SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Confidential, For Use of the Commission Only
(as permitted by 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LANTRONIX, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
LANTRONIX, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 2004
9:00 A.M. PACIFIC TIME
TO THE STOCKHOLDERS OF LANTRONIX, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Lantronix, Inc., a Delaware corporation (the "Company"), will be held on
THURSDAY, NOVEMBER 18, 2004, at 9:00 a.m., Pacific Time, at the corporate
headquarters of Lantronix, Inc. at 15353 Barranca Parkway, Irvine, CA 92618,
for the following purposes:
1. To elect two (2) directors to serve until the 2007 Annual Meeting of
Stockholders (notwithstanding item 3);
2. To replenish the Lantronix, Inc. 2000 Employee Stock Purchase Plan with
750,000 shares of common stock;
3. To declassify the board of directors to allow for annual election of all
directors and amend the Lantronix, Inc. Certificate of Incorporation
accordingly;
4. To ratify the appointment of Ernst & Young LLP as independent registered
public accountants of the Company for the year ending June 30, 2005; and
5. To transact such other business as may properly come before the meeting or
any adjournment(s) thereof.
The foregoing business items are more fully described in the following
pages which are made part of this Notice. Stockholders of record at the close
of business on Friday, September 24, 2004, may attend and vote at the Annual
Meeting. If you will not be attending the meeting, we request you vote your
shares as promptly as possible. You may be eligible to vote your shares in a
number of ways. You may mark your votes, date, sign and return the Proxy or
voting instruction form in the postage-prepaid envelope enclosed for that
purpose. Any stockholder attending the meeting may vote in person, even if he,
she or it has already returned a Proxy.
H.K. Desai
Chairman
Board of Directors
Irvine, California
October 18, 2004
IMPORTANT: WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
PROMPTLY COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED.
LANTRONIX, INC.
CORPORATE HEADQUARTERS
15353 BARRANCA PARKWAY
IRVINE, CALIFORNIA 92618
(949) 453-3990
WWW.LANTRONIX.COM
_____________________
PROXY STATEMENT FOR 2004 ANNUAL MEETING OF STOCKHOLDERS
_____________________
The enclosed Proxy is solicited on behalf of Lantronix, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on Thursday, November 18, 2004, at 9:00 a.m., local time, and at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the corporate office of Lantronix, Inc. at 15353 Barranca Parkway,
Irvine, CA 92618.
These proxy solicitation materials, which include the Proxy Statement,
Proxy, and Form 10-K/A, were first mailed on or about October 18, 2004, to all
stockholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE
Stockholders of record at the close of business on September 24, 2004 (the
"Record Date") are entitled to notice of the Annual Meeting and to vote at the
Annual Meeting. Presence in person or by Proxy of a majority of the shares of
common stock outstanding on the Record Date is required for a quorum. As of the
close of business on the Record Date, 58,447,146 Shares of Common Stock, par
value of $0.0001 per share, were issued and outstanding and were the only class
of voting securities outstanding.
REVOCABILITY OF PROXIES
Properly executed and unrevoked proxies received by the Company will be
voted at the Annual Meeting in accordance with the instructions thereon. Where
no instructions are specified, the proxies will be voted in favor of all
proposals set forth in the Notice of Meeting.
Any person giving a proxy in response to this solicitation has the power to
revoke it at any time before it is voted. Proxies may be revoked by any of the
following actions:
- filing a written notice of revocation with our Secretary at our principal
executive office (15353 Barranca Parkway, Irvine, California 92618);
- filing with our Secretary at our principal executive office (15353 Barranca
Parkway, Irvine, California 92618) a properly executed proxy showing a
later date; or
- attending the meeting and voting in person by ballot.
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OUR VOTING RECOMMENDATIONS
The Board of Directors recommends that you vote:
- "FOR" the Nominees to serve as directors until the 2007 Annual Meeting of
Stockholders (notwithstanding the third item);
- "FOR" the replenishment of the Lantronix, Inc. 2000 Employee Stock Purchase
Plan with 750,000 shares of Lantronix common stock;
- "FOR" amendment of the Lantronix, Inc. Certificate of Incorporation to
effect the declassification of the board of directors to allow for annual
election of all directors; and
- "FOR" the ratification of the appointment of Ernst & Young LLP as
independent registered public accountants of the Company for the fiscal
year ending June 30, 2005.
VOTING AND SOLICITATION
Each share of Common Stock outstanding on the Record Date of September 24,
2004, will be entitled to one vote on all matters presented at the Annual
Meeting. Stockholders do not have the right to cumulate their votes in the
election of directors.
By signing and returning the proxy card according to the enclosed
instructions, you are enabling Marc Nussbaum, Chief Executive Officer and
Vincent J. Roth, Deputy General Counsel, who are named on the proxy card as
"proxy holders," to vote your shares at the meeting in the manner you indicate.
We encourage you to sign and return the proxy card even if you plan to attend
the meeting. In this way, your shares will be voted even if you are unable to
attend the meeting.
Shares of Common Stock represented by properly dated, executed, and
returned Proxies will, unless such Proxies have been previously revoked, be
voted in accordance with the instructions indicated thereon. In the absence of
specific instructions to the contrary, properly executed proxies will be voted:
(i) FOR the election of each of the Company's nominee(s) for director; and (ii)
"FOR" the replenishment of the Lantronix, Inc. 2000 Employee Stock Purchase Plan
with 750,000 shares of Lantronix common stock; and (iii) "FOR" the
declassification of the board of directors to allow for annual election of all
directors; and (iv) "FOR" the ratification of the appointment of Ernst & Young
LLP as independent registered public accountants of the Company for the fiscal
year ending June 30, 2005. No business other than that set forth in the
accompanying Notice of Annual Meeting of Stockholders is expected to come before
the Annual Meeting. Should any other matter requiring a vote of stockholders
properly arise, the persons named in the enclosed form of proxy will vote such
proxy in accordance with the recommendation of the Board of Directors.
We will pay the costs of soliciting Proxies from stockholders, including
the preparation, assembly, printing and mailing of proxy solicitation materials.
We will provide copies of solicitation materials to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward these materials to the beneficial owners
of Common Stock. We may reimburse brokerage firms and other such persons
representing beneficial owners of Common Stock for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may be solicited by
certain of the directors, officers and employees of the Company, without
additional compensation, personally or by telephone, telegram, letter or
facsimile.
HOUSEHOLDING
In an effort to reduce printing costs and postage fees, the Company has
adopted a practice approved by the Securities and Exchange Commission ("SEC")
called "householding." Under this practice, stockholders who have the same
address and last name and do not participate in electronic delivery of proxy
materials will receive only one copy of the Company's proxy materials unless one
or more of these stockholders notifies the Company that they wish to continue
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receiving individual copies. Stockholders who participate in householding will
continue to receive separate proxy cards.
If you share an address with another stockholder and received only one set
of proxy materials and would like to request a separate copy of these materials
and/or future proxy materials, please send your request to: Lantronix, Inc.,
15353 Barranca Parkway, Irvine, California 92618, Attention: Investor Relations,
or visit the Company's website at www.lantronix.com. You may also contact the
-----------------
Company if you received multiple copies of the proxy materials and would prefer
to receive a single copy in the future.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"WITHHELD FROM," "ABSTAIN," or "AGAINST" a matter are treated as being present
at the meeting for purposes of establishing a quorum and are also treated as
shares entitled to vote at the Annual Meeting (the "Votes Cast") with respect to
such matter.
Although the law in Delaware is unclear as to the proper treatment of
abstentions, the Company believes that abstentions should be counted for
purposes of determining both (i) the presence or absence of a quorum for the
transaction of business and (ii) the total number of Votes Cast with respect to
a proposal (other than the election of directors). In the absence of controlling
precedent to the contrary, the Company intends to treat abstentions in this
manner. Accordingly, abstentions will have the same effect as a vote against the
proposal.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, who are the beneficial owners
of the shares, brokers have discretion to vote these shares on routine matters
but not on non-routine matters. Thus, if you do not otherwise instruct your
broker, the broker may turn in a proxy card voting your shares "FOR" routine
matters but expressly instructing that the broker is NOT voting on non-routine
matters. A "broker non-vote" occurs when a broker expressly instructs on a proxy
card that it is not voting on a matter, whether routine or non-routine. Broker
non-votes are counted for the purpose of determining the presence or absence of
a quorum but are not counted for determining the number of Votes Cast for or
against a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Requirements for Stockholder Proposals to be Considered for Inclusion in
our 2005 Proxy Materials. Stockholders may submit proposals that they believe
should be voted upon at the Annual Meeting or nominate persons for election to
our Board of Directors. Pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934, as amended ("Rule 14a-8"), some stockholder proposals may be eligible
for inclusion in our 2005 Proxy Statement. Any such stockholder proposals must
be submitted in writing to the attention of the Secretary, Lantronix, Inc.,
15353 Barranca Parkway, Irvine, California 92618, no later than June 13, 2005 or
the date which is 120 calendar days prior to the anniversary of the mailing date
of this Proxy Statement. Stockholders interested in submitting such a proposal
are advised to contact knowledgeable legal counsel with regard to the detailed
requirements of applicable securities laws. The submission of a stockholder
proposal does not guarantee that it will be included in our 2005 Proxy
Statement.
Requirements for Stockholder Proposals to be Brought Before the Annual
Meeting. Under our Bylaws, a proposal or a nomination that the stockholder does
not seek to include in our 2005 Proxy Statement pursuant to Rule 14a-8 may be
submitted in writing to the Secretary, Lantronix, Inc., 15353 Barranca Parkway,
Irvine, California 92618, for the 2005 Annual Meeting of Stockholders. Such
proposal or nomination must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
120 days prior to the date of the 2005 Annual Meeting. Note, however, that in
the event we provide less than 70 days notice or prior public disclosure to
stockholders of the date of the 2005 Annual Meeting, any stockholder proposal or
nomination not submitted pursuant to Rule 14a-8 must be submitted to us not
later than the close of business on the tenth day following the day on which
notice of the date of the 2005 Annual Meeting was mailed or public disclosure
was made. For example, if we provide notice of our 2005 Annual Meeting on
September 18, 2005, for a 2005 Annual Meeting on November 17, 2005, any such
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proposal or nomination will be considered untimely if submitted to us after
September 28, 2005. As described in our Bylaws, the stockholder submission must
include certain specified information concerning the proposal or nominee, as the
case may be, and information as to the stockholder's ownership of our common
stock. If a stockholder gives notice of such proposal after the deadline
computed in accordance with our Bylaws (the "Bylaw Deadline"), the stockholder
will not be permitted to present the proposal to the stockholders for a vote at
the 2005 Annual Meeting.
The rules of the SEC also establish a different deadline for submission of
stockholder proposals that are not intended to be included in our Proxy
Statement with respect to discretionary voting (the "Discretionary Vote
Deadline"). The Discretionary Vote Deadline for the 2005 Annual Meeting is
August 27, 2005, or the date which is 45 calendar days prior to the anniversary
of the mailing date of this Proxy Statement. If a stockholder gives notice of
such a proposal after the Discretionary Vote Deadline, our Proxy holders will be
allowed to use their discretionary voting authority to vote against the
stockholder proposal when and if the proposal is raised at the Annual Meeting.
Because the Bylaw Deadline is not capable of being determined until we
publicly announce the date for our 2005 Annual Meeting, it is possible that the
Bylaw Deadline may occur after the Discretionary Vote Deadline. In such a case,
a proposal received after the Discretionary Vote Deadline but before the Bylaw
Deadline would be eligible to be presented at the 2005 Annual Meeting and we
believe that our Proxy holders at such meeting would be allowed to use the
discretionary authority granted by the Proxy to vote against the proposal at
such meeting without including any disclosure of the proposal in the Proxy
Statement relating to such meeting.
We have not been notified by any stockholder of his, her or its intent to
present a stockholder proposal from the floor at the 2004 Annual Meeting. The
enclosed Proxy grants the Proxy holders discretionary authority to vote on any
matter properly brought before the 2004 Annual Meeting, including any
stockholder proposals received between the date of this Proxy Statement and the
Bylaw Deadline for the 2004 Annual Meeting, which is October 21, 2004, or the
date which is ten calendar days after the date this Proxy Statement is mailed.
If a stockholder wishes to nominate a candidate for director, the
stockholder's notice shall also include the following information for the
candidate: (i) name, age, business address and residence address, (ii) principal
occupation or employment of such nominee, (iii) class and number of shares of
our stock beneficially owned by such nominee, (iv) any other information
required by the 1934 Act, and such candidate's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected. The
stockholder giving notice shall also include his/her/its (i) name and address as
they appear on the Company's books, (ii) the class and number of our shares
which such stockholder owns on the date of such notice, and (iii) a description
of all arrangements between the stockholder and the nominee. A copy of the full
text of our bylaws is available from our Secretary upon written request.
NOMINATION OF DIRECTOR CANDIDATES
The Corporate Governance and Nominating Committee considers candidates for
board membership that our Board of Directors, management or stockholders
suggest. It is the policy of the Corporate Governance and Nominating Committee
to consider recommendations for candidates to our Board of Directors from
stockholders. The Corporate Governance and Nominating Committee will consider
persons recommended by our stockholders in the same manner as a nominee
recommended by our Board of Directors, individual board members or management.
The Corporate Governance and Nominating Committee assesses the appropriate
skills and characteristics of a nominee based on the composition of the board as
a whole and in such other areas as a nominee's qualification as independence,
diversity, skills, age and experience in such areas as operations, finance,
marketing and sales.
In addition, a stockholder may nominate a person directly for election to
our Board of Directors at an annual meeting of our stockholders provided they
meet the requirements set forth in our bylaws and the rules and regulations of
the Securities and Exchange Commission related to stockholder proposals. The
process for properly submitting a stockholder proposal, including a proposal to
nominate a person for election to our Board of Directors at an annual meeting,
is described above in the section entitled "Deadline for Receipt of Stockholder
Proposals."
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STOCKHOLDER COMMUNICATIONS WITH OUR BOARD DIRECTORS
Stockholders may communicate directly with our Board of Directors by
writing to them c/o Lantronix, Inc., 15353 Barranca Parkway, Irvine, California
92618. Unless the communication is marked "confidential," our Secretary will
monitor these communications and provide appropriate summaries of all received
messages to the chairperson of our Corporate Governance and Nominating
Committee. Any stockholder communication marked "confidential" will be logged as
"received," but will not be reviewed by the Secretary. Such confidential
correspondence will be immediately forwarded to the Chairperson of the Corporate
Governance and Nominating Committee for appropriate action. Where the nature of
a communication concerns questionable accounting or auditing matters directed
directly to the Audit Committee, our Secretary will log the date of receipt of
the communication as well as the identity of the correspondent, for
non-confidential communications, in the Company's stockholder communications
log.
CERTAIN FINANCIAL INFORMATION AND CERTIFICATIONS
Please take note that the Company's financial statements and related
information, as well as the required certifications as promulgated pursuant to
the Sarbanes-Oxley Act of 2002, are as set forth in its Annual Report on Form
10-K/A filed with the Securities and Exchange Commission on October 12, 2004,
and are incorporated herein by this reference. A copy of the Annual Report on
Form 10-K/A is enclosed with this Proxy Statement.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Our Board of Directors is currently composed of four (4) members. Our
Certificate of Incorporation and Bylaws provide that the Board of Directors
shall be divided into three classes, with each class serving staggered
three-year terms. The first class consists of two directors, the second class
consists of one director and the third class consists of one director. Directors
HOWARD T. SLAYEN and H.K. DESAI are the Class I directors whose terms expire at
the 2004 Annual Meeting of Stockholders. Director Thomas W. Burton is the Class
II director whose term expires at the 2005 Annual Meeting of Stockholders.
Director Kathryn Braun Lewis is the Class III director whose term expires at the
2006 Annual Meeting. Thus, Howard T. Slayen and H.K. Desai are nominated for
reelection (the "Nominees"). All of the directors, including the Class I
Nominees, are incumbent directors. There are no family relationships among any
directors or executive officers, including the Nominees.
The term of each class of directors expires at the third annual meeting
following the date of expiration described above. A director elected to fill a
vacancy (including a vacancy created by an increase in the size of the Board of
Directors) will serve for the remainder of the term of the class of directors in
which the vacancy occurred and until his or her successor is elected and
qualified. If elected at the Annual Meeting, the Class I Nominees would serve
until the 2007 annual meeting and until his successor is elected and has
qualified, or until his earlier death, resignation or removal, or as otherwise
modified by Proposal Three below.
Unless otherwise instructed, the holders of Proxies solicited by this Proxy
Statement will vote the Proxies received by them for the Class I Nominees.
Directors are elected by a plurality (excess of Votes Cast over opposing
nominees) of the votes present in person or represented by proxy and entitled to
vote at the meeting. Shares represented by signed proxies will be voted, if
authority to do so is not withheld, for the election of the nominee named below.
In the event that any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the Proxy holders will vote for a nominee
designated by the present Board of Directors to fill the vacancy. We are not
aware of any reason that the Nominees will be unable or will decline to serve as
directors. The Board of Directors recommends a vote "FOR" the election of the
Nominees.
The names of the members of our Board of Directors, including the Class I
Nominees, their ages as of September 24, 2004, and certain information about
them, are set forth below.
Name Age Position
----------------------- --- ---------------------------------------
H. K. Desai (1) 58 Chairman of the Board of Directors
Thomas W. Burton 58 Director
Kathryn Braun Lewis 53 Director
Howard T. Slayen (1) 57 Director
(1) Denotes Nominees for election at 2004 Annual Meeting of Stockholders
H. K. Desai was elected Chairman of the Board of Directors on May 29, 2002.
He has served as a director on the Board of Directors since October 2000. Mr.
Desai is currently the Chief Executive Officer of QLogic Corporation, a company
that provides end-to-end connectivity for storage area networks. From 1995 to
1996, Mr. Desai was the President and Chief Technical Officer of QLogic. From
2000 to 2003, Mr. Desai served on the board of Microsemi Corporation, a supplier
of analog integrated circuits and power and signal discrete semiconductors.
6
Thomas W. Burton has been a member of our Board of Directors since our
inception in 1989. Mr. Burton is an attorney and has operated his own law
office, Thomas W. Burton, PLC since June 1999. From January 1994 to June 1999,
Mr. Burton served with the law firm of Cummins & White, LLP.
Kathryn Braun Lewis was elected to the Board of Directors in October 2002.
She currently serves on the Board of Directors of Share Our Selves and THINK
Together, both Orange County charities. She has also served as a director of two
other public companies since 1994. Ms. Lewis retired from Western Digital in
1998. During her eighteen-year tenure at Western Digital, she was promoted from
various management and executive positions to President and Chief Operating
Officer of the Personal Storage Division (PSD) and was responsible for the
worldwide operations including research and development, manufacturing, and
marketing of the world's second largest supplier of hard drives for personal
computers.
Howard T. Slayen was elected to the Board of Directors in August 2000.
From June 2001 to present, Mr. Slayen has been providing independent financial
consulting services to various organizations and clients. From September 1999
to May 2001, Mr. Slayen was Executive Vice President and Chief Financial Officer
of Quaartz Inc., a web-hosted communications business. From 1971 to September
1999, Mr. Slayen held various positions with PricewaterhouseCoopers/Coopers &
Lybrand including his last position as Corporate Finance Partner.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five (5) meetings
during the fiscal year ended June 30, 2004. Our Board of Directors has
determined that each member of the Board of Directors is independent as per Rule
4200(a)(15) of the National Association of Securities Dealers' listing
standards. Each member of the committees meets the independence standards of
Rule 4200(a)(15) of the Nasdaq National market. Certain matters were approved by
the Board of Directors, or a Committee of the Board of Directors, by unanimous
written consent. The Board of Directors has three standing committees, the Audit
Committee, the Compensation Committee and the Corporate Governance and
Nominating Committee. Each Committee has a written charter approved by the Board
of Directors.
NAME OF COMMITTEE FUNCTIONS OF THE COMMITTEE NUMBER OF MEETINGS IN THE FISCAL
AND MEMBERS YEAR ENDING JUNE 30, 2004
AUDIT COMMITTEE *Selects independent registered 5
Howard Slayen, Chair public accountants
Thomas Burton *Reviews scope and results of
Kathryn Braun Lewis year-end audit with management
and independent registered
public accountants
*Reviews Company's accounting
principals and system of internal
accounting controls
*Determines investment policy
and oversees its implementation
COMPENSATION COMMITTEE *Reviews and approves salaries, 4
Thomas Burton, Chair bonuses, and other benefits
H.K. Desai payable to the Company's
Howard Slayen executive officers
Kathryn Braun Lewis *Oversees the Company's
equity incentive plans
*Reviews and recommends general
policies relating to
compensation and benefits
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NAME OF COMMITTEE FUNCTIONS OF THE COMMITTEE NUMBER OF MEETINGS IN THE FISCAL
AND MEMBERS YEAR ENDING JUNE 30, 2004
CORPORATE GOVERNANCE *Oversees Chief Executive Officer 3
AND NOMINATING and senior management
COMMITTEE *Ensures directors take a
H.K. Desai, Chair proactive, focused approach to
Thomas Burton their positions
Howard Slayen *Sets the highest standards of
responsibility and ethics
*Recommends nomination of
board members
*Assists with succession planning
for executive management
positions
*Oversees and evaluates board
evaluation process
*Evaluates composition,
organization and governance of
board and its committees
Each director is expected to attend each meeting of the Board of Directors
and those Committees on which such director serves. All of our directors
attended at least 75% of the meetings of the Board of Directors and any
applicable committee on which such person served, held during the fiscal year
ending June 30, 2004.
PRIMARY FUNCTIONS OF THE BOARD OF DIRECTORS
The Board of Directors, which is elected by our stockholders, oversees the
conduct of our business by management and reviews our financial objectives,
major corporate plans, strategies, actions and major capital expenditures. Our
directors are expected to promote the best interests of our stockholders in
terms of corporate governance, fiduciary responsibilities, compliance with laws
and regulations, and maintenance of accounting and financial controls. Our
directors participate in the selection, evaluation and, where appropriate,
replacement of our chief executive officer. Directors also provide input to our
CEO for the evaluation and recruitment of our principal senior executives.
AUDIT COMMITTEE
Our Board of Directors adopted a written charter for the Audit Committee on
May 18, 2000, which was amended on August 27, 2003 and on September 30, 2004. A
copy of the Audit Committee charter is attached to this proxy statement as
Appendix A. Our Board of Directors has determined that Mr. Howard Slayen is an
"audit committee financial expert," as defined in the rules of the Securities
and Exchange Commission. All members of the Audit Committee are "independent,"
as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the 1934 Act. Mr.
Slayen serves as chairman of our Audit Committee. For additional information
regarding the Audit Committee, see "Audit Committee Report Year Ended June 30,
2004" in this Proxy Statement.
COMPENSATION COMMITTEE
Our Board of Directors adopted a written charter for the Compensation
Committee May 18, 2000. Our Compensation Committee currently consists of Mr.
Thomas Burton, Mr. H.K. Desai, Ms. Kathryn Braun Lewis and Mr. Howard Slayen,
each of whom is a non-management member of our Board of Directors. Mr. Burton
serves as chairman of our Compensation Committee. For additional information
regarding the Compensation Committee, see "Compensation Committee Report" in
this Proxy Statement.
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CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
Our Board of Directors formed a Corporate Governance and Nominating
Committee on August 16, 2002 and adopted its written charter on October 1, 2002.
Our Corporate Governance and Nominating Committee currently consists of Mr.
Thomas Burton, Mr. H.K. Desai and Mr. Howard Slayen. None of the current members
of the Corporate Governance and Nominating Committee is an employee of Lantronix
and each is independent under the listing requirements of the Nasdaq National
Market. Mr. H.K. Desai serves as chairman of the Corporate Governance and
Nominating Committee.
CODE OF ETHICS AND COMPLAINT PROCEDURES
Our Board of Directors adopted a Code of Conduct and Business Ethics that
is applicable to all employees, executive officers and members of the Board of
Directors. This code is intended to promote and require ethical conduct among
our directors, executive officers and employees. A copy of the code is available
upon request, without charge, to the Secretary, at 15353 Barranca Parkway,
Irvine, California 92618, and complies with the rules of the SEC and the listing
standards of the Nasdaq Stock Market. Concerns relating to accounting, internal
controls or auditing matters are brought to the attention of a member of our
senior management or the Audit Committee, as appropriate, and handled in
accordance with procedures established by the Audit Committee with respect to
such matters.
DIRECTOR COMPENSATION
Each director receives $24,000 cash compensation annually for his/her
services as a director. The Chair of the Compensation Committee, instead,
receives $26,000 annually. The Chair of the Audit Committee instead receives
$28,000 and the Chair of the Board instead receives $35,000 annually. The annual
retainers are based on four (4) in-person meetings per year, one (1) per
quarter. Directors also receive $1,000 for each additional full-day in-person
meeting in excess of 1 meeting per quarter or $500 for a meeting that lasts less
than four hours.
Members of the Board of Directors who are not employees of the Company, or
any parent or subsidiary of the Company ("Non-Employee Directors"), are eligible
to participate in the Company's 2000 Stock Plan. Under the 2000 Stock Plan,
Non-Employee Directors receive annual, automatic, non-discretionary grants of
nonstatutory stock options. Each Non-Employee Director automatically receives an
option to purchase 25,000 shares of the Company's common stock on the date he or
she first becomes a Non-Employee Director. Thereafter, each Non-Employee
Director automatically receives an option to purchase 25,000 shares of the
Company's common stock following each annual meeting of the Company's
stockholders, if immediately after such meeting, he or she will continue to
serve on the Board and has served on the Board for at least the preceding 6
months. The exercise price for these options is 100% of the fair market value of
the Shares on the date of grant. Also, these options have a term of ten years,
provided, however, that they will terminate earlier depending on different
circumstances. Twelve months after the date of grant, 50% of these options vest.
The balance of 50% vests 1/24 per month each month thereafter, until vested in
full, provided, however, the optionee continues to serve on the Board on such
dates. In addition, all directors are eligible to receive additional
discretionary grants of nonstatutory stock options under the 2000 Stock Plan.
Except as described above, directors do not receive any other compensation
for their services as directors of the Company or as members of committees of
the Board of Directors. There are no family relationships between directors and
executive officers of the Company.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
Each nominee receiving a majority of affirmative votes cast shall be
elected as a director. Votes withheld from any director are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but have no other legal effect under Delaware law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE NOMINEES SET FORTH ABOVE
9
PROPOSAL TWO
REPLENISHMENT OF THE 2000 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
We seek your approval to amend and restate our 2000 Employee Stock Purchase
Plan (the "Plan") to increase the number of shares of our common stock available
for issuance under the Plan by 750,000 shares. The Board of Directors approved
this increase in June 2004. The Plan provides our employees an opportunity to
increase their stake in the success of our business by purchasing our stock at a
discount from the fair market value through convenient payroll deductions. The
Plan is an important component of our employee compensation package and
approximately 50% of our employees participated in the Plan during the most
recent purchase period.
The Board of Directors originally approved the Plan in May 2000 and
stockholders approved it in June 2000. The Plan provides our employees an
opportunity to purchase shares of common stock at a discount through payroll
deductions. The number of shares of common stock previously reserved for
issuance under the Plan was 750,000 with an "evergreen" provision that
automatically adds 150,000 shares of common stock to the Plan at the beginning
of each fiscal year. Since its inception, the share reserve for the Plan has
been increased by 600,000 shares of common stock through operation of the
"evergreen" provision, to reach a total of 1,350,000 shares. As of August 31,
2004, participants had contributions to purchase 295,681 shares, but only
257,942 of the 1,350,000 shares remained. Had the Board not approved the
increase, the Plan would have been short 37,741 shares for the August 31, 2004
purchase and the Plan would have no shares available for the next purchase. On
the August 31, 2004 purchase, the Company distributed to participants on a
pro-rata basis the remaining shares under the Plan, but has not yet delivered
the 37,741 shares, which will be delivered if stockholders approve the 750,000
share increase. If the increase is approved, we may incur a non-cash
stock-based compensation charge equal to the difference between the market value
of our common stock on the date of shareholder approval and the employee
purchase price for the 37,741 undelivered shares. Furthermore, the Plan was
suspended and all offering periods terminated immediately following the August
31 purchase.
We will recommence offering periods under the Plan beginning December 1,
2004 if the stockholders ratify the Board's approval of this share increase. If
this increase is not approved, the Plan will be terminated, we will refund the
contributions for the 37,741 shares and cancel these shares. We are therefore
asking stockholders to approve an additional 750,000 shares for issuance under
the Plan. This will allow us to continue to offer this valuable and competitive
employee program. If stockholders do not approve this share increase, we will
lose this valuable tool in attracting and retaining key employees in the
extremely competitive markets in which we compete.
Earlier this year, the Financial Accounting Standards Board proposed
accounting rule changes applicable to employee equity programs, such as the
Plan. If those rules are adopted as currently proposed, the Company will incur
an accounting charge in connection with the Plan. We are currently reviewing
the Plan in the context of those proposed rule changes and may modify it should
those rules become effective. The essential terms of the Plan are summarized as
follows:
Administration. The Compensation Committee administers the Plan. The
Plan, and the right of participants to make purchases thereunder, is intended to
qualify under the provisions of Sections 421 and 423 of the Internal Revenue
Code. All questions of interpretation or application of the Plan are determined
by the Board of Directors or Compensation Committee, and their decisions are
final, conclusive and binding upon all participants.
Eligibility and Participation. Currently, all U.S. employees who work
more than 20 hours per week for more than five months per calendar year, and are
employed by us or one of our subsidiaries are eligible to participate in the
Plan, unless the employee would own 5% or more of the total combined voting
power of our stock at the start of an offering period. Participation in the Plan
is voluntary. Currently, 97% of our employees are eligible to participate in the
Plan.
10
Offering Dates. The Plan generally has a series of consecutive,
overlapping 24 month offering periods, with each offering period consisting of
four six-month purchase periods. However, to avoid potentially adverse
accounting consequences that might result from a shortage of shares under the
Plan, the board shortened all then outstanding offering periods so that they
expired immediately following the purchase on August 31, 2004. Assuming
stockholders approve this Proposal Two, all eligible employees will be able to
participate in the offering period set to begin on the first trading day on or
after December 1, 2004. Subsequent offering periods will begin on the first
trading day on or after March 1 and September 1 of each year. Under certain
circumstances, the board of directors may alter the duration of the offering
periods, including the commencement dates, without stockholder approval.
Purchase Price. The purchase price per share is 85% of the lower of (a)
the closing price per share on the last trading day before the commencement of
the applicable offering period, or (b) the closing price of the stock on the
last trading day of the purchase period. If the fair market value of the shares
on any purchase date is less than the fair market value of the shares on the
first day of the offering period, then those participants are automatically
withdrawn and re-enrolled in a new offering period based on that lower price.
Payroll Deductions; Payment of Purchase Price. Employees may authorize
payroll deductions in 1% multiples of cash compensation for each purchase period
they complete within an offering period, up to a maximum of 15%, and the
deductions are made from each pay period during the relevant purchase period. An
employee may discontinue his or her participation in the Plan at any time and
may increase or decrease the rate of payroll deduction during open enrollment
and once during any purchase period.
Purchase of Stock. By executing an enrollment form, an employee is
entitled to purchase shares on the last day of the purchase period. The maximum
number of shares that may be purchased during a purchase period is 25,000 shares
for each participant. Unless the employee's participation is discontinued prior
to such purchase date, his or her purchase of the shares will occur
automatically at the end of the purchase period at the applicable price.
Notwithstanding the foregoing, no participant may participate in the Plan
if immediately after such election to participate, the participant would own
stock and/or outstanding options to purchase stock possessing 5% or more of the
total combined voting power of our stock. In addition, no participant is
permitted to purchase stock with a value in excess of $25,000 (determined at the
fair market value of the stock as of the beginning of the applicable offering
period) in any calendar year.
Withdrawal. Generally, a participant may withdraw from an offering
period at any time by written notice without affecting his or her eligibility to
participate in future offering periods. However, once a participant withdraws
from a particular offering period, that participant may not participate again in
the same offering period. To participate in a subsequent offering period, the
participant must deliver a new subscription agreement during open enrollment
prior to the commencement of the next applicable purchase period.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, cancels his or her participation in
the Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of death,
to the person or persons entitled thereto as provided in the Plan.
Changes in Capitalization. The number of shares reserved under the Plan,
the purchase period share purchase limit and relevant accumulation and offering
period purchase price per share provisions under the Plan are proportionately
adjusted for any increase or decrease in the number of outstanding shares of our
common stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend, any other increase or decrease in such shares
effected without receipt or payment of consideration by us, the distribution of
the shares of a subsidiary to our stockholders or a similar event. The Board of
Directors makes such adjustment and its determination in that respect is final,
binding and conclusive.
Change of Control, Merger or Consolidation. In the event of a change of
control (as defined in the Plan), the Board of Directors shall shorten any
purchase periods and offering periods then in progress to end immediately prior
11
to the effective time of the change in control. In the event of a merger or
consolidation which does not constitute a change of control, the Plan shall
continue unless the plan of merger or consolidation provides otherwise.
Amendment and Termination of the Plan. The Board of Directors may at any
time terminate or amend the Plan. If such amendment would require stockholder
approval in order to comply with Section 423 of the Code, then such amendment
shall be effective once the holders of a majority of the Votes Cast approve it
at a duly held stockholders' meeting.
In the event the Board of Directors determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board of Directors may, in its discretion, modify or amend the Plan to reduce or
eliminate such accounting consequences, including, but not limited to, altering
the purchase price for any offering period, including an offering period
underway at the time of the change, shortening any offering period so that the
offering period ends on a new exercise date, including an offering period
underway at the time, and allocating shares, or terminate the Plan.
Incorporation by Reference. The foregoing is only a summary of the Plan
and is qualified in its entirety by reference to its full text, a copy of which,
as amended and restated, is attached hereto as Appendix B.
FEDERAL INCOME TAX CONSEQUENCES
The proposed amendment will have no effect upon the tax consequences to
participants or us.
The following brief summary of the effect of federal income taxation upon
the participant and us with respect to the shares purchased under the Plan does
not purport to be complete, and does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
The Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income is taxable to a participant until the shares
purchased under the Plan are sold or otherwise disposed. Upon sale or other
disposition of the shares, the participant is generally subject to tax in an
amount that depends upon how long the participant has held the shares. If the
shares are sold or otherwise disposed of more than two years from the first day
of the applicable offering period and one year from the applicable date of
purchase, the participant will recognize ordinary income measured as the lesser
of (a) the excess of the fair market value of the shares at the time of such
sale or disposition over the purchase price, or (b) an amount equal to 15% of
the fair market value of the shares as of the first day of the applicable
offering period. Any additional gain is treated as long-term capital gain. If
the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. We generally are not entitled to a deduction
for amounts taxed as ordinary income or capital gain to a participant except to
the extent of ordinary income recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding periods described
above.
PARTICIPATION IN THE PLAN
Participation in the Plan is voluntary and dependent on each eligible
employee's election to participate and his or her determination as to the level
of payroll deductions. Accordingly, we are unable to predict the amount of
benefits that will be received by or allocated to any particular participant
under the Plan. The following table sets forth the number of shares purchased
under the Plan during calendar year 2004 by each of (i) the Named Executive
Officers (as defined by Regulation S-K; (ii) all current executive officers as a
group; and (iii) all other employees, including all officers who are not
currently executive officers, who participated in the Plan as a group.
Non-employee directors are not eligible for participation in the Plan.
12
NUMBER OF SHARES WEIGHTED AVERAGE
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION PURCHASED PURCHASE PRICE
Marc H. Nussbaum, Chief Executive Officer. . . . . . . . . 30,400 $ 0.69
James W. Kerrigan, Chief Financial Officer . . . . . . . . 45,414 $ 0.69
Michael S. Oswald, General Counsel and Corporate Secretary 6,928 $ 0.69
Curtis Brown, Executive VP Research & Development 0 ---
David Schafer, Executive VP World Wide Sales . . . . . . . 8,524 $ 0.91
All executive officers as a group. . . . . . . . . . . . . 91,266 $ 0.71
All employees and all non-executive officers as a group. . 518,266 $ 0.77
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
If a quorum is present, the affirmative vote of a majority of the Votes
Cast will be required to approve the amendment of the Plan. Votes withheld and
broker non-votes will be counted for purposes of determining the presence or
absence of a quorum, but will not be counted as Votes Cast on this subject. If
approved by the stockholders, the proposed Amended and Restated 2000 Employee
Stock Purchase Plan will become effective immediately.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL
13
PROPOSAL THREE
DECLASSIFICATION OF THE BOARD OF DIRECTORS
GENERAL
We seek your approval to amend and restate our certificate of incorporation
to declassify our board of directors to allow for the annual election of all
directors. The board of directors approved the amendment and restatement of our
certificate of incorporation to effect such declassification in August 23, 2004.
REASONS FOR THE PROPOSAL
The election of directors is an important means for stockholders to
exercise influence over Lantronix and its policies. A classified board does not
permit stockholders to elect all directors on an annual basis and may discourage
proxy contests in which stockholders have an opportunity to vote for a competing
slate of nominees. Accumulations of large stockholder positions are sometimes
followed by proxy contests and related change-in-control transactions in which
stockholders receive a premium for their shares over the current market price of
such shares.
If the board of directors is declassified, the entire board of directors
could be removed in any single year, which could make it more difficult for
Lantronix to discourage persons from engaging in proxy contests or from seeking
control of Lantronix on terms that the board of directors does not believe are
in the best interests of Lantronix and its stockholders. In addition, classified
boards of directors may increase the long-term stability and continuity of a
board of directors and the company the board serves. Lantronix's board of
directors, however, believes that long-term stability and continuity also may
result from the annual election of directors, which provides stockholders with
the opportunity to evaluate the performance of all directors on an annual basis.
The board of directors believes that the foregoing reasons for maintaining
a classified board of directors are outweighed by the goals of maximizing
management accountability to stockholders that would be served by
declassification.
DECLASSIFICATION OF BOARD OF DIRECTORS
The following summarizes the amendment to the current certificate of
incorporation that is subject to this Proposal Three. This summary is qualified
in its entirety by the complete text of the proposed amendment in the form
attached to this proxy statement as Appendix C.
The proposed amendment would amend Article VIII of the current certificate
of incorporation to provide for the annual election of directors beginning at
the 2005 annual meeting of stockholders. Article VIII of the current certificate
of incorporation requires that the Board of Directors be divided into three
classes, with each class as equal in number as possible. The three classes of
directors have staggered terms, so that the term of only one class expires at
each annual meeting of stockholders, and each class is elected for a three-year
term.
If stockholders approve this Proposal Three, the amended provision of the
certificate of incorporation relating to the election of directors would read as
follows:
VIII.
A director shall hold office from the effective date of such director's
election until the next annual meeting of stockholders and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. The term of each director who is
serving as a director on the effective date of this amended and restated
certificate of incorporation shall expire at the next annual meeting of
stockholders after such date and upon the election and qualification of such
director's successor, or upon such director's earlier resignation or removal,
notwithstanding that such director may have been elected for a term that
extended beyond the date of such next annual meeting of stockholders.
14
EFFECT OF APPROVAL.
If stockholders approve this Proposal Three and the proposed amendment
becomes effective, the terms for all Lantronix directors would end at the 2005
annual meeting of stockholders, and all directors would stand for election for
one-year terms at the 2005 annual meeting.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
Approval of this Proposal Three will require the affirmative vote of the
holders of at least two-thirds of the shares of common stock outstanding on the
record date for the annual meeting.
The Board of Directors recommends that stockholders vote FOR the proposal
to amend or repeal takeover defensive provisions of the restated certificate of
incorporation as described in this Proposal Three.
If you believe, as we do, that the Company should declassify its Board of
Directors and require that all directors be elected annually, then we urge you
to support our proposal to declassify the Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL
15
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
In accordance with its charter, the Audit Committee has selected Ernst &
Young LLP as the independent registered public accountants to audit our
financial statements for the fiscal year ending June 30, 2005 and with the
endorsement of the Board of Directors recommends to stockholders that they
ratify that appointment. Ernst & Young LLP served in this capacity for the year
ended June 30, 2004. A representative of Ernst & Young LLP will be present at
the annual meeting and will have the opportunity to make a statement if he or
she desires to do so and be available to answer any appropriate questions.
AUDIT AND RELATED FEES
The following table is a summary of the fees billed to us by Ernst & Young
LLP for professional services for the years ended June 30, 2004 and June 30,
2003:
FEE CATEGORY 2004 FEES 2003 FEES
-------------------------------- ---------- -----------
Audit Fees $ 596,532 $ 712,000
Audit-Related Fees 10,278 105,651
Tax Compliance & Consulting Fees 272,649 257,218
All Other Fees 0 0
-------------------------------- ---------- ----------
Total Fees $ 879,459 $1,074,869
Audit Fees. Consists of fees billed for professional services rendered for
the audit of our consolidated financial statements and review of our quarterly
interim consolidated financial statements, as well as services that are normally
provided by Ernst & Young LLP in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees. Consists of fees billed for acquisition-related work,
audits required by statute in certain locations outside the US where the Company
has operations and accounting consultations.
Tax Compliance Fees. Consists of fees billed for professional services
including assistance regarding federal, state and international tax compliance
and related services.
Tax Consulting Fees. Consists of fees billed for professional services for
tax advice and tax planning.
All Other Fees. There were no fees for this category during the fiscal year
ending June 30, 2004.
Before selecting and prior to determining to continue its engagement for
2005 with Ernst & Young LLP, the Audit Committee carefully considered Ernst &
Young LLP's qualifications as independent registered public accountants. This
included a review of the qualifications of the engagement team, the quality
control procedures the firm has established, as well as its reputation for
integrity and competence in the fields of accounting and auditing. The Audit
Committee's review included inquiry concerning any litigation involving Ernst &
Young LLP and any proceeding by the SEC against the firm. In this respect, the
Audit Committee has concluded that the ability of Ernst & Young LLP to perform
services for Lantronix is in no way adversely affected by such litigation or
investigation. The Audit Committee's review also included matters required to be
considered under the Securities and Exchange Commission's rules on auditor
independence, including the nature and extent of non-audit services, to ensure
that the auditors' independence will not be impaired. The Audit Committee
pre-approves all audit and non-audit services provided by Ernst & Young LLP, or
subsequently approves non-audit services in those circumstances where a
subsequent approval is necessary and permissible. All of the services provided
by Ernst & Young LLP described under "Audit-Related Fees," "Tax Compliance and
Consulting Fees" and "All Other Fees" were pre-approved by the Audit Committee.
The Audit Committee of our Board of Directors has determined that the provision
of services by Ernst & Young LLP other than for audit related services is
compatible with maintaining the independence of Ernst & Young LLP as our
independent registered public accountants.
16
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Stockholder ratification of the selection of Ernst & Young, LLP as our
independent registered public accountants is not required by our bylaws or other
applicable legal requirement. However, our Board of Directors is submitting the
selection of Ernst & Young, LLP to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the selection,
our Audit Committee and Board of Directors will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Audit Committee at its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if it determines that such a change would be in our
best interests and in the best interests of our stockholders.
The affirmative vote of a majority of the Votes Cast is necessary to
approve this proposal. Assuming a quorum is present, abstentions will have the
effect of a vote "against" this proposal, and broker non-votes will have no
effect on the outcome of the vote. Our Board of Directors has unanimously
approved this proposal and recommends that stockholders vote "FOR" the
ratification of the selection of Ernst & Young, LLP as independent registered
public accountants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 24, 2004 by:
(i) each person known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) by each director, (iii) by each of our named
executive officers and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the address for each person is 15353 Barranca
Parkway, Irvine, California 92618. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting or investment power
with respect to the securities. Except as otherwise indicated in the footnotes
to the table, and subject to community property laws, where applicable, the
persons and entities identified in the table below have sole voting and
investment power with respect to all shares beneficially owned. The number of
shares of Common Stock outstanding used in calculating the percentage for each
listed person includes shares of common stock underlying options or warrants
held by such person that are exercisable within 60 calendar days of September
24, 2004, but excludes shares of common stock underlying options or warrants
held by any other person. Percentage of beneficial ownership is based on
58,447,146 shares of common stock outstanding as of September 24, 2004.
BENEFICIAL OWNERSHIP (1)
------------------------
BENEFICIAL OWNER NAME NUMBER OF PERCENTAGE
SHARES OWNERSHIP
HOLDERS OF 5% OR MORE OF LANTRONIX STOCK
Bernhard Bruscha, Waldhoernlestr. 18, 72072 Tuebingen, Germany 20,303,220 34.7%
Heartland Advisors, Inc./William J. Nasgovitz, 789 N. Water St., Milwaukee, WI 5,500,000 9.4%
Scott A. Fine/Peter J. Richards, 1 Gorham Island, Westport, CT 06880 3,453,350 5.9%
DIRECTORS AND OFFICERS
Thomas W. Burton, Director (2) 143,750 *
Howard T. Slayen, Director (3) 156,250 *
H. K. Desai, Director (4) 81,250 *
Kathryn Braun Lewis, Director (5) 52,520 *
Marc Nussbaum, Chief Executive Officer (6). 641,506 1.1%
James Kerrigan, Chief Financial Officer (7) 391,680 *
Michael Oswald, General Counsel, Vice President and Corporate Secretary (8) 53,709 *
Curtis Brown, Executive VP Research & Development (9) 158,479 *
David Schafer, Executive VP World Wide Sales (10) 106,041 *
All executive officers and directors as a group (9 persons) (11) 1,785,185 3.1%
* Represents beneficial ownership of less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the Rules of the SEC and generally
includes voting and investment power with respect to securities. Beneficial ownership also includes
shares subject to options currently exercisable within 60 days of this table.
(2) Shares beneficially owned by Mr. Burton include 43,750 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(3) Shares beneficially owned by Mr. Slayen include 81,250 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(4) All shares beneficially owned by Mr. Desai are shares of common stock issuable upon exercise of
stock options exercisable within 60 days of September 24, 2004.
(5) Shares beneficially owned by Ms. Lewis include 50,520 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(6) Shares beneficially owned by Mr. Nussbaum include 181,250 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(7) Shares beneficially owned by Mr. Kerrigan include 79,167 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(8) Shares beneficially owned by Mr. Oswald include 48,117 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(9) All shares beneficially owned by Mr. Brown are shares of common stock issuable upon exercise of
stock options exercisable within 60 days of September 24, 2004.
18
(10) Shares beneficially owned by Mr. Shafer include 81,250 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 24, 2004.
(11) Includes an aggregate of 805,033 shares issuable upon exercise of stock options within 60
calendar days of September 24, 2004.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation we paid
during the last three fiscal years to our Chief Executive Officer and four other
most highly compensated employees who earned more than $100,000 during the
fiscal year ended June 30, 2004. All option grants during the fiscal year were
made under our 2000 Stock Plan.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------------------
NAME AND PRINCIPAL POSITION FISCAL SALARY BONUS OTHER ANNUAL SECURITIES ALL OTHER
YEAR COMPENSATION UNDERLYING COMPENSATION
(1) OPTIONS (#) (2)
Marc Nussbaum (3) 2004 $277,731 ----- $ 21,269 180,000 $ 5,175
Chief Executive Officer 2003 $301,154 ----- $ 17,327 300,000 $ 3,407
2002 ----- ----- ----- ----- -----
James Kerrigan (4) 2004 $189,231 ----- $ 19,219 90,000 -----
Chief Financial Officer 2003 $197,308 ----- $ 12,280 175,000 -----
2002 $ 26,923 ----- ----- ----- -----
Michael Oswald (5) 2004 $186,577 ----- $ 5,923 52,500 $ 5,775
General Counsel, Vice 2003 $176,077 $17,502 $ 7,000 ----- $ 6,017
President and Secretary 2002 $ 85,481 ----- ----- 42,825 $ 1,212
Curtis Brown (6) 2004 $230,769 ----- $ 27,681 160,500 $ 6,027
Executive Vice President 2003 $247,115 ----- $ 6,135 ----- $ 6,898
Research & Development 2002 $250,000 $45,000 ----- 87,699 $ 2,096
David Schafer (7) 2004 $244,231 ----- $ 13,944 47,000 $ 5,216
Executive Vice President 2003 $187,500 ----- $ 8,825 150,000 $ 3,867
World Wide Sales 2002 ----- ----- ----- ----- -----
(1) Excludes certain perquisites and other amounts that, for any executive officer, in the
aggregate did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus for such
executive officer.
(2) Represents amounts paid by us as a matching contribution to each employee's 401(k) account.
(3) Marc Nussbaum started with the Company on May 30, 2002 and received no compensation as of
the fiscal year ended June 30, 2002. Consequently, his compensation for the fiscal year ended June
30, 2003 includes payment for services rendered in fiscal year ended June 30, 2002. His annualized
base compensation is $290,000 with a bonus level to be determined based on performance goals and
company performance.
(4) James Kerrigan started with the Company on May 6, 2002 and thus compensation for fiscal year
ended June 30, 2002 is only for a partial year; his base salary annualized is $200,000.
(5) Michael Oswald started with the Company on January 2, 2002 and thus compensation for fiscal
year ended June 30, 2002 is only for a partial year; his base salary annualized is $192,500.
(6) Curtis Brown started with the Company on June 4, 2001 and thus compensation for fiscal year
ended June 30, 2001 is only for a partial year; his base salary annualized is $250,000. Mr. Brown's
stock option grants for fiscal year ended June 30, 2004 include an option to purchase 112,500 shares
of Lantronix common stock issued pursuant to a stock option exchange program conducted in fiscal
year ended June 30, 2003 under which participants voluntarily exchanged previously issued stock
options at a 1:0.75 exchange rate, and thus this grant is an exchange of a previous grant.
(7) David Schafer started with the Company on September 18, 2002 and thus compensation for
fiscal year ended June 30, 2003 is only for a partial year; his base salary annualized is $250,000.
19
EXECUTIVE OFFICERS
Set forth below is certain information regarding the current executive
officers of the Company. Officers are appointed by and serve at the discretion
of the Board of Directors.
Marc H. Nussbaum, forty-eight, has served as our President and Chief
Executive Officer since May 2002. From April 2000 to March 2002, Mr. Nussbaum
served as Senior Vice President and Chief Technical Officer for MTI Technology
Corporation, a developer of enterprise storage solutions. From April 1981 to
November 1998, Mr. Nussbaum served in various positions at Western Digital
Corporation, a manufacturer of PC components, communication controllers, storage
controllers and hard drives. Mr. Nussbaum lead business development, strategic
planning and product development activities, serving as Western Digital's Senior
Vice President, Chief Technical Officer from 1995 to 1998 and Vice President,
Storage Technology and Product Development from 1988 through 1995. Mr. Nussbaum
holds BA in physics from the State University of New York.
James W. Kerrigan, sixty-eight, has served as our Chief Financial Officer
since May 2002. From March 2000 to October 2000, he was Chief Financial Officer
of Motiva, a privately-owned company that developed, marketed and sold
collaboration software systems. From January 1998 to February 1999, he was Chief
Financial Officer of Who?Vision Systems, Inc., an incubator company that
developed biometric fingerprint devices and software. From April 1995 to March
1997, he was Chief Financial Officer of Artios, Inc., a privately-owned company
that designs, manufactures, and sells prototyping hardware and software to the
packaging industry. Previously, Mr. Kerrigan has served as Chief Financial
Officer for several other larger, public companies. He holds an engineering and
MBA degree from Northwestern University.
Michael S. Oswald, forty-nine, has served as our General Counsel and Vice
President since December 2001 and as Secretary since May 2002. From June 2001
through December 2001, he provided legal services for clients as an independent
consultant. From September 1999 to June 2001, he was General Counsel and Chief
Administrative Officer at NowDocs, Inc., a private company located in Aliso
Viejo, California. From December 1996 to November 1999, he was General Counsel
to Acuity Corp. in Austin, Texas. Mr. Oswald holds a J.D. from Santa Clara
University School of Law, and a B.A. from the University of California at
Riverside. Mr. Oswald resigned from his offices effective August 25, 2004, with
employment to end on or before November 12, 2004.
Katherine H. McDermott, forty-four, has served as our Vice President of
Finance since March 2001 and our Secretary since August 2004. Ms. McDermott
joined Lantronix in March 2000 as Corporate Controller. From 1988 through 1999,
Ms. McDermott served in a number of senior level finance positions with Bausch &
Lomb, Inc., a global health care company. Her most recent positions included
Corporate Audit Manager, Plant Controller, and Controller of a wholly owned
subsidiary. From 1982 to 1988, Ms. McDermott held various financial positions at
a division of General Motors. Ms. McDermott holds a BBA degree in Business
Administration from St. Bonaventure University in New York, where she graduated
cum laude. She also earned a MBA degree, with a concentration in Finance and
Economics, from the Simon School of Business Administration at the University of
Rochester.
EMPLOYMENT AGREEMENTS
There is no written agreement between the Company and Marc Nussbaum. Mr.
Nussbaum's compensation is set forth above and he is eligible for other benefits
offered to other Company employees such as medical, dental, life and disability
insurance and participation in incentive programs and the Company's 401(k) plan.
There is no written agreement between the Company and James Kerrigan. Mr.
Kerrigan's compensation is set forth above and he is eligible for other benefits
offered to other Company employees such as medical, dental, life and disability
insurance and participation in incentive programs and the Company's 401(k) plan.
In December 2001, the Company entered into an at-will employment agreement
with Michael Oswald to serve as General Counsel and Secretary with an annual
base salary of $175,000, a severance pay of six months salary, and an annual
target bonus of up to $43,750. Mr. Oswald received 10,000 incentive stock
options and 20,000 nonstatutory stock options. He was eligible for other
benefits offered to other Company employees such as medical, dental, life and
disability insurance and participation in incentive programs and the Company's
401(k) plan.
20
There is no written agreement between the Company and Katherine McDermott.
Ms. McDermott receives an annual salary of $162,000 and is eligible for other
benefits offered to other Company employees such as medical, dental, life and
disability insurance and participation in incentive programs and the Company's
401(k) plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of stock options to the executive
Officers and highly compensated employees listed in the Summary Compensation
Table during fiscal year ended June 30, 2004. No stock appreciation rights were
granted during fiscal year ended June 30, 2004. These grants are options to
purchase the common stock of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS GRANTED ASSUMED ANNUAL RATES OF
UNDERLYING TO EMPLOYEES IN EXERCISE OR STOCK PRICE APPRECIATION
OPTIONS YEAR ENDED JUNE BASE PRICE EXPIRATION FOR 10 YEAR OPTION TERM (3)
NAME GRANTED 30, 2004(1) (2) DATE 5% 10%
----------------- ------- ---------------- ----------- ---------- ---------- ---------
Marc Nussbaum. 180,000 6.4% $1.26 12/16/13 $142,633 $361,461
James Kerrigan 90,000 3.2% $1.26 12/16/13 $ 71,317 $180,730
Michael Oswald(4) 22,500 0.8% $0.81 02/10/05 $ 11,462 $ 29,046
30,000 1.1% $1.26 02/10/05 $ 23,772 $ 60,243
Curtis Brown 112,500 4.0% $0.81 07/28/13 $ 57,308 $145,230
48,000 1.7% $1.26 12/16/13 $ 38,036 $ 96390
David Schafer. 47,000 1.7% $1.26 12/16/13 $ 37,243 $ 94,381
(1) Based on an aggregate of 2,812,399 options granted by us in the year ended June 30,
2004 to our employees, directors and consultants, including the executive officers and
highly compensated employees listed in the Summary Compensation Table.
(2) Options were granted at an exercise price equal to the fair market value on the date of
grant as determined pursuant to the closing price of our common stock on the Nasdaq National
Market on the trading day immediately preceding the date of grant.
(3) The potential realizable value is calculated based on the term of the ten-year option
and assumed rates of stock appreciation of 5% and 10%, compounded annually. These assumed
rates comply with the rules of the SEC and do not represent our estimate of future stock
prices. Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
(4) Mr. Oswald's options will expire on or before February 10, 2005, ninety (90)
days after termination of employment.
The following table provides information concerning option exercises during
fiscal 2003 and the exercisable and unexercisable options held as of June 30,
2004, by the executive officers and highly compensated employees listed in the
Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF
SHARES NUMBER OF SECURITIES
ACQUIRED ON VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
NAME EXERCISE REALIZED OPTIONS AT 6/30/04 MONEY OPTIONS AT 6/30/04 (1)
-------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------- -------- ----------- ------------- ----------- -------------
Marc Nussbaum --- --- 181,250 298,750 $ 136,313 $ 0
James Kerrigan --- --- 79,167 152,500 46,875 34,375
Michael Oswald --- --- 48,117 47,208 6,850 3,094
Curtis Brown --- --- 158,479 89,720 34,031 15,469
David Schafer --- --- 81,250 115,750 61,750 52,250
(1) This number is calculated by subtracting the option price from the closing price of common
stock as reported by the Nasdaq Stock Market on June 30, 2004 ($1.25) to get the "average value
per option," and multiplying the average value per option by the number of exercisable and
21
unexercisable options. The amounts in this column may not represent amounts actually realized by
the executive officers listed in the Summary Compensation Table.
OPTION REPRICING
In January 2003, we completed a stock option exchange program in which we
offered domestic employees the opportunity to exchange outstanding options with
exercise prices greater than $3.01 for new stock options at a ratio of 0.75 for
each shares underlying the option exchanged. The new grant bears an exercise
price equal to the fair market value of our common stock at the end of the offer
period. Executive officers, directors, and consultants were not eligible to
participate in this program. We implemented the stock option exchange program
because the options eligible to be exchanged had exercise prices significantly
higher than the market price of our common stock, and we believed that those
options were unlikely to be exercised in the near future and were not providing
proper incentives to our employees. The replacement stock options vest over two
years and six months and expire ten years from the date of grant.
The following table shows certain information concerning the exchanged
options issued to the executive officers and highly compensated employees listed
in the Summary Compensation Table during the last ten years.
TEN YEAR OPTION REPRICINGS
LENGTH OF
ORIGINAL
NUMBER OF OPTION TERM
SECURITIES MARKET PRICE REMAINING AT
UNDERLYING OF STOCK AT EXERCISE PRICE NEW DATE OF
OPTIONS TIME OF AT TIME OF EXERCISE EXCHANGE
NAME DATE EXCHANGED (#) EXCHANGE EXCHANGE PRICE (IN MONTHS)
Marc Nussbaum
Chief Executive Officer --- --- --- --- --- ---
James Kerrigan
Chief Financial Officer --- --- --- --- --- ---
Michael Oswald
General Counsel, Vice
President and Secretary --- --- --- --- --- ---
Curtis Brown
Executive Vice President 7/28/03 112,500 $ 0.81 $ 9.00 $ 0.81 101
Research and Development (1) (2)
David Schafer
Executive Vice President
World Wide Sales --- --- --- --- --- ---
(1) The original grant of an option to purchase 150,000 shares of the Company's common stock was tendered
and cancelled on January 27, 2003. The new grant of an option to purchase 112,500 shares of the Company's
common stock was granted on July 28, 2003.
(2) Options were replaced at a ratio of 1 to 0.75, and thus the number of securities underlying the option
the participant received represent 0.75 of that tendered for cancellation.
EQUITY COMPENSATION PLANS
The following table summarizes our equity compensation plans as of June 30,
2004:
EQUITY COMPENSATION PLANS
The following table summarizes our equity compensation plans as of June 30, 2002:
NUMBER OF SECURITIES WEIGHTED- NUMBER OF SECURITIES
TO BE ISSUED UPON AVERAGE EXERCISE REMAINING AVAILABLE FOR
EXERCISE OF PRICE OF FUTURE ISSUANCE UNDER
PLAN OUTSTANDING OPTIONS OUTSTANDING EQUITY COMPENSATION
OPTIONS PLAN
------------------------ -------------------- ----------------- -----------------------
Equity compensation plan
approved by stockholders
5,573,986 $1.81 14,844,908
22
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities ("10%
Stockholders") to file with the Securities and Exchange Commission (the "SEC")
reports of ownership on Form 3 and reports on changes in ownership on Form 4 or
Form 5. Such executive officers, directors, and 10% Stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms that they file. Lantronix believes all reporting requirements under
Section 16(a) for the fiscal year ended June 30, 2004 were met by its executive
officers, Board members and greater than ten-percent stockholders.
RELATED PARTY TRANSACTIONS
One international customer, transtec AG, which is a related party due to
common ownership by our largest stockholder and former Chairman of our Board of
Directors, Bernhard Bruscha, accounted for approximately 3%, 4% and 5% of our
net revenues for the years ended June 30, 2004, 2003 and 2002, respectively. We
also had an agreement with transtec AG for the provision of technical support
services at the rate of $7,500 per month, which has now been terminated.
Included in selling, general and administrative expenses is $90,000 for the
fiscal year ended June 30, 2002. No similar expenses were recorded for the
fiscal years ended June 30, 2004 or June 30, 2003.
Each director, Mr. Desai, Mr. Slayen, Mr. Burton, and Ms. Lewis received an
option to purchase 25,000 shares of the Company's common stock at an exercise
price of $0.48 per share on November 12, 2002 pursuant to the 2002 Annual
Meeting of Stockholders as partial compensation for services being rendered in
each director's capacity as a director as more fully set forth above under
"Director Compensation." Also during the fiscal year ended June 30, 2004, Ms.
Lewis received an option to purchase 25,000 shares of the Company's common stock
at an exercise price of $0.41 per share on October 1, 2002 pursuant to her
election to the Board as partial compensation for services as a director, also
as more fully set forth above under "Director Compensation." Each grant is a
non-statutory stock option with a one-year cliff vesting for the first fifty
percent (50%) of the options under the grant and the remaining fifty percent
(50%) vesting monthly over the following twenty-four (24) months.
Howard Slayen, a member of our Board of Directors also serves as our
nominee to the Xanboo Board of Directors. As of June 30, 2004, we held a 14.9%
ownership interest in Xanboo, a privately-held company that develops technology
that allows users to control, command and view their home or business remotely
over the Internet. Marc Nussbaum our Chief Executive Officer also served as a
nominee to the Xanboo Board of Directors prior to his resignation from the
Xanboo board in August 2003.
Our Certificate of Incorporation and Bylaws provide that we shall indemnify
our directors and officers to the fullest extent permitted by Delaware law. We
have also entered into indemnification agreements with our officers and
directors containing provisions that may require us, among other things, to
indemnify our officers and directors against liabilities that may arise by
virtue of their status or service as directors or officers and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. We are currently involved in litigation under which
indemnification claims might be made.
INDEBTEDNESS
Thomas W. Burton, a director on the Board of Directors and current Chair
of the Compensation Committee, currently has a non-recourse promissory note,
dated April 16, 2001, with a current aggregate principal amount owed to the
Company of $94,000 and interest payable of $17,000 as of June 30, 2004. The
note bears an interest rate of 5.19% per annum, compounded annually. Mr. Burton
executed the note for a loan from the Company for Mr. Burton to pay income tax
liabilities he incurred as a result of various exercises of stock options to
purchase our common stock. No impairment has been recorded as it relates to the
note receivable from Mr. Burton.
23
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee,
which is composed of Non-Employee Directors, is responsible for approving and
reporting to the Board on all elements of compensation for the executive
officers of the Company. The Compensation Committee has furnished the following
report on executive compensation for the fiscal year ended June 30, 2004. The
Compensation Committee held four (4) meetings during Fiscal Year 2004.
As part of its duties, the Compensation Committee reviews compensation
levels of the executive officers to confirm that compensation is in line with
performance and industry practices. The goal of the Committee is to ensure the
compensation practices of the Company are sufficient to: (i) enable the Company
to attract, retain and motivate the most qualified talent who contribute to the
long-term success of the Company; (ii) align compensation with business
objectives and performance; and (iii) align incentives for executive officers
with the interest of stockholders in maximizing stockholder value. The Company
emphasizes performance-based compensation that is competitive with the
marketplace, and the importance of clearly communicating performance objectives.
The Company intends to review its compensation practices, as needed, by
comparing them to surveys of relevant competitors and set objective compensation
parameters based on this review. Compensation policies also reflect the
competition for executive talent and the unique challenges and opportunities
facing the Company in the networking device markets.
The Company's compensation program for all employees includes both cash and
equity-based elements. Because it is directly linked to the interest of our
stockholders, equity-based compensation is emphasized in the design of the
Company's compensation programs. Consistent with competitive practices, the
Company utilizes a cash bonus plan based on achievement of financial performance
objectives.
CASH COMPENSATION
Salary. The Company sets a base salary range for each executive officer,
including the Chief Executive Officer, by reviewing the base salary for
comparable positions of a broad peer group, including companies similar in size
and business that compete with the Company in the recruitment and retention of
senior personnel. Individual salaries for each executive officer are set based
on experience, performance and contribution to the Company's results, as well as
our financial performance.
Cash Bonuses. Selected employees and executive officers are eligible to
participate in the Company's cash bonus plan, with executive employee bonuses
determined by the Compensation Committee of the Board of Directors. This plan
provides cash awards for meeting certain performance goals, based on a matrix in
which 100% or more of target may be achieved only if the Company's results meet
targets. Individual bonus amounts are determined by company performance and the
employee's direct responsibilities and their impact on the Company's results.
The corporate financial goals are based on the approved operating plan and any
periodic updates thereto.
EQUITY-BASED COMPENSATION
Initial or "new-hire" options are granted to executive officers when they
first join the Company. In addition, restricted stock may be sold to certain
executive officers when they first join the Company. Thereafter, options may be
granted and restricted stock may be sold to each executive officer annually and
from time to time based on performance. To enhance retention, options granted
and restricted stock sold to executive officers are subject to vesting
restrictions that generally lapse over four years. The amount of actual options
granted depends on the individual's level of responsibility and a review of
stock option grants of positions at a broad peer group.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
When setting the Chief Executive Officer's compensation, the Committee does
so without such person's attendance. The Chief Executive Officer's salary, bonus
and equity grants follow the policies set forth above. In determining Mr.
Nussbaum's compensation package, the Committee considered compensation practices
at other high tech companies with which Lantronix competes for talent. The
Committee uses other industries for comparable measures, which have some of the
same marketing, sales, research and development and operations challenges.
24
In May 2002, the Company hired Marc Nussbaum to serve as the Interim Chief
Executive Officer. In February 2003, the Company eliminated the interim capacity
and Mr. Nussbaum now serves as the Chief Executive Officer. The annual base
salary for Mr. Nussbaum for the fiscal year ended June 30, 2004 is $290,000 and
a monthly automobile allowance of $750.
For the fiscal year ended June 30, 2004, Mr. Nussbaum did not receive any
bonus because we did not meet our corporate financial goals based on the
approved operating plan and any periodic updates thereto for the fiscal year.
POLICY REGARDING DEDUCTIBILITY OF COMPENSATION
We are required to disclose our policy regarding qualifying executive
compensation for deductibility under Section 162(m) of the Internal Revenue Code
of 1986, as amended, which provides that, for purposes of the regular income
tax, the otherwise allowable deduction for compensation paid or accrued with
respect to the chief executive officer and the next four most highly compensated
executive officers of a publicly-held company is limited to $1 million per year,
unless such compensation is performance-based within the meaning of Section
162(m) and the regulations thereunder.
The Committee intends to continue to utilize performance-based compensation
in order to minimize the effect of the limits imposed by Section 162(m) and
seeks to assure the maximum tax deductibility of all compensation it authorizes.
However, the Committee believes that its primary responsibility is to provide a
compensation program that will attract, retain and reward the executive talent
necessary to the Company's success. Consequently, the Committee recognizes that
the loss of a tax deduction may be necessary in some circumstances.
Submitted by:
Compensation Committee
Thomas W. Burton, Chair
H.K. Desai
Howard T. Slayen
Kathryn Braun Lewis
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The members of the Compensation Committee are set forth in the preceding
section. No interlocking relationships existed during the fiscal year ended June
30,2004 between our Board of Directors or our Compensation Committee and the
board of directors and compensation committee of any other company.
25
AUDIT COMMITTEE REPORT YEAR ENDED JUNE 30, 2004
The Audit Committee of our Board of Directors serves as the representative
of our Board of Directors for the general oversight of our financial accounting
and reporting process, systems of internal control, audit process and the
process for monitoring compliance with laws and regulations and our Code of
Business Conduct and Ethics. The Audit Committee members are not professional
auditors, and their functions are not intended to duplicate or to certify the
activities of management and the independent registered public accountants. The
Audit Committee oversees Lantronix's financial reporting process on behalf of
the Board of Directors. Our management has primary responsibility for preparing
our financial statements and our financial reporting process, including
Lantronix's system of internal controls. Our independent accountants, Ernst &
Young LLP, are responsible for expressing an opinion on the conformity of our
audited financial statements to generally accepted accounting principles. The
audit committee meets periodically with the independent registered public
accountants, with and without management present, to discuss the results of the
independent registered public accountants' examinations and evaluations of
Lantronix's internal controls, and the overall quality of Lantronix's financial
reporting.
For the fiscal year ended June 30, 2004, the Committee met in person five
(5) times and met via telephone conference calls an additional 4 times. The
members of the Audit Committee took the following actions in fulfilling its
oversight responsibilities:
(i) reviewed and discussed the annual audited financial statements and the
quarterly results of operation with management, including a discussion of
the quality and the acceptability of Lantronix's financial reporting and
controls as well as the clarity of disclosures in the financial statements;
(ii) discussed with the independent registered public accountants their review
of the Company's quarterly financial statements for the quarters ended
September 30, 2003, December 31, 2003, March 31, 2004;
(iii) discussed with the independent registered public accountants the matters
required to be discussed by Statement SAS 61 (Codification on Statements on
Auditing Standard, AU 380);
(iv) received from the independent registered public accountants written
disclosures and the letter from the independent registered public
accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees) and discussed with the independent registered public
accountants their independence; and
(iv) based on the above, recommended to the Board of Directors that the audited
financials be included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2004, for filing with the SEC.
Following the termination of our Chief Financial Officer on May 3, 2002,
the Audit Committee engaged counsel and independent accountants to conduct a
special investigation of certain matters. During the year ended June 30, 2004,
one or more members of the Audit Committee continued to be engaged in
supervision of and discussions with outside legal counsel regarding the ongoing
SEC investigation related to the Company's restatement of prior earnings.
For the fiscal year ended June 30, 2004, the Company's Audit Committee has
consisted of Thomas W. Burton, Howard T. Slayen and Kathryn Braun Lewis. Each of
the directors who serves on the Audit Committee is "independent" within the
meaning of the rules of the Nasdaq Stock Market and meets the financial literacy
and expertise requirements of the Nasdaq Stock Market and regulations
promulgated by the SEC. The Audit Committee updated and revised its charter on
June 30, 2004, a copy of which is attached hereto as Appendix A.
This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Act of 1934, as amended, except to the extent that we specifically
incorporate this information by reference, and shall not otherwise be deemed
filed under such acts.
Submitted by:
Audit Committee
Howard T. Slayen, Chair
Thomas W. Burton
Kathryn Braun Lewis
26
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return to stockholders on our
common stock with the cumulative total return on the NASDAQ Stock Market
Index-U.S. ("NASDAQ US Index") and the Research Data Group ("RDG") Technology
Composite for the period commencing on August 4, 2000, the date of the initial
public offering of the Company's common stock, and ending on June 30, 2004. The
following graph assumes the investment of $100 in the Company's Common Stock and
in the two other indices, and reinvestment of all dividends.
The comparisons shown in the graph below are based upon historical data. We
consistently caution that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future performance
of our common stock.
LANTRONIX INC
Cumulative Total Return
8/4/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02 9/02 12/02 3/03 6/03 9/03
LANTRONIX, INC.. . . . . . 100.00 95.00 63.75 50.31 103.00 61.00 63.20 25.90 8.50 3.80 7.00 7.70 7.40 9.10
NASDAQ STOCK MARKET (U.S.) 100.00 102.85 60.94 41.47 39.91 36.18 32.15 32.47 33.89 31.61 29.43 26.57 32.61 37.52
RDG TECHNOLOGY COMPOSITE . 100.00 95.25 65.56 46.35 52.62 34.73 47.62 44.49 32.80 24.44 29.82 29.57 35.38 39.33
12/03 3/04 6/04
LANTRONIX, INC.. . . . . . 11.70 13.80 12.50
NASDAQ STOCK MARKET (U.S.) 42.01 44.32 44.47
RDG TECHNOLOGY COMPOSITE . 45.56 47.33 48.42
Notwithstanding anything to the contrary set forth in any of our previous
or future filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate this proxy statement or future filings made
by us under those statutes, the Compensation Committee Report and stock
performance graph shall not be deemed filed with the SEC and shall not be deemed
incorporated by reference into any of those prior filings or into any of our
future filings.
OTHER MATTERS
The 2004 Annual Meeting is called for the specific purposes set forth in
the Notice of Annual Meeting as discussed above, and also for the purpose of
transacting such other business as may properly come before the Annual Meeting.
At the date of this Proxy Statement the only matters that management intends to
present, or is informed or expects that others will present for action at the
2004 Annual Meeting, are those matters specifically referred to in such Notice.
We have not been notified by any stockholder of his, her or its intention to
present a stockholder proposal from the floor at the 2004 Annual Meeting, and
the Bylaw Deadline for the 2004 Annual Meeting occurred on September 19, 2004,
the date 60 days prior to the 2004 Annual Meeting. The enclosed proxy grants the
proxy holders discretionary authority to vote on any matter properly brought
before the 2004 Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Irvine, California
October 18, 2004
27
WHERE YOU CAN FIND MORE INFORMATION
The Company files reports, proxy statements and other information with the
SEC under the Exchange Act. You may obtain copies of this information by mail
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the SEC's Public Reference Room in Washington, D.C. can be obtained
by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy
statements and other information about issuers, such as the Company, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
the Company at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, DC 20006.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement. This document incorporates by reference the Annual Report on Form
10-K for fiscal year ended June 30, 2004 filed with the SEC and mailed in
conjunction with this Proxy Statement. This document contains important
information about the Company and its finances.
You can obtain any documents incorporated by reference in this Proxy
Statement from the Company, or from the SEC through the SEC's web site at the
address described above. Documents incorporated by reference are available from
the Company without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this Proxy
Statement. Requests should be sent to the Secretary, Lantronix, Inc., 15353
Barranca Parkway, Irvine, CA 92618.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE PROPOSALS. THE COMPANY HAS NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED OCTOBER 18, 2004. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN SUCH DATE, AND THE MAILING OF THIS PROXY STATEMENT TO THE COMPANY
STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
28
APPENDIX A
CHARTER - AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF LANTRONIX, INC., AMENDED
SEPTEMBER 30, 2004
ORGANIZATION
This charter governs the operations of the Audit Committee of the Board of
Directors. The committee shall review and reassess the charter at least annually
and obtain the approval of the board of directors. The committee shall be
appointed by the board of directors and shall comprise at least three directors,
each of whom is independent of management and the Company. Members of the
committee shall be considered independent if they have no relationship that may
interfere with the exercise of their independence from management and the
Company. All committee members shall be financially literate, and at least one
member shall have accounting or related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established from time to time by management and the board. In so doing, it is
the responsibility of the committee to maintain free and open communication
between the committee, independent registered public accountants, and management
of the Company. In discharging its oversight role, the committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Company. The audit committee is
empowered to retain outside counsel, accounting, or other experts to obtain
advice and assistance.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. While the audit committee has the
responsibilities and powers set forth in this Charter, it is not the duty of the
audit committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. Management is responsible for
preparing the Company's financial statements, and the independent registered
public accountants are responsible for auditing those financial statements.
The committee in carrying out its responsibilities believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and circumstances. The committee should take appropriate actions to
set the overall corporate "tone" for quality financial reporting, sound business
risk practices, and ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
The committee shall have a clear understanding with management and the
independent registered public accountants that the independent registered public
accountants are ultimately accountable to the audit committee and the board, as
representatives of the Company's shareholders. The committee shall have the
ultimate authority and responsibility to appoint, compensate, oversee the work
of the independent registered public accountants (including resolving
disagreements between management and the independent registered public
accountants regarding financial reporting) for the purpose of preparing or
issuing an audit report or related work and, where appropriate, replace the
independent registered public accountants. The committee shall actively discuss
with the independent registered public accountants their independence from
management and the Company and obtain a formal written statement delineating all
relationships between the independent registered public accountants and the
Company, as well as other matters in the written disclosures required by the
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Independence Standards Board. The committee shall also consider the
compatibility of nonaudit services with the independent registered public
accountants' independence and shall pre-approve any nonaudit services provided
to the Company by the independent registered public accountants. Annually, the
committee shall review and select the Company's independent registered public
accountants.
The committee shall discuss with the independent registered public
accountants the overall scope and plans for their respective audits including
the adequacy of staffing and compensation for services rendered and shall
pre-approve all auditing services. Also, the committee shall evaluate and
discuss with management and the independent registered public accountants the
adequacy and effectiveness of the accounting and financial controls, including
the Company's system to monitor and manage business risk, and legal and ethical
compliance programs. Further, the committee shall meet separately with the
independent registered public accountants, with and without management present,
to discuss the results of their examinations and will provide sufficient
opportunity for the independent registered public accountants to meet privately
with the members of the committee.
The committee shall review and approve in advance any related-party
transactions and will establish procedures for receiving, retaining and treating
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters and procedures for the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters.
The committee shall review the interim financial statements with management
and the independent registered public accountants prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss the
results of the quarterly review and any other matters required to be
communicated to the committee by the independent registered public accountants
under generally accepted auditing standards. The chair of the committee may
represent the entire committee for the purposes of this review.
The committee shall review with management and the independent registered
public accountants the financial statements to be included in the Company's
Annual Report on Form 10-K or the annual report to shareholders if distributed
prior to the filing of Form 10-K, including their judgment about the quality,
not just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements. Also, the committee shall discuss the results of the annual audit
and any other matters required to be communicated to the committee by the
independent registered public accountants under generally accepted auditing
standards.
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APPENDIX B
LANTRONIX, INC.
AMENDED AND RESTATED 2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Amended and Restated 2000
Employee Stock Purchase Plan of Lantronix.
1. Purpose. The purpose of the Plan is to provide employees of the Company
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and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
-------------
(d) "Company" shall mean Lantronix and any Designated Subsidiary of the
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Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
bonuses, commissions, and overtime payments, but exclusive of incentive
compensation, incentive payments, and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidi-ary that has been
----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the Company
--------
for tax purposes whose customary employment with the Company are at least twenty
(20) hours per week and more than five (5) months in any calendar year. For
purposes of the Plan, the employment relationship shall be treated as continuing
intact while the individual is on sick leave or other leave of absence approved
by the Company. Where the period of leave exceeds 90 days and the individual's
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship shall be deemed to have terminated on the 91st day of
such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each Offering
----------------
Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of Common
-------------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National Market
or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system for the last market trading
day prior to the date of determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable;
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(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean of the closing bid and asked prices for the Common Stock prior to the date
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board; or
(iv) For purposes of the Enrollment Date of the first Offering Period under
the Plan, the Fair Market Value shall be the initial price to the public as set
forth in the final prospectus included within the registration statement in Form
S-1 filed with the Securities and Exchange Commission for the initial public
offering of the Company's Common Stock (the "Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-four
-----------------
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after August 1 and February
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before July 30,
2002. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Amended and Restated 2000 Employee Stock Purchase
----
Plan.
(m) "Purchase Period" shall mean the approximately six month period
----------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a share of
---------------
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower;
provided however, that the Purchase Price may be adjusted by the Board pursuant
to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered by
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each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of which not
----------
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges and the
-----------
Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) to the extent that, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any Subsidiary,
or (ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries accrues at a
rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
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(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
-----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after March 1 and September 1 of each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
August 31, 2002. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office prior to the
applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first payroll
following the Enrollment Date and shall end on the last payroll in the Offering
Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof.
6. Payroll Deductions.
-------------------
(a) At the time a participant files his or her subscription agreement, he or
she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent 15 % of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages only.
A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions may be decreased to zero percent (0%) at any time during a Purchase
Period. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the time
some or all of the Company's Common Stock issued under the Plan is disposed of,
the participant must make adequate provision for the Company's federal, state,
or other tax withholding obligations, if any, which arise upon the exercise of
the option or the disposition of the Common Stock. At any time, the Company
may, but shall not be obligated to, withhold from the participant's compensation
the amount necessary for the Company to meet applicable withholding obligations,
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including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
-----------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
25,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the
maximum number of shares of the Company's Common Stock an Employee may purchase
during each Purchase Period of such Offering Period. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last
day of the Offering Period.
8. Exercise of Option.
--------------------
(a) Unless a participant withdraws from the Plan as provided in Section 10
hereof, his or her option for the purchase of shares shall be exercised
automatically on the Exercise Date, and the maximum number of full shares
subject to option shall be purchased for such participant at the applicable
Purchase Price with the accumulated payroll deductions in his or her account.
No fractional shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share
shall be retained in the participant's account for the subsequent Purchase
Period or Offering Period, subject to earlier withdrawal by the participant as
provided in Section 10 hereof. Any other monies left over in a participant's
account after the Exercise Date shall be returned to the participant. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date, on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
B-4
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period.
If a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
---------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be
1,500,000 shares plus an annual increase to be added on the first day of the
Company's fiscal year beginning in Year 2001, equal to the lesser of (i) 150,000
shares, (ii) 2% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board. The Plan was initially funded with 750,000
shares of the Company's Common Stock . By operation of the provision in
Section 13(a)(i), shares have been added to the Plan on four separate
occasions, such that a total of 600,000 shares were added to the Plan before the
shareholders approved amending and restating the Plan to add an additional
750,000 shares effective as of November 18, 2004.
(b) The participant shall have no interest or voting right in shares covered
by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
----------------------------
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
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option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any
time by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
--------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
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in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
------------------------------------------------------------------------
Merger or Asset Sale.
---------------------
(a) Changes in Capitalization. Subject to any required action by the
---------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
--------------------------
liquidation of the Company, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed dissolution or
liquidation, unless provided otherwise by the Board. The New Exercise Date
shall be before the date of the Company's proposed dissolution or liquidation.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
-----------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
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then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
--------------------------
(a) The Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the Board
action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
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Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
--------------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
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amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur
------------
of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
B-8
EXHIBIT A
---------
LANTRONIX, INC.
AMENDED AND RESTATED 2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Lantronix
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
sub-scribes to purchase shares of the Company's Common Stock in accordance with
this Sub-scription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note that
no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in all
respects subject to the terms of the Plan. I understand that my ability to
exercise the option under this Subscription Agreement is subject to share-holder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased such shares) or one year after the Exercise
Date, I will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were purchased by
me over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of my shares
--------------------------------------------------------------------------------
and I will make adequate provision for Federal, state or other tax withholding
--------------------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock. The
--------------------------------------------------------------------------
Company may, but will not be obligated to, withhold from my compensation the
amount neces-sary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-year
holding periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition, and
that such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares, or (2) 15% of the fair market value of the shares on the first day
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of the Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________
Relationship
(Address)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
(1) I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary other than spouse)
B-10
EXHIBIT B
---------
LANTRONIX, INC.
AMENDED AND RESTATED 2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Lantronix
Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
B-11
APPENDIX C
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF LANTRONIX. INC.
I.
The name of this corporation is Lantronix, Inc. (the "Corporation").
II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
III.
The purpose of this Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
IV.
The Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock, par value $0.0001 per share (the "Common
Stock"), and Preferred Stock, par value $0.0001 per share (the "Preferred
Stock"). The total number of shares of Common Stock the Corporation shall have
authority to issue shall be 200,000,000 and the total number of shares of
Preferred Stock the Company shall have the authority to issue shall be
5,000,000.
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
1. Voting Rights:
--------------
(a) Except as otherwise required by law or by this Certificate of
Incorporation, the holder of each share of Common Stock issued and outstanding
shall have one vote and the holder of each share of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted at the record date
for determination of the stockholders entitled to vote on such matters, or, if
no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of stock of the Corporation having general voting power
and not separately as a class. Holders of Common Stock and Preferred Stock shall
be entitled to notice of any stockholders' meeting in accordance with the Bylaws
of the Corporation. Functional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole dollar.
(b) The holders of the Preferred and Common Stock shall vote for the
Corporation's Board of Directors as follows: all members elected by the holders
of the Preferred and Common Stock, voting together as a class. Any director
designated under this Section 1(b) may be removed from the Board only at the
written request of the holders which designated such director in accordance with
Section 1(b). In the event of death, resignation, removal, or inability to serve
of any designees, the resulting vacancy on the Board shall be filled by an
individual designated by the holders who designated the vacating director.
V.
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
C-1
Neither any amendment, modification nor repeal of this Article, nor the
adoption of any provision of the Certificate of Incorporation inconsistent with
this Article, shall eliminate, reduce or adversely affect, any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such amendment, modification, repeal or
adoption of an inconsistent provision.
VI.
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no action that is required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
VII.
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no stockholder will be permitted to
cumulate any votes at any election of directors.
VIII.
A director shall hold office from the effective date of such director's
election until the next annual meeting of stockholders and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. The term of each director who is
serving as a director on the effective date of this amended and restated
certificate of incorporation shall expire at the next annual meeting of
stockholders after such date and upon the election and qualification of such
director's successor, or upon such director's earlier resignation or removal,
notwithstanding that such director may have been elected for a term that
extended beyond the date of such next annual meeting of stockholders.
XI.
The Board of Directors of the Corporation is expressly authorized to adopt,
amend, or repeal the Bylaws of the Corporation, but the stockholders may make
additional by-laws and may alter or repeal any by-law whether adopted by them or
otherwise.
Notwithstanding any other provision of this Certificate of Incorporation,
the Bylaws of the Corporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of stock of the Corporation required
by law, this Certificate of Incorporation or any Preferred Stock designation,
the affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding shares of the voting stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for the modification, amendment or repeal of
Section 2.2 (Annual Meeting), Section 2.3 (Special Meeting), Section 2.5
(Advance Notice of Stockholder Nominees and Stockholder Business), Section 3.3
(Election and Term of Office of Directors), and Section 3.4 (Resignation and
Vacancies) of the Bylaws of the Corporation or of Article VIII or this Article
IX of this Certificate of Incorporation.
X.
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the Corporation.
XI.
The Corporation is to have perpetual existence.
C-2
XII.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.
XIII.
Advance notice of new business at stockholders' meetings and stockholder
proposals and stockholder nomination for the election of directors shall be
given in the manner and to the extent provided in the Bylaws of the Corporation.
XIV.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
XV.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
The undersigned incorporator hereby acknowledges that the above Certificate
of Incorporation of Lantronix, Inc., is her act and deed and that the facts
stated therein are true.
Dated: __________
__________________________________
Secretary
C-3