the
extent that any provision of this Agreement fails to satisfy a requirement
for such an exemption, the provision shall automatically be modified in a
manner that, in the good-faith opinion of the Company, brings the
provisions into compliance with such requirement while preserving as
closely as possible the original intent of the provision and this
Agreement. If it is determined by the Company that any payment under this
Agreement is subject to the requirements of Code Section 409A
notwithstanding the preceding sentences, then the provisions of the
Agreement shall be automatically modified in such manner as brings the
Agreement into compliance with such requirements. In particular, and
without limiting the preceding sentence, while any stock of the Company is
or is treated as publicly traded and you are a "specified employee" under
Code Section 409A(a)(2)(B)(i), then any payment under this Agreement that
is treated as deferred compensation under Code Section 409A shall be
delayed until the date which is six months after the date of separation
from service (without interest or
earnings).
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(d)
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The
costs of all legal and accounting fees required to make the Company's
determinations and estimates for purposes of this Paragraph 15 will be
paid for by the Company. To the extent the services of an
accountant are to be utilized in connection with the making of such
determinations and/or estimates, such services shall be performed by an
independent certified public accountant selected by the Company or a firm
of independent certified public accountants selected by the Company
provided that such firm or independent accountant shall not be (or have
been) otherwise engaged by the Company for any other corporate purposes.
The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation,
to you and the Company within fifteen (15) calendar days after the date on
which your right to a Payment is triggered (if requested at that time by
you or the Company) or such other time as
requested. Any good faith determinations of the accounting firm
made hereunder shall be final, binding and conclusive upon you and the
Company.
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16.
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Legal Fees. The Company
shall pay your actual and reasonable legal fees and costs associated with
entering into this Agreement in an amount not to exceed four thousand
dollars ($4,000.00) upon presentation of documentation thereof that is
reasonably acceptable to the Company. You will be responsible
for paying any legal fees and costs over such
amount.
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17.
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Entire
Agreement. This Agreement, its attachments, and any
stock option, restricted stock, stock appreciation rights or other similar
agreements the Company may enter into with you contain the entire
integrated agreement between you and the Company regarding these issues,
and no modification or amendment to this Agreement will be valid unless
set forth in writing and signed by both you and an authorized member of
the Board.
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[SIGNATURES
APPEAR ON FOLLOWING PAGE]
We are
excited to have you join Lantronix, and we look forward to your Commencement
Date next week. Please sign, date and return the enclosed copy of
this Agreement to me for our files to acknowledge your agreement with the
above.
Very
truly yours,
LANTRONIX,
INC.
By: /s/ Xxxxxx
Xxxxxx
Xxxxxx
Xxxxxx
Chairman,
Board of Directors
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ACKNOWLEDGED
AND AGREED:
/s/ Xxxxx X.
Xxxxx
Xxxxx X.
Xxxxx
Dated:
Feb.19 ,
2008
ATTACHMENT
"A"
"Cause" shall include, but not
be limited to, the following: (i) your commission of a crime or your
possession, use or sale of a controlled substance (other than the use or
possession of legally prescribed medication used for its prescribed purpose);
(ii) your significant neglect, or materially inadequate performance of, your
duties as an employee of the Company; (iii) your breach of a fiduciary duty to
the Company or its shareholders; (iv) your willful breach of duty in the course
of your employment; (v) your violation of the Company's personnel or business
policies; (vi) your willful misconduct; (vii) your death; or (viii) your
disability. For purposes of this Agreement, you shall be considered
disabled if you have been physically or mentally unable to perform your
essential job duties hereunder for (x) a continuous period of at least one
hundred twenty (120) days or (y) a total of one hundred fifty (150) days during
any one hundred and eighty (180) day period, and you have not recovered and
returned to the full time performance of your duties within thirty (30) days
after written notice is given to you by the Company following such 120 day
period or 180 day period, as the case may be. Notwithstanding the
foregoing, Cause shall not exist under any definition set out in subsection
(ii), (iii), (iv), (v) or (vi) unless the Company provides you with written
notice of the existence of the one or more of the actions, conditions or events
set forth above in such definition of Cause, and if such action, event or
condition is curable, you fail to cure such action, event or condition within
thirty (30) days after its receipt of such notice.
"Change in Control" means the
occurrence of any of the following events:
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(a)
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Any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;
or
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(b)
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The
consummation of the sale or disposition by the Company of all or
substantially all of the Company's assets;
or
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(c)
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The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or its parent) at
least seventy percent (70%) of the total voting power represented by the
voting securities of the Company or such surviving entity or its parent
outstanding immediately after such merger or
consolidation.
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"Good Reason" for you to resign
means only if you resign within ninety (90) days after the Company has taken any
of the following actions without your express written consent: (i)
the Company "Substantially Lessens Your Title" (as defined herein); (ii) the
Company Substantially reduces Your Senior Authority (as defined herein); (iii)
the Company assigns material duties to you which are materially inconsistent
with your then-current status; (iv) the Company reduces your base salary or
benefits from that in effect at the Commencement Date (unless such reduction is
in connection with a salary or benefit reduction program of general application
at the senior level executives of the Company); (v) the Company requires you to
be based more than fifty (50) miles from your office location, as of the
Commencement Date, except for the relocation identified in Paragraph 8 of the
Agreement or for required travel consistent with your business travel
obligations or the Company requires you to be based more than fifty (50) miles
from your home prior to your relocation as described in Paragraph 8; or (vi) the
Company fails to obtain the assumption of this Agreement by any successor or
assign of the Company. Notwithstanding the foregoing, Good Reason
shall not exist unless you provide the Company written notice of the existence
of the one or more of the actions, conditions or events set forth above in this
definition of Good Reason within ninety (90) days after the initial existence or
occurrence of such action, condition or event, and if such action, event or
condition is curable, the Company fails to cure such action, event or condition
within thirty (30) days after its receipt of such notice.
"Substantially Lessens Your
Title" shall mean that you do not have the title of President, Chief
Executive Officer of the Company or an enterprise equivalent to the
Company.
"Substantially Reduces Your Senior
Authority" shall mean that you no longer have substantially similar
authority, scope of responsibility, functions or duties as President and Chief
Executive Officer of the Company or an enterprise equivalent to the
Company.
ATTACHMENT
"B"
MUTUAL AGREEMENT TO
ARBITRATE
To the
fullest extent allowed by law, any controversy, claim or dispute between you,
Xxxxx X. Xxxxx, and the Company (and/or any of its affiliates, owners,
shareholders, directors, officers, employees, volunteers or agents) relating to
or arising out of your employment or the cessation of that employment will be
submitted to final and binding arbitration in Orange County, California, for
determination in accordance with the American Arbitration Association's ("AAA")
Employment Arbitration Rules, as the exclusive remedy for such controversy,
claim or dispute. A copy of the most current Employment Arbitration
Rules may be found at xxx.xxx.xxx/Xxxxxxxxxx. In any such
arbitration, the parties may conduct discovery to the same extent as would be
permitted in a court of law. The arbitrator shall issue a written
decision, and shall have full authority to award all remedies which would be
available in court. The Company shall pay the arbitrator's fees and
any AAA administrative expenses. The arbitrator may, but need not,
award the prevailing party in any dispute its or his legal fees and
expenses. Any judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Possible disputes
covered by the above include (but are not limited to) unpaid wages, breach of
contract (including this Agreement), torts, violation of public policy,
discrimination, harassment, or any other employment-related claims under laws
including but not limited to, Title VII of the Civil Rights Act of 1964, the
Americans With Disabilities Act, the Age Discrimination in Employment Act, the
California Fair Employment and Housing Act, the California Labor Code and any
other statutes or laws relating to an employee's relationship with his/her
employer, regardless of whether such dispute is initiated by the employee or the
Company. Thus, this bilateral arbitration agreement fully applies to
any and all claims that the Company may have against you, including (but not
limited to) claims for misappropriation of Company property, disclosure of
proprietary information or trade secrets, interference with contract, trade
libel, gross negligence, or any other claim for alleged wrongful conduct or
breach of the duty of loyalty. Nevertheless, claims for workers'
compensation benefits or unemployment insurance, those arising under the
National Labor Relations Act, and any other claims where mandatory arbitration
is prohibited by law, are not covered by this arbitration agreement, and such
claims may be presented by either the Company or you to the appropriate court or
government agency. BY AGREEING TO THIS BINDING ARBITRATION PROVISION,
BOTH YOU AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY. This
mutual arbitration agreement is to be construed as broadly as is permissible
under applicable law.
XXXXX
X. XXXXX
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LANTRONIX
INC. (the "Company")
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/s/
Xxxxx X. Xxxxx
Xxxxx
X. Xxxxx
Dated: Feb.
19 , 2008.
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By:
/s/ Xxxxxx
Xxxxxx
Name:
Xxxxxx Xxxxxx
Title: Chairman of the Board of
Directors
Dated: February
19 ,
2008.
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