EXHIBIT 10.9
EMPLOYMENT AGREEMENT
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THIS AGREEMENT, made on September 28, 1998 is between Lantronix, a
California corporation, ("Employer"), located at 00000 Xxxxxxxx Xxxxxxx, Xxxxxx,
Xxxxxxxxxx 00000, and Xxxxxxxx Xxxxxxxxx, a married individual, ("Employee"),
residing, at Xxxxxxxxxxxxxxxxxx 0, 00000 Xxxxxxxxx, Xxxxxxx, by virtue of the
following facts, events, circumstances and desires:
RECITALS
A. WHEREAS, Employee desires to work for Employer and receive
compensation, and Employer desires to employ Employee;
B. WHEREAS, Employer is engaged in the business of developing and selling
terminal servers, print servers, switches and other peripheral devices used in
local area networking computer systems;
C. WHEREAS, Employee, in the course of employment, will obtain or develop,
confidential information and trade secrets;
D. WHEREAS, Employee recognizes and acknowledges that Employer must
maintain and preserve all such confidential information and trade secrets for
the protection of its business, competitive position and goodwill; and
E. WHEREAS, Employer desires assurance that Employee will not compete
while employed by Employer, and Employee is willing to refrain from such
competition.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this agreement, and in consideration of Employee's employment and
continued employment by Employer, it is agreed as follows:
AGREEMENT
1. Term. Subject to this Agreement's terms and conditions, Employer agrees
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to employ Employee. The employment term shall commence January 1, 1999 and shall
terminate December 31, 2001. The Employee will be employed by the Employer until
such time as either or both parties choose to discontinue the employment. The
employment relationship shall be that of an Employee at will.
2. Duties. While employed by. Employer, Employee shall devote
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substantially his entire working time, skill and attention exclusively to the
interests and business of Employer, shall perform such duties as may be assigned
to him from time to time by Employer. shall comply to the best of his ability
with all policies and directives issued by Employer's Board of Directors, and
shall in all respects do his
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utmost to further enhance and develop the best interests and welfare of the
Employer. Employee's specific title, responsibility, authority and reporting
shall be as detailed on Exhibit "1" attached hereto and incorporated herein.
3. Compensation.
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3.1 Salary. The Employer shall pay to the Employee a cash
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compensation of approximately Two Hundred Thousand Dollars (US$200,000.00) per
year, payable at those intervals as the Employer shall pay other Executives,
commencing January 1, 1999. Said compensation will consist of two components: 1)
a fixed salary of One Hundred and Fifty-five Thousand Dollars (US$155,000), and
2) a variable incentive compensation calculated in accordance with the standard
Executive Incentive Compensation Program attached hereto and incorporated
herewith as Exhibit "2". Said incentive compensation amount shall be paid
quarterly and its quarterly baseline calculated as 30% of the fixed salary paid
each quarter. Employee's compensation shall be subject to annual review by the
President & CEO.
3.2 Automobile Allowance. Employee shall receive an automobile
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allowance of US$800 per month.
3.3 Insurance Coverage. Employer shall make available to Employee and
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his dependents whatever coverages Employee shall elect under Employer's standard
corporate medical, dental, life and disability insurance programs as each such
respective benefit is made available to any other Executive employee of Employer
at a comparable level within the organization.
3.4 Expenses. Employee shall be reimbursed by Employer for all
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reasonable entertainment, promotion, travel or other expenses advanced by him on
behalf of Employer.
3.5 Other Incentives. Employee shall be entitled to participate in
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any other Employee incentive programs offered by Employer, including but not
limited to such programs as a IRC Section 401(k) plan.
3.6 Vacation. Employee will initially be entitled to twenty-five (25)
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days of vacation per year accrued ratably on a monthly basis. Vacation time that
has accrued but is unused at the end of the calendar year will be compensated at
the base salary rate.
3.7 Place of Service. The Employer and Employee shall mutually agree
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where Employee will render his services to Employer. It is intended that the
working capacity of the Employee shall be split up between California, Germany
and other parts of the world in a reasonable and effective manner.
4. Termination. The Employer shall have the right to terminate employment
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without cause, upon three weeks prior notice, or for cause, immediately after
notice. The term "cause" shall mean:
4.1 Conduct on the Employee's part intended to or likely to injure
the Employer's business or reputation;
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4.2 The Employee's perpetration of a crime involving moral turpitude,
whether relating to employment or otherwise;
4.3 Significant failure by the Employee to perform duties and
obligations as set forth in this Agreement, resulting in substantial damage to
the Employer.
5. Confidential Information.
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5.1 Definition. "Confidential information" means information that is
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proprietary to the Employer or proprietary to others and entrusted to the
Employer, whether or not trade secrets. Confidential information includes, but
is not limited to, information relating to business plans and to business as
conducted or anticipated to be conducted, and to past, current or anticipated
products. Confidential information also includes, without limitation, Employer
information concerning (a) price lists, (b) costs of production, and (c) raw
material costs; (d) selling costs, (e) delivery costs, (f) information
concerning new or proposed new products, including the nature and design of such
products and the plans for marketing such products, (g) internal procedures and
policies, (h) customer lists, account .names, contacts, addresses and sales
activity, (i) names and addresses of suppliers and vendors, (j) tax and
financial information, (k) reserves, (l) intellectual property owned or leased
by the company, (m) banking relationships and, arrangements (n) Employees, (o)
management personnel and policies, (p) quotation names, addresses, contacts and
quote workups, (q) all mailing lists, (r) company product training materials and
courses, and (s) company computer programs and printouts.
5.2 Prohibitions Against Use. During or subsequent to the termination
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Of Employee's employment, whether termination is voluntary or involuntary,
Employee will not use or disclose, other than in connection with employment with
the company, any confidential information to any person not employed by the
company or not authorized by the company to receive such confidential
information without the prior written consent of the company. Employee will use
reasonable and. prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of-confidential information. The obligations
contained in this paragraph will survive for as long as the company in its sole
judgment considers the information to be confidential information.
6. Protective Covenant/Non-Competition. While employed by Employer,
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Employee agrees not to. accept employment, consult, with or otherwise become
associated or affiliated with any Person, firm, association or other entity that
is directly or indirectly in competition 'with the services, products, business
or activities of Employer.
It is specifically agreed that while employed and' for a period of,
one (1) year after termination of his employment, Employee shall not in any
manner contact, solicit or cause to be solicited any of Employer's customers,
suppliers or clients or former or prospective customers or suppliers for any
purpose whatsoever without the written consent of Employer. Employee further
agrees that during his employment and for one (1) year after termination of his
employment, he will not
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directly or indirectly, in any manner, request or induce any Employee of
Employer to leave his employment with Employer, unless expressly authorized or
instructed to do so in writing by Employer.
It is understood by both parties to this agreement that the protective
covenants meant for the reasonable protection of the business of Employer and
not to impair the ability of Employee to earn a living. Should any portion of
this covenant be construed by a court of law or equity as less than reasonable,
the parties agree to the establishment by such court of an obligation for the
protection of Employer's business that it deems reasonable.
7. Return of Property. All documents, drawings, lists, records or other
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tangible or intangible thing relating to the business of Employer that Employee
originates or comes into the Employee's possession in any way during the
employment period shall remain the sole property of Employer. Any copies,
abstracts or summaries of such items are likewise the sole property of Employer.
Employee shall not make copies or prepare abstracts or summaries of such items
except for the sole use and account of Employer and with the consent and
instruction of Employer's management. Upon termination of employment of
Employee, he or she shall immediately return to Employer all such items in his
or her possession, as well as any of Employer's property he or she has received
for assistance in performing work duties, including but not limited to those
items outlined above, as well as any of Employer's equipment or supplies.
Employee shall be liable for damages to Employer for any such property not so
returned.
8. Remedy. Employee acknowledges and agrees that' the confidential
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information, trade secrets and special knowledge acquired by him or her during
his or her employment with Employer is valuable and unique, and that breach by
him or her of the provisions of this agreement will cause employer irreparable
injury and damage. It cannot be reasonably or adequately compensated by money
damages. Employee, therefore, expressly agrees that Employer shall be entitled
to injunctive or other equitable relief in order to prevent a breach of this
agreement or any part thereof. in addition to such other remedies legally
available to Employer. Employee expressly waives the claim or defense that
Employer has an adequate remedy at law.
9. Applicable Law. This agreement shall be governed, interpreted and
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construed in accordance with the laws of the State of California.
10. Severability. In the event that any portion of this agreement shall be
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deemed unenforceable or void, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision of this agreement.
11. Entire Agreement. It is agreed that the provisions of the agreement
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contain the entire agreement on the subject covered between the parties, and
cannot be modified orally, and can only be modified by written agreement signed
by Employee and Employer. This agreement shall be binding upon the parties and
their respective heirs, administrators .and assigns.
12. Voluntary Agreement. I understand I will have access to confidential,
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information and customer accounts while employed by Employer. I further
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acknowledge that I have freely and voluntarily entered into this Agreement which
contains restrictions on my ability to complete with Lantronix for any reason. I
recognize that Lantronix has provided me adequate consideration for my agreement
herein.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
identified at the beginning of the agreement.
"EMPLOYEE"
/s/ Xxxxxxxx Xxxxxxxxx
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Xxxxxxxx Xxxxxxxxx
LANTRONIX
By: /s/ Xxxxxxxxx X. Xxxxx
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Xxxxxxxxx X. Xxxxx
Its: Chief Executive Officer
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EXHIBIT "1"
TITLE: Chief Technological Officer
RESPONSIBILITIES: The responsibility of the CTO is to:
AUTHORITY: The CTO is empowered to:
REPORTING: The CTO reports to the President and CEO
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EXHIBIT "2"
EXECUTIVE INCENTIVE COMPENSATION PROGRAM
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The purpose of the Executive Incentive Compensation Plan is to enhance and
reinforce the goals of Lantronix (the "Company") for profit, able growth and
continuance of a sound overall condition: by providing selected employees with
additional financial rewards for attainment of such growth and stable financial
and operating condition. Final approval of the payment of any awards made under
the Plan is subject to the discretion of the Board of Directors.
The Plan will take into account two major categories in determining incentive
compensation:
. Corporate Financial Goals
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. Individual Management Objectives
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Following is a matrix of the mix of annual incentive compensation elements for
selected management levels:
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LEVEL Financial MBO's % of $base
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CEO/President 60% 40% 30%
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CTO or Vice President 60% 40% 30%
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Weighting and Factors:
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Financial goals consist of revenues, gross margin and bet operating income in
dollars and are weighed as follows:
Revenue 20%
Gross Margin 50%
Net 30%
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Gross margin carried the greatest weight due to its importance in providing the
fuel that powers the company.
As a further incentive, each goal uses a step function with thresholds to
determine actual bonus amount as follows:
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Element Percentage of Goal Factor
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Revenue Less than 85% 0.0x
85%-95% 0.5x
96-110% 1.0x
Greater than 110% 2.0x
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Gross Margin Less than 80% 0.0x
81-90% 0.5x
91-115% 1.0x
Greater than 115% 2.0x
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Net Less than 60% 0.0x
61-80% 0.5x
81-120% 1.0x
Greater than 120% 2.0x
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Example:
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Period: Q3 1997
Annual Salary: $100,000 Incentive compensation baseline: 30%
MBO Baseline $/qtr: $7,500 Fin. %: 60% MBO %: 40%
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FINANCIAL TARGET ACTUAL RESULT/ FACTOR BASELINE (R/F)*
GOALS BASELINE
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REVENUE $10,000 $10,500 105% $ 900 $ 900.00
1.0 20%
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GROSS MARGIN $ 4,600 $ 5,500 120% $2,250 $4,500.00
2.0 50%
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PROFIT $ 1,100 $ 800 73% $1,350 $ 675.00
0.5 30%
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SUBTOTAL FINANCIAL $4,500 $6,075.00
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Rules:
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1. Incentive compensation is to be paid quarterly based on targeted
quarterly financial goals and MBO's.
2. Circumstance beyond the control of the executive, or not contemplated by
the parties when setting goals, should not negatively, affect the incentive
compensation calculation. As such circumstances arise, expectations as to the
potential effect should be negotiated between the executive and his
supervisor(s). Disputes should be resolved solely at the discretion of the Board
of Directors.
3. Financial goal targets should be based on the Board approved operating
plan and any periodic updates that may be made.
4. MBO's need to be specifically defined, measurable, subject to partial
credit or all or none, reasonably able to be accomplished, support the overall
goals of the Company and the Operating Plan, and negotiated and agreed to by
supervisor and executive.
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