SEVERANCE AGREEMENT
Exhibit
10.1
This
Severance Agreement ("Agreement") is made and entered into by and between
LANTRONIX, INC., a Delaware corporation ("Company"), and Xxxxxx X. Xxxxx
("Executive"), and is effective as of May 15, 2007.
RECITALS
WHEREAS,
Executive is employed as Senior Vice President, Chief Financial Officer of
the
Company;
and
WHEREAS,
the Company desires to provide certain benefits to Executive as described herein
as an incentive for Executive to serve the Company.
AGREEMENT
NOW,
THEREFORE, in consideration of the promises and covenants set forth in this
Agreement and for other valuable consideration, the parties agree as
follows:
1. Termination
Without Cause or Resignation With "Good Reason" During Specified Pre-Change
Period or Specified Post-Change Period.
If a
"Change of Control" (as hereinafter defined) of the Company occurs after the
effective date hereof, and either (i) the Company terminates Executive without
"Cause" (as hereinafter defined) during the Specified Post-Change Period or
the
Specified Pre-Change Period (each as defined below), or (ii) Executive resigns
with "Good Reason" (as hereinafter defined) during the Specified Post-Change
Period or the Specified Pre-Change Period, then, subject to the terms of this
Agreement, as a severance benefit and in lieu of all other compensation or
damages, the Company shall:
a. Pay
Executive a sum equal to the greater of either (i) twelve (12) months of
his base salary in effect on the date of termination or resignation, or
(ii) twelve (12) months of his base salary in effect as of (A) the
Execution Date (as defined in Paragraph 3(e) below) in the event the Company
terminates Executive without Cause or Executive resigns with Good Reason, during
a Specified Pre-Change Period, or (B) the date of the Change of Control in
the
event the Company terminates Executive without Cause or Executive resigns with
Good Reason during a Specified Post-Change Period, payable as follows and less
required tax deductions and withholdings: (x) one-half of such amount
within thirty (30) days after the later of (1) the date of the consummation
of
the Change of Control, or (2) the date of such termination or resignation,
and
(y) one-half of such amount on or before the date that is twelve (12)
months following the later of (1) the date of the consummation of the Change
of
Control, or (2) the date of such termination or resignation. The timing of
the
payments shall be made in accordance with the previous sentence if the sum
of
the payments to which Executive is entitled under this Paragraph 1(a) do not
exceed the lesser of two (2) times Executive's annual compensation or two (2)
times the compensation limit set forth in Section 401(a)(17) of the Internal
Revenue Code, for the calendar year prior to the calendar year in which
Executive is terminated or resigns. If the sum of such payments to Executive
under this Paragraph 1(a) would exceed the lesser of two (2) times Executive's
annual compensation or two (2) times the compensation limit set forth in Section
401(a)(17) of the Internal Revenue Code, then such excess amount shall be paid
to Executive prior to the 15th
day of
March following the end of the calendar year in which the Executive was
terminated without Cause or the Executive resigned with Good
Reason;
-1-
b. Continue
to provide Executive, at the Company's expense, all medical, dental insurance
coverages and executive automobile benefits provided to him immediately prior
to
the date of such termination or resignation for a period of twelve (12) months
following the date of such termination or resignation, or, if any of such
benefits cannot be provided to Executive for such twelve (12) month period
under
the Company's policies as then in effect or under applicable law (for example,
if Executive must elect COBRA continuation coverage to receive such benefits),
then the Company shall pay Executive an amount equal to the monthly sums paid
on
behalf of Executive for such benefits at the time of such termination or
resignation for a period beginning on the date Executive's participation in
such
benefits is disallowed and ending on the date that is no more than twelve (12)
months following the date of such termination or resignation, payable in monthly
installments within five business days after the end of each month. If the
Executive is terminated without Cause or resigns with Good Reason during a
Specified Pre-Change Period, then payments to the Executive under this Paragraph
1(b) shall not begin until after the consummation of the Change of Control
associated with such Specified Pre-Change Period and the first payment made
to
Executive under this Paragraph 1(b) after the consummation of such Change of
Control shall include amounts described in this Paragraph 1(b) for the period
between the date of such termination or resignation and the consummation of
such
Change of Control. The Company may elect to make a one-time lump-sum payment
equivalent to the payment and benefits under this paragraph. Such amounts are
subject to withholding and/or taxation;
c. Subject
to the provisions of the Company's stock option plan(s), accelerate the vesting
of 100% of all unvested stock options granted to Executive under the Company's
stock option or other benefit plan. Subject to the provisions of the Company's
stock option plan(s), Executive shall have until the earlier of the following
three dates to exercise each of Executive's vested options (including options
accelerated pursuant to the foregoing provisions of this paragraph c.):
(i) twenty-four (24) months after the date of Executive's termination or
resignation, (ii) for each option, the latest date on which such option
could have expired by its original terms under any circumstances, or
(iii) for each option, ten (10) years after the original grant date of such
option. Notwithstanding
the foregoing provisions of this paragraph c., if and to the extent that any
stock option held by Executive is intended to be an "incentive stock option,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), the post-termination exercise period of such incentive
stock option shall not, without the prior written consent of Executive, be
extended beyond three (3) months following the date of termination or
resignation (or twelve (12) months following the date of termination or
resignation if Executive's employment with the Company was terminated, or
Executive resigned, as a result of Executive becoming disabled (within the
meaning of Section 22(e)(3) of the Code));
and
-2-
d. The
Company shall pay to Executive within 30 days of the later of (1) the date
of
the consummation of the Change of Control, or (2) the date of such termination
or resignation, a lump-sum payment, less required tax deductions and
withholdings, equal to the larger of either (i) the highest amount of bonus
incentive cash compensation paid to Executive for services in any past one
year
period (if any) or (ii) 100% of the Executive’s Target Bonus (if any) approved
by the Board of Directors.
2. Termination
Without Cause Not During Specified Pre-Change Period or Specified Post-Change
Period.
If the
Company terminates Executive without "Cause" other than during a Specified
Pre-Change Period or a Specified Post-Change Period (each as defined below),
then, subject to the terms of this Agreement, as a severance benefit and in
lieu
of all other compensation or damages, the Company shall:
a. Continue
to pay Executive his current base salary, less required tax deductions and
withholdings, as in effect on the date of such termination through the end
of
the week in which the applicable termination occurred and continuing for a
period of nine (9) months. The timing of the payments shall be made in
accordance with the previous sentence if the sum of the payments to which
Executive is entitled under this Paragraph 2(a) do not exceed the lesser of
two
(2) times Executive's annual compensation or two (2) times the compensation
limit set forth in Section 401(a)(17) of the Internal Revenue Code, for the
calendar year prior to the calendar year in which Executive is terminated or
resigns. If the sum of such payments to Executive under this Paragraph 2(a)
would exceed the lesser of two (2) times Executive's annual compensation or
two
(2) times the compensation limit set forth in Section 401(a)(17) of the Internal
Revenue Code, then such excess amount shall be paid to Executive prior to the
15th
day of
March following the end of the calendar year in which the Executive was
terminated without Cause;
b. Continue
to provide Executive, at the Company's expense, all medical, dental insurance
coverages and executive automobile benefits provided to him immediately prior
to
the date of such termination for a period of nine (9) months following the
date
of such termination, or, if any of such benefits cannot be provided to Executive
for such nine (9) month period under the Company's policies as then in effect
or
under applicable law (for example, if Executive must elect COBRA continuation
coverage to receive such benefits), then the Company shall pay Executive an
amount equal to the monthly sums paid on behalf of Executive for such benefits
at the time of such termination for a period beginning on the date Executive's
participation in such benefits is disallowed and ending on the date that is
nine
(9) months following the date of such termination, payable in monthly
installments within five business days after the end of each month. The Company
may elect to make a one-time lump-sum payment equivalent to the payment and
benefits under this paragraph. Such sums are subject to withholding and/or
taxation;
-3-
c. Allow
Executive to exercise any and all stock options that were granted to Executive
and vested as of the date of termination. Subject to the provisions of the
Company's stock option plan(s), Executive shall have until the earlier of the
following three dates to exercise each of Executive's vested options:
(i) eighteen (18) months after the date of Executive's termination,
(ii) for each option, the latest date on which such option could have
expired by its original terms under any circumstances, or (iii) for each
option, ten (10) years after the original grant date of such option.
Notwithstanding the foregoing provisions of this paragraph c., if and to the
extent that any stock option held by Executive is intended to be an "incentive
stock option," within the meaning of Section 422 of the Code, the
post-termination exercise period of such incentive stock option shall not,
without Executive's prior written consent, be extended beyond three (3) months
following the date of termination (or twelve (12) months following the date
of
termination if Executive's employment with the Company was terminated as a
result of Executive becoming disabled (within the meaning of Section 22(e)(3)
of
the Code)); and
d. Pay
to
Executive a prorated bonus, less applicable tax withholdings and deductions,
based on the percentage of the current bonus period during which Executive
was
included in the bonus plan and the actual bonus pool amount for the position
granted by the Company’s Board of Directors for the current bonus period,
payable within five business days such bonuses are calculated and paid
generally.
3. Definitions.
a. Change
of Control.
For
purposes of this Agreement, the term "Change of Control" means the occurrence
of
any of the following events:
(i) Any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%)
or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) The
consummation of the sale or disposition by the Company of all or substantially
all of the Company's assets; or
(iii) The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least seventy
percent (70%) of the total voting power represented by the voting securities
of
the Company or such surviving entity or its parent outstanding immediately
after
such merger or consolidation.
-4-
b. Termination
without Cause.
The
Company in its sole discretion may terminate Executive's employment at will
at
any time with or without Cause or notice, and this Agreement does not obligate
the Company to continue Executive's employment for any specified term, or at
all. For purposes of this Agreement, the Company shall be deemed to have
terminated Executive's employment without "Cause" if Executive's employment
is
terminated at will, or for any reason other than the following:
(i) Executive's commission of a felony or misdemeanor or his possession,
use or sale of a controlled substance (other than the use or possession of
legally prescribed medication used for their prescribed purpose); (ii)
Executive's significant neglect, or materially inadequate performance of, his
duties as an employee of the Company; (iii) Executive's breach of a fiduciary
duty to the Company or its shareholders; (iv) Executive's willful breach of
duty
in the course of his employment; (v) Executive's material violation of the
Company's personnel or business policies; (vi) Executive's willful
misconduct; (vii) Executive's death; or (viii) Executive's disability. For
purposes of this Agreement, Executive shall be considered disabled if Executive
has been physically or mentally unable to perform his essential job duties
hereunder for (x) a continuous period of at least one hundred twenty (120)
days
or (y) a total of one hundred fifty (150) days during any one hundred and eighty
(180) day period, and Executive has not recovered and returned to the full
time
performance of his duties within thirty (30) days after written notice is given
to Executive by the Company following such 120 day period or 180 day period,
as
the case may be.
c. Resignation
with Good Reason.
Executive may resign at any time with or without Good Reason. For purposes
of
this Agreement, Executive shall be deemed to have resigned with "Good Reason"
only if he resigns during a Specified Pre-Change Period or a Specified
Post-Change Period and such resignation occurs within ninety (90) days (but
no
later than the end of the Specified Pre-Change Period if Executive resigns
with
Good Reason during a Specified Pre-Change Period) after the Company has taken
any of the following actions without Executive's express written consent: (i)
the Company "Substantially Lessens Executive's Title" (as defined on
Exhibit
"A"
attached
hereto); (ii) the Company Substantially Reduces Executive's Senior Authority
(as
defined on Exhibit
"A"
attached
hereto); (iii) the Company assigns material duties to Executive which are
materially inconsistent with Executive's then-current status; (iv) the Company
reduces Executive's base salary or benefits from that in effect at (A) the
Execution Date (as defined Paragraph 3(e) below) if the Executive resigns with
Good Reason during a Specified Pre-Change Period, or (B) the time of the
consummation of the Change of Control if the Executive resigns during the
Specified Post-Change Period, (unless, in either case, such reduction is in
connection with a salary or benefit reduction program of general application
at
Executive's level) (v) the Company requires Executive to be based more than
fifty (50) miles from his present office location, except for required travel
consistent with Executive's business travel obligations; or (vi) the Company
fails to obtain the assumption of this Agreement by any successor or assign
of
the Company.
-5-
The
parties acknowledge that, in the event of a Change of Control, it may be
mutually advantageous for Executive and the Company to discuss and implement
changes in Executive’s employment on a trial basis even though such employment
changes may constitute "Good Reason" under the terms of this Agreement.
Accordingly, the parties may agree to extend the 90-day period referred to
above
in this subparagraph (c).
d. The
executive’s Target Bonus for Fiscal Year 2008 is equal to 60% of Executive’s
base salary.
e. Specified
Pre-Change Period and Specified Post-Change Period.
For
purposes of this Agreement, the term "Specified Pre-Change Period" means the
period beginning on the date a definitive agreement is executed by all parties
thereto (the "Execution Date") for a transaction that will constitute a Change
of Control of the Company when consummated, and ending on the date the Change
of
Control governed by such definitive agreement is consummated; provided, however,
that if the Change of Control governed by such definitive agreement is not
consummated within sixty (60) days after the Execution Date or if such
definitive agreement is terminated before the Change of Control governed by
such
definitive agreement is consummated, there shall be no Specified Pre-Change
Period with respect to such definitive agreement or the Change of Control
governed by such definitive agreement. For the avoidance of doubt, the parties
agree that the determination of whether a Specified Pre-Change Period exists
cannot be made until it has been determined whether a Change of Control has
been
consummated pursuant to the applicable definitive agreement within 60 days
after
the Execution Date of such definitive agreement. For purposes of this Agreement,
the term "Specified Post-Change Period" means the period beginning on the date
of the consummation of a Change of Control of the Company, and ending on the
two-year anniversary date of the consummation of such Change of Control.
4. Confidential
Information; Non-Solicitation of Employees.
a. As
a
material inducement and condition to the payment of the above-referenced
severance monies, Executive acknowledges and agrees that he shall continue
to be
bound by and comply with each and every term and condition of the Company's
Employment, Confidential Information and Invention Assignment Agreement and
any
other proprietary or confidentiality agreement(s) between Executive and the
Company.
b. As
a
further material inducement and condition to the payment of the above-referenced
severance monies, Executive agrees that for a period of one (1) year following
Executive's date of termination or resignation, he will not, either directly
or
indirectly, or either on his own behalf or on behalf of any other person,
recruit or solicit for hire any individual who is then employed by the
Company.
-6-
c. Executive
acknowledges and agrees that the restrictions contained in this Paragraph 4
are
reasonable and appropriate. Executive further acknowledges and agrees that
the
restrictions contained in this Paragraph 4 will not preclude him from engaging
in any trade, business or profession that he is qualified to engage
in.
5. General
Release of Claims.
As a
condition of receiving the above-referenced severance monies, Executive shall
be
required to execute a general release of all known and unknown claims in a
form
reasonably acceptable to the Company at the time of his termination or
resignation. This General Release of Claims shall not release Lantronix from
any
obligations it may have under its Articles of Incorporation, Bylaws, or
applicable law, to indemnify Executive for his actions as an employee of
Lantronix.
6.
The
Company's Obligations Under This Agreement.
Executive shall not be entitled to any of the benefits of Paragraphs 1 and
2 if
the Company terminates Executive's employment, or if Executive resigns, under
circumstances other than as specifically set forth in Paragraphs 1 and 2. The
benefits set forth in Paragraphs 1 and 2 constitute the sole obligations of
the
Company to Executive upon any termination or resignation and are in lieu of
any
damages or other compensation that Executive may claim under other Company
policies or otherwise, except for Executive's base salary which has been earned
up to the date of termination or resignation, compensation for any accrued
and
unused vacation up to the date of termination or resignation, reimbursement
for
business expenses incurred up to the date of termination or resignation (in
accordance with the customary policies of the Company), and any benefits that
the Company is required to provide to Executive after the date of termination
or
resignation under COBRA or pursuant to any ERISA plan(s) of the Company. The
benefits on termination or resignation provided in this Agreement are in
substitution for any severance or termination benefits otherwise available
under
Company policies of general application. The benefits on termination or
resignation provided in this Agreement shall not be reduced by any compensation
or benefits received by Executive from any subsequent employer or any other
third party.
7. Withholding
of Taxes; Tax Reporting.
The
Company may withhold from any amounts payable under this Agreement all such
federal, state, city and other taxes, and may file with appropriate governmental
authorities all such information, returns or other reports with respect to
the
tax consequences of any amounts payable under this Agreement, as may, in its
judgment, be required by law.
8. Sections
280G, 162(m) and Compliance with Section 409A.
a. Notwithstanding
anything contained in this Agreement to the contrary, any payments to be made
to
or for the benefit of Executive, or any vesting of stock options or other
benefits for the benefit of Executive, which are deemed to be "parachute
payments" as that term is defined in Section 280G of the Code, may be modified
or reduced to the extent deemed to be necessary by the Board of Directors of
the
Company to avoid the imposition of excise taxes on Executive under Section
4999
of the Code or the disallowance of a deduction to the Company under Section
280G(a) of the Code.
-7-
b. Notwithstanding
anything in this Agreement to the contrary, if the Board of Directors of the
Company determines that any acceleration, extension or other modification of
Executive's stock options pursuant to this Agreement could reasonably be
expected to cause such options to lose their status as "qualified
performance-based compensation" under Code Section 162(m) and Treasury
Regulation Section 1.162-27(e), such accelerations, extensions or other
modifications may be modified or reduced to the extent deemed necessary by
the
Company's Board of Directors to prevent such options from losing their status
as
qualified performance-based compensation.
c. In
the
event cash payments or vesting, extension or other modifications of stock
options are reduced pursuant to this Paragraph 8, such reduction shall, to
the
extent legally permissible, be made to stock options first and cash payments
last.
d. This
Agreement is intended to be exempt to the extent possible from the requirements
of Internal Revenue Code Section 409A, including current and future
guidance and regulations interpreting such provisions. To the extent that any
provision of this Agreement fails to satisfy a requirement for such an
exemption, the provision shall automatically be modified in a manner that,
in
the good-faith opinion of the Company, brings the provisions into compliance
with such requirement while preserving as closely as possible the original
intent of the provision and this Agreement. If it is determined by the Company
that any payment under this Agreement is subject to the requirements of Code
Section 409A notwithstanding the preceding sentences, then the provisions
of the Agreement shall be automatically modified in such manner as brings the
Agreement into compliance with such requirements. In particular, and without
limiting the preceding sentence, while any stock of the Company is or is treated
as publicly
traded and Executive is a “specified employee” under Code
Section 409A(a)(2)(B)(i), then any payment under this Agreement that is
treated as deferred compensation under Code Section 409A shall be delayed
until the date which is six months after the date of separation from service
(without interest or earnings).
e. The
costs
of all legal and accounting fees required to make the Company's determinations
and estimates for purposes of this Paragraph 8 will be paid for by the Company.
9. Assignment.
Executive may not assign this Agreement. The Company shall be entitled to assign
this Agreement to any successor in interest to its business. The Company will
obtain an assumption of this Agreement by any successor or assign to all or
substantially all of the business and/or assets of the Company (whether direct
or indirect, by acquisition, merger, consolidation or otherwise), but the
failure to obtain such assumption shall not prevent or delay such acquisition,
merger, consolidation or other transaction or relieve the Company of its
obligations under the Agreement. This Agreement shall bind and inure to the
benefit of the Company's successors and assigns, as well as Executive's heirs,
executors, administrators, and legal representatives.
-8-
10. Notices.
Any
notice, request, demand or other communication required or permitted hereunder
shall be deemed to be properly given when personally served or three (3) days
after deposit in the United States mail, registered or certified, postage
prepaid, return receipt requested, addressed to the Company at its principal
office or to Executive at Executive's last known address.
11. Entire
Agreement.
This
Agreement, together with the documents referenced herein, contains the entire
integrated agreement of the parties hereto with respect to the subject matter
hereof and it supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter hereof.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, written, oral or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and
that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing signed by the Chief Executive
Officer of the Company and Executive.
12. Mutual
Arbitration Agreement.
To the
fullest extent allowed by law, any controversy, claim or dispute between
Executive and the Company (and/or any of its affiliated, subsidiary, or related
entities, owners, directors, officers, employees, volunteers or agents) relating
to or arising out of this Agreement or Executive's employment (or the cessation
thereof), will be submitted to final and binding arbitration in Orange County,
California, for determination in accordance with the American Arbitration
Association's ("AAA") Employment Arbitration Rules as the exclusive remedy
for
such controversy, claim or dispute. In any such arbitration, the parties may
conduct discovery to the same extent as would be permitted in a court of law.
The arbitrator shall issue a reasoned, written decision, and shall have full
authority to award all remedies which would be available in court. The Company
shall pay the arbitrator's fees and any AAA administrative expenses. Any
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Possible disputes covered by the above include
(but
are not limited to) unpaid wages, breach of contract (including this Agreement),
torts, violation of public policy, discrimination, harassment, or any other
employment-related claims under laws including, but not limited to, Title VII
of
the Civil Rights Act of 1964, the Americans With Disabilities Act, the
California Labor Code, the California Fair Employment and Housing Act, the
Age
Discrimination in Employment Act, the Americans with Disabilities Act, and
any
other statutes or laws relating to Executive’s relationship with the Company
regardless of whether such dispute is initiated by Executive or the Company.
Thus, this bilateral arbitration agreement fully applies to any and all claims
that the Company may have against Executive, including but not limited to claims
for misappropriation of Company property, disclosure of proprietary information
or trade secrets, interference with contracts, trade libel, gross negligence,
or
any other claim for alleged wrongful conduct or breach of the duty of loyalty.
However, claims for workers’ compensation benefits, unemployment insurance and
those arising under the National Labor Relations Act (or any other claims where
mandatory arbitration is prohibited by law) are not covered by this arbitration
agreement, and such claims may be presented to the appropriate court or
government agency. BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH
EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY. This arbitration
agreement is to be construed as broadly as is permissible under applicable
law.
-9-
13. Attorneys'
Fees.
In the
event of any arbitration arising out of this Agreement, the prevailing party
shall be entitled to recover from the non-prevailing party its costs and
expenses (including reasonable attorneys' fees) incurred in such
arbitration.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the dates set
forth below.
EXECUTIVE:
|
/s/
Xxxxxx X. Xxxxx
|
|
6/13/07
|
|
|
Xxxxxx
X. Xxxxx
|
Date
|
||
|
COMPANY:
|
|||
|
LANTRONIX,
INC.
|
|||
|
A
Delaware Corporation
|
|||
|
By:
/s/
Xxxx X. Xxxxxxxx
|
|
6/13/07
|
|
|
Xxxx
X. Xxxxxxxx
|
Date
|
||
|
Its:
President and Chief
|
|||
|
Executive
Officer
|
-10-
EXHIBIT
A
"Substantially
Lessens Executive's Title" shall mean that the Executive does not have the
title
of Chief Financial Officer.
"Substantially
Reduces Executive's Senior Authority" shall mean that the Executive no longer
has substantially similar authority, scope of responsibility, functions or
duties as Chief Financial Officer.
-11-
