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 12, 2002
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
TUESDAY, NOVEMBER 12, 2002, 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 one (1) director to serve until the 2005 Annual Meeting of
Stockholders;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the year ending June 30, 2003;
3. To authorize the Board of Directors to approve a reverse stock split
in the Common Stock of the Company at a ratio of 1:3 if the Board of
Directors determines such action is in the best interest of the
Company in order to satisfy requirements for the Company's securities
to remain listed on the Nasdaq National Market and to amend the
Company's Certificate of Incorporation accordingly; and
4. 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 27, 2002, 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 15, 2002
IMPORTANT: REGARDLESS OF 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
_____________________
PROXY STATEMENT FOR 2002 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 Tuesday, November 12, 2002, 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, were first mailed on or about October 15, 2002, 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 27, 2002 (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, 54,277,662 Shares of Common Stock, par
value of $0.0001 per share, were issued and outstanding and were the only class
of voting securities outstanding. This number is different from that reflected
in the Company's Annual Report filed on Form 10-K on October 8, 2002 because the
Company's transfer agent, Mellon Investor Services, made adjustments subsequent
to September 27, 2002 to correct double entries, which reduced the number of
issued and outstanding shares as of the Record Date.
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 Class II Nominee to serve as a director until the 2005
Annual Meeting of Stockholders;
- "FOR" the ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the year ending June 30, 2003;
and
- "FOR" authorizing the Board of Directors to approval a reverse stock
split in the Common Stock of the Company at a ratio of 1:3 if the
Board of Directors determines such action is in the best interest of
the Company in order to satisfy requirements for the Company's
securities to remain listed on Nasdaq Markets and authorization for
the Board of Directors to amend the Company's Certificate of
Incorporation in accordance with such action.
VOTING AND SOLICITATION
Each share of Common Stock outstanding on the Record Date of September 27,
2002, 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.
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; (ii) FOR
the ratification of the appointment of Ernst & Young LLP as independent auditors
of the Company for the year ending June 30, 2003, and (iii) FOR a reverse-split
in the common stock of the Company at a ratio of 1:3 to satisfy Nasdaq
requirements for the Company's securities to be listed on the Nasdaq National
Market. 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.
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" 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 there is no definitive statutory or case law authority in Delaware
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.
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In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for the purpose of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, the Company intends to treat broker non-votes
in this manner. Thus, a broker non-vote will not affect the outcome of the
voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
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
2003 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 14, 2003 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 2003 Proxy Statement.
Alternatively, under our Bylaws, a proposal or a nomination that the
stockholder does not seek to include in our 2003 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 2003 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 2003 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 2003 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 2003 Annual Meeting was mailed or
public disclosure was made. For example, if we provide notice of our 2003
Annual Meeting on September 9, 2003, for a 2003 Annual Meeting on November 10,
2003, any such proposal or nomination will be considered untimely if submitted
to us after September 19, 2003. For purposes of the above, "public disclosure"
means disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service, or in a document
publicly filed by us with the Securities and Exchange Commission (the "SEC").
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 2003
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 2003 Annual Meeting is
August 27, 2003, 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 2003 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 2003 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 2002 Annual Meeting. The
enclosed Proxy grants the Proxy holders discretionary authority to vote
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on any matter properly brought before the 2002 Annual Meeting, including any
stockholder proposals received between the date of this Proxy Statement and the
Bylaw Deadline for the 2002 Annual Meeting, which is October 25, 2002, or the
date which is ten calendar days after the date this Proxy Statement is mailed.
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 by the newly
enacted Sarbanes-Oxley Act are as set forth in its Annual Report on Form 10-K
filed with the Securities and Exchange Commission on October 8, 2002, and are
incorporated herein by this reference. A copy of the Annual Report on Form 10-K
is enclosed with this Proxy Statement. Please note, the total number of issued
and outstanding shares as of September 27, 2002 is updated in this Proxy
Statement to 54,277,662. This number is different from that the 54,433,953
shares reflected in the Company's Annual Report filed on Form 10-K because the
Company's transfer agent, Mellon Investor Services, made adjustments subsequent
to September 27, 2002 to correct double entries, which then reduced by 156,291
the actual number of issued and outstanding shares as of the Record Date.
4
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEE
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 2002 Annual Meeting of Stockholders and
thus is nominated for reelection (the "Class II Nominee"). Kathryn Braun Lewis
is the Class III director whose term expires at the 2003 Annual Meeting. All of
the directors, including the Class II Nominee, are incumbent directors. There
are no family relationships among any directors or executive officers, including
the Nominee.
The term of each of 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 II Nominee would serve
until the 2005 annual meeting and until his successor is elected and has
qualified, or until his earlier death, resignation or removal.
Unless otherwise instructed, the holders of Proxies solicited by this Proxy
Statement will vote the Proxies received by them for the Class II Nominee.
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 Nominee will be unable or will decline to serve as
a director. The Board of Directors recommends a vote "FOR" the election of the
Nominee.
The names of the members of our Board of Directors, including the Class II
Nominee, their ages as of September 27, 2002, and certain information about
them, are set forth below. Mr. Desai, Mr. Burton and Mr. Slayen are currently
members of the Audit Committee, Compensation Committee and Nominating Committee.
Name Age Position(s)
-------------------- ---- ----------------------------------
H. K. Desai 56 Chairman of the Board of Directors
Thomas W. Burton (1) 56 Director
Kathryn Braun Lewis 51 Director
Howard T. Slayen 55 Director
(1) Denotes Nominee for election at 2002 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
1990 to 2002, Mr. Desai served on the board of Microsemi Corporation, a supplier
of analog integrated circuits and power and signal discrete semiconductors.
5
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 Artisoft, Inc., a producer of
computerized telephony solutions. She is also on the Board of Directors of Share
Our Selves and THINK Together, both Orange County charities. 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 seven (7) meetings
during the fiscal year ended June 30, 2002. Each director is expected to attend
each meeting of the Board of Directors and those Committees on which he serves.
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. No incumbent director attended fewer
than 75% of the aggregate of (i) the total number of meetings of the Board of
Directors held during the fiscal year ending June 30, 2002; and (ii) the total
number of meetings held by all committees of the Board of Directors during the
fiscal year ending June 30, 2002, on which such person served.
NAME OF COMMITTEE NUMBER OF MEETINGS IN THE FISCAL
AND MEMBERS FUNCTIONS OF THE COMMITTEE YEAR ENDING JUNE 30, 2002
AUDIT COMMITTEE *Recommend selection of 10
Howard Slayen independent public accountants
Thomas Burton to Board of Directors;
H.K. Desai *Review scope and results of
year-end audit with management
and independent auditors;
*Review Company's accounting
principals and system of internal
accounting controls
COMPENSATION COMMITTEE *Review and approve salaries, 6
Thomas Burton bonuses, and other benefits
H.K. Desai payable to the Company's
Howard Slayen executive officers;
*Administer the Company's Stock
Option Plans
CORPORATE GOVERNANCE *Oversee Chief Executive Officer 0*
AND NOMINATING and senior management;
COMMITTEE *Ensure directors take a
H.K. Desai proactive, focused approach to
Thomas Burton their positions;
Howard Slayen *Set the highest standards of
responsibility and ethics.
*Consider nominees recommended
by shareholders (1)
* The Corporate Governance and Nominating Committee was created on
August 16, 2002 and therefore was not in existence during fiscal year
end June 30, 2002. The charter for the Corporate Governance and
Nominating Committee is attached hereto as Appendix A. The Board of
Directors adopted the charter prior to electing Kathryn Braun Lewis to
the Board, thus the statement in the charter that the Board consists
of three members.
(1) Recommendations by stockholders should be submitted to the Secretary
of the Company and should identify the nominee by name and provide
detailed background information.
6
DIRECTOR COMPENSATION
Our directors receive $12,000 cash compensation annually for their services
as directors. A committee chair, instead, receives $14,000 each year. In
addition, directors receive $1,000 for each meeting of the Board of Directors
they attend in person.
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% vest 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
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
The nominee receiving the highest number of affirmative votes 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 NOMINEE SET FORTH ABOVE
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PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors appointed Ernst & Young LLP as the independent
auditors to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 2003. We are submitting our selection of
independent auditors for ratification by stockholders at our Annual Meeting.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if such person
desires to do so. Such representative is expected to be available to respond to
appropriate questions.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Ratification of the Board's appointment of Ernst & Young LLP requires the
affirmative vote of a majority of the votes cast. In the event the stockholders
do not approve the selection of Ernst & Young LLP, the appointment of the
independent auditors will be reconsidered by the Board of Directors and the
Audit Committee. Even if the selection is ratified, the Board of Directors and
the Audit Committee, in their discretion, may change the appointment at any time
if it is determined that such a change would be in the best interests of
Lantronix and its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL
8
PROPOSAL THREE
AUTHORIZATION FOR REVERSE SPLIT AND APPROVAL FOR AMENDMENT TO CERTIFICATE OF
INCORPORATION
The Board of Directors requests the approval of the shareholders to amend
the Company's Certificate of Incorporation for the purpose of effectuating a
reverse stock split of the Company's outstanding common stock (a "Reverse Stock
Split") at a ratio of 1 share for every 3 currently issued and outstanding
shares of common stock ("1:3"). As of the Record Date, there were 54,277,662
shares of Common Stock issued and outstanding.
It is advisable to obtain the approval of the stockholders for a Reverse
Stock Split in order to attempt to increase the trading price of the Common
Stock on the Nasdaq National Market on a per share basis. Over the last several
months, the trading price of shares of the Common Stock has declined below
$1.00. According to the requirements of continued listing on the Nasdaq
National Market, the failure to maintain the trading price above $1.00 on a
consistent basis results in delisting of the Common Stock. More specifically,
if the Company's trading price does not exceed $1.00 prior to October 17, 2002,
the Company is in jeopardy of delisting. Consequently, the Company is applying
to Nasdaq to move to the Nasdaq SmallCap Market, which entitles the Company to
an additional ninety (90) day grace period to requalify for listing on the
National Market with the potential for an extension on the grace period if
certain conditions are met. During this grace period, the Company maintains its
Nasdaq trading symbol of "LTRX." One effect of moving to the Nasdaq SmallCap
Market is that not all newspaper or financial publications provide listing of
the SmallCap Market compared to those that provide the National Market listings.
Furthermore, the Company might be characterized with other companies that do not
meet the higher National Market listing requirements based on various factors
such as asset profile and shareholder base. Listing on the Nasdaq SmallCap
Market for the requested grace period is only temporary, and if requalification
by means of either increased share price above $1.00 through either market
action or a reverse split is not achieved, the Company would be delisted and
would thereafter trade its securities on the Over The Counter Bulletin Board.
If the Company is delisted, its "LTRX" trading symbol would change.
The Company's Board of Directors believes delisting could harm the
Company's stockholders by reducing the marketability and the liquidity of their
shares. If a Reverse Stock Split were implemented, the number of shares of the
Common Stock owned by each stockholder would be reduced in the same proportion
as the reduction in the total number of shares outstanding, so that the
percentage of the outstanding shares owned by each stockholder would remain
unchanged, but the trading price per share would likely increase.
By obtaining authorization from the shareholders for a 1:3 Reverse Stock
Split, the Company's Board of Directors shall file an amendment to the Company's
Certificate of Incorporation in the form attached as Appendix B (the
"Amendment") anytime during the grace period during which the Company's shares
are trading on Nasdaq SmallCap Market, and in conjunction therewith take all
other necessary steps to effect a Reverse Stock Split. Moreover, the Board of
Directors reserves the right, even after stockholder approval, to abandon filing
of the Amendment if such action is determined not to be in the best interests of
the Company and its stockholders based on market conditions, thereby foregoing
this proposal. If at a future date the Board of Directors determines a stock
split would be prudent, it would again seek stockholder approval at that time.
A vote in favor of this proposal will be a vote for approval of the 1:3
Reverse Stock Split and authorization for the Board to file the proposed
Amendment. The proposal also gives the Board of Directors the discretion to
abandon the Reverse Stock Split if the trading price of shares of the common
stock satisfy Nasdaq minimum trading price listing requirements prior to filing
the Amendment or if market or other conditions or circumstances make
implementation of the Reverse Stock Split inadvisable as determined by the Board
of Directors. The vote required for approval of the 1:3 Reverse Stock Split
proposal is a majority of the outstanding shares of the common stock.
REASONS FOR THE REVERSE STOCK SPLIT
The primary purpose of the Reverse Stock Split is to reduce the outstanding
shares of the Common Stock into approximately one third of its current number,
so the shares will trade at a significantly higher price per share than their
recent trading prices. Pursuant to Nasdaq listing requirements, the minimum bid
price of shares of the common stock must be at least $1.00 per share in order to
9
maintain inclusion on the Nasdaq National Market. The Company has received
notification from the Nasdaq National Market that it is considering delisting
the shares of the Company from the National Market.
The Company believes that the implementation of a Reverse Stock Split at a
1:3 ratio would enable shares of the Common Stock to trade above the $1.00
minimum price. The Company believes that continued listing of the Common Stock
on the Nasdaq National Market is in the best interests of the Company and its
stockholders. Inclusion on the Nasdaq National Market generally increases
liquidity. Many investors, particularly institutional investors, have policies
preventing the purchase of low-priced or non-exchange listed securities. In
addition, access to information regarding listed companies and their securities
is more readily available than with respect to non-listed companies. Listing on
the Nasdaq National Market may also result in lower spreads between the "bid"
and "asked" prices quoted by market makers, thus reducing the cost to investors
of acquiring shares of Common Stock. Delisting, and consequently trading on the
Over The Counter Bulletin Board, typically decreases marketability and liquidity
of securities and subjects the securities to a more unpredictable and volatile
environment heavily influenced by market makers.
Obtaining stockholder approval of a Reverse Stock Split at this Annual
Meeting of Stockholders would enable the Company to avoid the additional time
and expense of holding a special meeting of stockholders (which could then be
too late) should the Board of Directors determine that it is in the best
interests of the Company's stockholders to implement a Reverse Stock Split
during the upcoming grace period while the Company's securities are trading on
the Nasdaq SmallCap Market.
IMPLEMENTATION AND EFFECTS OF THE REVERSE STOCK SPLIT
If the stockholders approve the Reverse Stock Split proposal and the Board
of Directors determines it is necessary or desirable to effectuate a Reverse
Stock Split, the Board of Directors would:
- Determine the exact date to effect the Reverse Stock Split based on
market and other relevant conditions and circumstances and the trading
prices of the Common Stock at that time, which in no event would be
later than the expiration of the grace period including any
extensions; and
- Direct management to file the Amendment with the Delaware Secretary of
State. The Amendment would specify that, on its filing, every three
(3) shares of the Common Stock outstanding would automatically be
combined and converted into one share.
ELIMINATION OF HOLDERS OF TWO OR FEWER SHARES. We estimate that, following
the Reverse Stock Split, the Company would have a slightly smaller number of
stockholders because any holder of one or two shares would be cashed out.
NEGLIGIBLE EFFECT ON PERCENTAGE OFOWNERSHIP. Other that the elimination of
holders of one or two shares, and except for the effect of cash payments for
fractional shares as described below, the completion of the Reverse Stock Split
would not affect any stockholder's proportionate equity interest in the Company.
By way of example, a stockholder who owns a number of shares that prior to the
Reverse Stock Split represented one percent of the outstanding shares of the
Company would continue to own one percent of its outstanding shares after the
Reverse Stock Split, although thereafter, the number of shares held would be
reduced.
The Reverse Stock Split also will not affect the number of shares of Common
Stock that the Board of Directors is authorized to issue by the Certificate of
Incorporation of the Company, which will remain unchanged at 200,000,000 shares.
Assuming there are still 54,277,662 shares issued and outstanding at the time a
Reverse Stock Split were to take place, post-split there would be 18,092,554
shares issued and outstanding, and the Company would be authorized to issue as
many as 181,907,446 additional shares. However, it will have the effect of
increasing the number of shares available for future issuance because of the
reduction in the number of shares that will be outstanding after giving effect
to the Reverse Stock Split.
10
POTENTIAL RISKS OF THE REVERSE STOCK SPLIT
If the Board does effect a reverse stock split there can be no assurance
that the bid price of our common stock will rise in proportion to the reduction
in the number of outstanding shares resulting from the reverse stock
split, that the reverse stock split will result in a per share price that will
increase our ability to attract and retain employees and other service
providers, that the market price of the post-split common stock can be
maintained at or above $1.00, or that our common stock will not be delisted from
Nasdaq for other reasons. The market price of our common stock will also be
based on our performance and other factors, many of which are unrelated to the
number of shares outstanding. If the Reverse Stock Split is effected and the
market price of our common stock declines, the percentage decline as an absolute
number and as a percentage of our overall capitalization may be greater than
would occur in the absence of a reverse stock split. Furthermore, liquidity of
our common stock could be adversely affected by the reduced number of shares
that would be outstanding after the Reverse Stock Split.
CASH TO BE PAID FOR FRACTIONAL SHARES
If the Reverse Stock Split is implemented, it would result in some
stockholders owning a fractional share of Common Stock. For example, with the
proposed 1:3 ratio, the shares owned by a stockholder with 100 shares would be
converted into 33.33 shares. To avoid such a result, stockholders that would
otherwise be entitled to receive a fractional share of the Common Stock as a
consequence of the Reverse Stock Split would, instead, receive from the Company
a cash payment in U.S. dollars equal to the value of that fractional share,
determined on the basis of the average closing price of the Common Stock on the
Nasdaq National Market or the Nasdaq SmallCap Market, whichever is applicable,
for the five trading days immediately preceding the effective date of the
Reverse Stock Split.
If any stockholder owns, in total, fewer than the number of the Company's
shares to be converted into one share as a result of the Reverse Stock Split,
that stockholder's shares would be converted into a fractional share of stock
and, therefore, that stockholder would receive only cash in place of the
fractional share as a result of the implementation of the Reverse Stock Split.
For example, if the 1:3 Reverse Stock Split is implemented then stockholders
with fewer than three shares would receive only cash. See "Exchange of Stock
Certificates and Payment for Fractional Shares" below. The interest of such
stockholders in the Company would, therefore, be terminated, and such
stockholders would have no right to share in the assets or future growth of the
Company. Based on the foregoing example, each stockholder that owns three shares
or more of the Company Common Stock prior to the Reverse Stock Split would
continue to own one or more shares after the Reverse Stock Split and would
continue to share in the assets and future growth of the Company as a
stockholder.
The Reverse Stock Split would result in some stockholders owning "odd lots"
of less than 100 shares of the Common Stock. Brokerage commissions and other
costs of transactions in odd lot shares may be higher, particularly on a
per-share basis, than the cost of transactions in even multiples of 100 shares.
APPRAISAL RIGHTS
No appraisal rights are available under the Delaware General Corporation
Law or under our amended and restated certificate of incorporation or bylaws to
any stockholder who dissents form the proposal to approve the Amendment to
effect the Reverse Stock Split.
EFFECT OF REVERSE SPLIT ON OPTIONS
The number of shares subject to outstanding options to purchase shares of
the Common Stock would also automatically be reduced at the 1:3 ratio.
Correspondingly, the per share exercise price of those options will be increased
by a factor of three (3) in direct proportion to the Reverse Stock Split ratio,
so that the aggregate dollar amount payable for the purchase of the shares
subject to the options will remain unchanged. For example, if the 1:3 Reverse
Stock Split is implemented and an optionee holds options to purchase 1,500
shares at an exercise price of $1.00 per share, on the effectiveness of the
Reverse Stock Split, the number of shares subject to that option would be
reduced to 500 shares and the exercise price would be proportionately increased
to $3.00 per share.
11
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
The combination of, and reduction in, the number of the Company's
outstanding shares as a result of the Reverse Stock Split would occur
automatically on the date that the Reverse Stock Split amendment is filed with
the Delaware Secretary of State (the "Effective Date"), without any action on
the part of the Company's stockholders and without regard to the date that stock
certificates representing the shares prior to the Reverse Stock Split are
physically surrendered for new stock certificates.
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates for shares of the Common Stock
to be used in forwarding such certificates for surrender and exchange for
certificates representing the number of shares of the Common Stock such
stockholder is entitled to receive as a result of the Reverse Stock Split. The
transmittal forms will be accompanied by instructions specifying other details
of the exchange. Upon receipt of such transmittal form, each stockholder should
surrender the certificates representing shares of the Common Stock prior to the
Reverse Stock Split in accordance with the applicable instructions. Each holder
who surrenders certificates would receive new certificates representing the
whole number of shares of the Common Stock that he or she holds as a result of
the Reverse Stock Split and any cash payable in lieu of a fractional share.
STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM
After the Effective Date, each certificate representing shares of the
Common Stock outstanding prior to the Effective Date (an "Old Certificate")
would, until surrendered and exchanged as described above, be deemed, for all
corporate purposes, to evidence ownership of the whole number of shares of the
Common Stock, and the right to receive from the Company the amount of cash for
any fractional shares, into which the shares of the Common Stock evidenced by
such certificate have been converted by the Reverse Stock Split. However, the
holder of such unexchanged certificates will not be entitled to receive any
dividends or other distributions payable by the Company after the Effective Date
until the Old Certificates have been surrendered. Such dividends and
distributions, if any, will be accumulated, and at the time of surrender of the
Old Certificates, all such unpaid dividends or distributions will be paid
without interest.
If the number of shares of the Common Stock to which a holder is entitled as a
result of the Reverse Stock Split would otherwise include a fraction, the
Company would pay to that stockholder, in lieu of issuing fractional shares of
stock, cash in an amount equal to the same fraction multiplied by the average
closing price of the Company's shares on the Nasdaq National Market or the
Nasdaq SmallCap Market, whichever is applicable, for the five days immediately
preceding the Effective Date. For example, if the average of the pre-split
closing bid prices of shares of the Common Stock for the five-day trading period
immediately prior to the Effective Date was $1.00 per share, a stockholder who
held 100 pre-split shares would receive, in exchange for his stock certificates
evidencing his 100 shares, a stock certificate for 33 whole shares and a check
in the amount of $1.00 for his one-third fractional share. The Company does not
anticipate that the aggregate payment in respect of fractional shares will
represent a significant amount.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain federal income tax considerations
relating to the Reverse Stock Split. This discussion is based upon the Internal
Revenue Code of 1986, as amended, final, temporary and proposed regulations
promulgated thereunder, legislative history, judicial decisions, and current
administrative rulings and practices, all as amended and in effect on the date
of this Proxy Statement. Any of these authorities could be repealed, overruled,
or modified at any time and could be retroactive and, accordingly, could cause
the tax consequences to vary substantially from the consequences described
herein. No ruling from the Internal Revenue Service (the "IRS") with respect to
the matters discussed herein has been requested, and there is no assurance that
the IRS would agree with the conclusions set forth in this discussion. All
stockholders should consult with their own tax advisors.
This discussion does not address certain federal income tax consequences that
may be relevant to particular stockholders in light of their personal
circumstances (such as persons subject to the alternative minimum tax) or to
12
certain types of stockholders (such as dealers in securities, insurance
companies, foreign individuals and entities, financial institutions, and
tax-exempt entities) who may be subject to special treatment under the federal
income tax laws. This discussion also does not address any tax consequences
under state, local, or foreign laws.
STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING THE APPLICABILITY
OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND
ANY PENDING OR PROPOSED LEGISLATION.
Tax Consequences to the Company. The Company should not recognize any gain or
loss as a result of the Reverse Stock Split.
Tax Consequences to Stockholders Generally. A stockholder who receives only the
Common Stock should not recognize any gain or loss as a result of the Reverse
Stock Split. A stockholder who receives cash in lieu of a fractional share of
the Common Stock that otherwise would be held as a capital asset generally
should recognize capital gain or loss in an amount equal to the difference
between the cash received and the stockholder's basis in such fractional share
of the Common Stock depending on when the original shares were procured. For
this purpose, a stockholder's basis in such fractional share of the Common Stock
will be determined as if the stockholder actually received such fractional
share.
Except as provided above with respect to fractional shares, the aggregate tax
basis of the shares of the Common Stock held by a stockholder following the
Reverse Stock Split will equal the stockholder's aggregate tax basis in the
shares of the Common Stock held by the stockholder immediately prior to the
Reverse Stock Split and generally will be allocated among the shares of the
Common Stock held following the Reverse Stock Split on a pro rata basis.
Stockholders who have used the specific identification method to identify their
basis in shares of the Common Stock combined in the Reverse Stock Split should
consult their own tax advisors to determine their basis in the post-Reverse
Stock Split shares they would receive in exchange therefore.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Authorization for a 1:3 Reverse Stock Split in the Company's common stock
requires the affirmative vote of a majority of the votes cast. Even if the
authorization is granted, the Board of Directors will only initiate a
reverse-split if it determines such action is necessary in order to satisfy
continued Nasdaq listing requirements that are related to share price.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL
13
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 27, 2002 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
27, 2002, but excludes shares of common stock underlying options or warrants
held by any other person. Percentage of beneficial ownership is based on
54,277,662 shares of common stock outstanding as of September 27, 2002.
BENEFICIAL OWNER NAME BENEFICIAL OWNERSHIP (1)
----------------------------------------------------------------------------- ------------------------
NUMBER OF PERCENTAGE
SHARES OWNERSHIP
HOLDERS OF 5% OR MORE OF LANTRONIX STOCK
Bernhard Bruscha, 40 N. Vista del Sol, Laguna Beach, CA 92651 20,303,220 37.4%
Bryant R. Riley, 11150 Santa Monica Blvd., Suite 750, Los Angeles, CA 90025 4,496,376 8.3%
Lloyd I. Miller, III, 4650 Gordon Drive, Naples, FL 33940 3,091,000 5.7%
DIRECTORS AND OFFICERS
Thomas W. Burton, Director (2) 112,500 *
Howard T. Slayen, Director (3) 52,500 *
H. K. Desai, Director (4) 37,500 *
Kathryn Braun Lewis 0 *
Marc Nussbaum, Interim Chief Executive Officer . 0 *
James Kerrigan, Interim Chief Financial Officer 14,000 *
Michael Oswald, General Counsel (5) 4,380 *
Frederick G. Thiel 1,753,128 3.2%
Steven V. Cotton (6) 348,040 *
Johannes Rietschel (7) ----- *
All executive officers and directors as a group (6 persons) (8) 220,880 *
__________________
* 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 12,500 shares of common
stock issuable upon exercise of stock options exercisable within 60 days of
September 27, 2002.
(3) Shares beneficially owned by Mr. Slayen includes 37,500 shares of common
stock issuable upon exercise of stock options exercisable within 60 days of
September 27, 2002.
(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 27, 2002.
(5) Shares beneficially owned by Mr. Oswald include 3,207 shares of common
stock issuable upon exercise of stock options exercisable within 60 days of
September 27, 2002.
(6) The shares listed are those in Mr. Cotton's name as recorded with the
Company's transfer agent. As Mr. Cotton is no longer with the Company, an
exact number cannot be determined as shares may be held in "street name"
through brokerage accounts.
(7) No shares are held in Mr. Rietschel's name. Mr. Rietschel is no longer
employed by the Company. An exact number cannot be determined as shares may
be held in "street name" through brokerage accounts.
(8) Includes an aggregate of 90,707 shares issuable upon exercise of stock
options within 60 calendar days of September 27, 2002.
14
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation that
we paid during the last three fiscal years to our Chief Executive Officer and
our four other most highly compensated executive officers who earned more than
$100,000 during the fiscal year ended June 30, 2002. All option grants were
made under our 1993 Incentive Stock Option Plan, 1994 Nonstatutory Stock Option
Plan, or 2000 Stock Plan.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (#) (2)
-------------------------------- ------ -------- -------- ------------- ----------- --------------
Marc Nussbaum (3) 2002 0 ----- 0 0 0
Interim Chief Executive Officer 2001 ----- ----- ----- ----- -----
2000 ----- ----- ----- ----- -----
James Kerrigan (4) 2002 $ 26,923 ----- 0 0 0
Interim Chief Financial Officer 2001 ----- ----- ----- ----- -----
2000 ----- ----- ----- ----- -----
Michael Oswald (5) 2002 $ 85,481 0 0 42,825 $ 1,212
General Counsel and Secretary 2001 ----- ----- ----- ----- -----
2000 ----- ----- ----- ----- -----
Frederick G. Thiel (6) 2002 $252,885 $236,750 0 300,000 $ 17,555
former Chief Technology Officer 2001 $211,539 $ 81,250 $ 9,600 0 $ 5,621
and former Chief Executive Officer 2000 $220,385 $123,250 $ 10,800 348,000 $ 5,992
Johannes Rietschel (7) 2002 $176,306 $ 20,515 0 0 $ 9,481
former Chief Technical Officer 2001 $168,851 $ 41,157 $ 9,600 0 $ 4,950
2000 $167,235 $ 71,268 $ 9,969 66,667 $ 3,898
Steven V. Cotton (8) 2002 $218,933 $161,503 0 250,000 $ 6,419
former Chief Operating Officer 2001 $183,403 $ 43,539 0 0 $ 2,575
and Chief Financial Officer 2000 $ 99,355 $ 13,855 0 688,000 $ 1,787
____________________
(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. For Mr. Thiel, Mr. Rietschel, and Mr. Cotton, this amount
includes amounts paid for automobile allowance.
(3) Marc Nussbaum started with the Company on May 30, 2002 and has received no
compensation as of the fiscal year end June 30, 2002, though his potential
annualized base compensation is projected to be $290,000 with a bonus level
to be determined.
(4) James Kerrigan started with the Company on May 6, 2002 and thus
compensation 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 is only for a partial year; his base salary annualized is
$175,000.
(6) Bonus amounts include a signing bonus of $206,250 pursuant to Frederick
Thiel's employment agreement.
(7) Johannes Rietschel left the Company on March 29, 2002 and thus compensation
for the fiscal year ended June 30, 2002 is only for a partial year.
(8) Steven V. Cotton left the Company on May 3, 2002 and thus compensation for
the fiscal year ended June 30, 2002 is only for a partial year. In
addition, the stock options granted to Mr. Cotton during the last fiscal
year were cancelled pursuant to termination of employment. Any vested
options not exercised within ninety (90) days were cancelled. Bonus amounts
include a signing bonus of $144,722 pursuant to Mr. Cotton's employment
agreement.
15
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-six, has served as our Interim President and Chief
Executive Officer since June 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 a BA in physics from the State University of New York, Oswego.
James W. Kerrigan, sixty-six, has served as our Interim 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
degree and a MBA from Northwestern University.
Michael Oswald, forty-seven, has served as our General Counsel and
Secretary since December 2001. 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 of NowDocs, Inc., a privately-held provider of Internet-enabled
printing solutions, located in Aliso Viejo, California. From December 1996 to
November 1999, he was General Counsel to Acuity Corp. in Austin, Texas, a
privately-held provider of Customer Relationship Management software. Mr. Oswald
holds a J.D. from Santa Clara University School of Law, and a B.A. from the
University of California at Riverside.
EMPLOYMENT AGREEMENTS
In August 2002, the Company entered into an agreement with Marc Nussbaum
for him to serve as the Interim Chief Executive Officer. Mr. Nussbaum is to
receive an annual salary of $290,000, retroactive to his starting date, with no
compensation paid before the fiscal year end June 30, 2002. He is also to
receive a monthly automobile allowance of $1,000 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.
In May 2002, the Company entered into an agreement with James Kerrigan for
him to serve as the Interim Chief Financial Officer with an annual salary of
$200,000. He is also 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 January 2002, the Company entered into an employment agreement with
Frederick G. Thiel, the former Chief Executive Officer who assumed the role of
Chief Technology and Strategy Officer of the Company effective May 30, 2002.
This agreement replaced a previous employment agreement of April 1998, which was
subsequently amended in April 1999 and April 2001. The agreement provided that
Mr. Thiel's employment was at-will and set forth an annual base salary of
$325,000, subject to annual review by the Board of Directors, and incentive
compensation of up to 50% of his annual base salary. The agreement also provided
a signing bonus of $206,250 to be paid January 2002, which was paid, a stock
option to purchase 300,000 shares of the Company's common stock, which was later
cancelled, a monthly car allowance of $1,000, and other benefits offered to
other Company employees such as medical, dental, life and disability insurance
and participation in other incentive programs such as the Company's 401(k) plan.
Mr. Thiel is also subject to confidentiality and Limitations on competition
under his employment agreement. Mr. Thiel separated from the Company on
16
September 1, 2002 whereby the Company agreed to pay Mr. Thiel a monthly
severance pay of $12,500 for ten (10) months, a monthly car allowance of $1,000
for ten (10) months, health, life and disability benefits for ten (10) months,
and cancel the aforementioned stock options.
In January 2002, the Company entered into an employment agreement with
Steven V. Cotton, who served as Chief Financial Officer and Chief Operating
Officer. This replaced a previous employment agreement dated December 1999.
The agreement provided Mr. Cotton's employment was at-will and set forth an
annual base salary of $262,500, subject to annual review by the Board of
Directors, and incentive compensation of up to 50% of his annual base salary.
The agreement also provided a signing bonus of $144,722 to be paid January 2002,
which was paid, a stock option to purchase 250,000 shares of the Company's
common stock, which was later cancelled, a monthly car allowance of $1,000 that
was discontinued pursuant to his termination, and other benefits offered to
other Company employees such as medical, dental, life and disability insurance
and participation in other incentive programs such as the Company's 401(k) plan.
Mr. Cotton's employment was terminated in May 2002. Mr. Cotton was compensated
under his agreement until terminated and it is the Company's position that it
has no further obligation for any further compensation. On September 6, 2002,
Mr. Cotton filed a complaint entitled Cotton v. Lantronix, Inc., et al., No.
02CC14308, in the Superior Court of the State of California, County of Orange
alleging breach of contract, breach of the covenant of good faith and fair
dealing, wrongful termination, misrepresentation, and defamation. The complaint
seeks unspecified damages, declaratory relief, attorneys' fees and costs.
Discovery has not commenced and no trial date has been established.
In December 2001, the Company entered into an agreement with Michael Oswald
for him to serve as General Counsel and Secretary. The agreement provides that
Mr. Oswald's employment is at-will and sets forth an annual base salary of
$175,000. He is eligible to receive an annual target bonus of up to $43,750. Mr.
Oswald also received 10,000 incentive stock options and 20,000 nonstatutory
stock options. He is also 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 summarizes stock option grants by the Company during
the fiscal year ended June 30, 2002 to each of the executive officers identified
in the Summary Compensation Table above. These stock options relate to options
to purchase the common stock of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/SAR'S AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS/ EMPLOYEES IN EXERCISE OR FOR 10 YEAR OPTION TERM(3)
SAR'S YEAR ENDED JUNE BASE PRICE EXPIRATION
NAME GRANTED 30, 2002 (1) (2) DATE 5% 10%
---------------------- ------- -------------- ----------- ---------- ---------- ----------
Marc Nussbaum 0 ----- ----- ----- ----- -----
James Kerrigan 0 ----- ----- ----- ----- -----
Michael Oswald 30,000 * $ 6.18 12/31/11 $ 116,597 $ 295,480
" 12,825 * $ 2.18 2/20/12 $ 17,583 $ 44,559
Frederick G. Thiel (4) 300,000 7% $ 5.75 Cancelled ----- -----
Johannes Rietschel 0 ----- ----- ----- ----- -----
Steven V. Cotton (5) 250,000 6% $ 5.75 Cancelled ----- -----
____________________
* Represents less than 1% of the total options granted to employees in fiscal year end June 30, 2002.
(1) Based on an aggregate of 4,179,668 options granted by us in the year ended June 30, 2002 to our
employees, directors, officers and consultants.
(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.
17
(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) These stock options granted to Mr. Thiel during the last fiscal year were cancelled pursuant to
the terms of his resignation as of September 2002.
(5) These stock options granted to Mr. Cotton during the last fiscal year were cancelled pursuant to
termination of his employment as of May 2002. Any vested options not exercised within ninety
(90) days were cancelled.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the Named Executive Officers exercised options during the fiscal
year ended June 30, 2002.
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 5,978,366 $ 5.14 17,894,616
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.
Based solely on its review of the copies of such forms received by the
Company and written representations from certain reporting persons, the Company
believes that through the Record Date its executive officers, directors, and 10%
Stockholders have complied with all applicable Section 16(a) filing
requirements, except that Marc Nussbaum and James Kerrigan each filed a
delinquent Form 3 and a Form 4 was filed late by Anthony Macciola for a
transaction occurring in October 2001 and the Company filed a late Form 4 for
Howard Slayen for a transaction in February 2002.
RELATED PARTY TRANSACTIONS
One international customer, Transtec AG, a related party due to common
ownership by the Company's major stockholder and former Chair of the Board of
Directors, Bernhard Bruscha, accounted for approximately 5%, 9% and 7% of the
Company's net revenues for the years ended June 30, 2002, 2001 and 2000,
respectively. Included in the accompanying consolidated balance sheets are
approximately $246,000 and $787,000 due to this related party at June 30, 2002
and 2001, respectively. The Company also has an agreement with the same related
international customer for the provision of technical support services to the
Company at the rate of $7,500 per month. Included in selling, general and
administrative expenses is $90,000 for each of the three years in the period
ended June 30, 2002 for these support services.
18
Each director, Mr. Desai, Mr. Slayen, and Mr. Burton, received an option to
purchase 25,000 shares of the Company's common stock at an exercise price of
$6.08 per shares on November 9, 2001 pursuant to the 2001 Annual Meeting of
Shareholders as partial compensation for services being rendered in each's
capacity as a director 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, and Marc Nussbaum, our
Interim Chief Executive Officer, serve as the Company's nominees on the Xanboo
Board of Directors.
INDEBTEDNESS
Frederick G. Thiel, former Chief Technology and Strategy Officer, former
President and former Chief Executive Officer, currently has three non-recourse
promissory notes with a current aggregate principal amount owed to the Company
of $2,908,294. These three notes bear interest rates ranging from 5.19% to
7.50% per annum, compounded annually. The first note, dated March 19, 2001, has
a current outstanding balance of $1,373,913. The second note, dated April 16,
2001, has a current outstanding balance of $600,000. The third note, dated June
5, 2001, has a current outstanding balance of $935,381. Each were executed by
Mr. Thiel for loans from the Company for Mr. Thiel to pay income tax liabilities
incurred by him as a result of various exercises of stock options to purchase
our common stock.
Steven V.Cotton, former Chief Financial Officer and former Chief Operating
Officer, currently has four non-recourse promissory notes with a current
aggregate principal amount owed to the Company of $996,099. These four notes
bear interest rates ranging from 5.06% to 7.50% per annum, compounded annually.
The first note, dated March 19, 2001 has a current outstanding balance of
$3,391. The second note, also dated March 19, 2001, has a current outstanding
balance of $101,160. The third note, dated March 23, 2001, has a current
outstanding balance of $19,601. The fourth note, dated June 5, 2001, has a
current outstanding balance of $871,947. Each were executed by Mr. Cotton for
loans from the Company for Mr. Cotton to pay income tax liabilities incurred by
him as a result of various exercises of stock options to purchase our common
stock.
Thomas W. Burton, a director on the Board of Directors and current Chair of
the Compensation Committee, currently has two non-recourse promissory notes with
a current aggregate principal amount owed to the Company of $122,100. These
notes bear interest rates ranging from 5.19% to 5.38% per annum, compounded
annually. The first note, dated May 19, 2000, has a current outstanding balance
of $28,100. The second note, dated April 16, 2001, has a current outstanding
balance of $94,000. Each were executed by Mr. Burton for loans from the Company
for Mr. Burton to pay income tax liabilities incurred by him as a result of
various exercises of stock options to purchase our common stock.
Due to the decrease in the trading price of the Company 's common stock,
the aggregate value of the collateral related to the non-recourse loans is
approximately $1.4 million (based on the quoted market price on September
20, 2002), which is below the amount owed on the notes. The Company reduced the
carrying amount of the officer loans by $4.2 million by establishing a reserve
for uncertainties relative to collection of the related receivables. Factors
considered in determining the level of this reserve include the value of the
collateral securing the notes, the ability of the Company to effectively enforce
its collection rights and the ability of the former officers to honor their
obligations to the Company. No impairment has been recorded as it relates to
the note receivable from Mr. Burton.
19
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, 2002. The
Compensation Committee held six (6) meetings during Fiscal Year 2002.
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 annually review its compensation practices 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 Interim 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.
Cash Bonuses. Certain 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 revenue goals, based on a matrix in
which 100% of target may be achieved only if the Company's results meet targets.
The bonus program consists of two components--corporate financial goals and
individual objectives. The relative weighting of these two components is
determined by 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. Individual objectives are
negotiated and agreed upon between the employee and his or her supervisor.
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 compensation
20
is determined based on comparable salaries of chief executive officers in
comparable technology companies. The Committee uses other industries for
comparable measures, which have some of the same manufacturing techniques and
challenges.
In May 2002, the Company hired Marc Nussbaum to serve as the Interim Chief
Executive Officer with an annual salary of $290,000 and a monthly automobile
allowance of $1,000.
Prior to May 2002, Frederick G. Thiel served as the President and Chief
Executive Officer under an employment agreement entered into as of January 2002.
Mr. Thiel's employment agreement provided that he was an at-will employee and
set forth an annual base salary of $325,000, subject to annual review by the
Board of Directors, and incentive compensation up to 50% of his annual salary.
It also provided a signing bonus of $206,250, a stock option to purchase 300,000
shares of the Company's common stock, a monthly car allowance of $1,000, and
other benefits offered to other Company employees such as medical, dental, life
and disability insurance and participation in other incentive programs such as
the Company's 401(k) plan.
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 Burton, Chair
H. K. Desai
Howard Slayen
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section. No interlocking relationships exist between the Company's Board of
Directors and the Compensation Committee of any other company, and no such
interlocking relationship has existed in the past.
21
AUDIT COMMITTEE REPORT
YEAR ENDED JUNE 30, 2002
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. Our management has primary responsibility for
preparing our financial statements and our financial reporting process. 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.
For the fiscal year ended June 30, 2002, the Committee met in person 5
times and met via telephone conference calls an additional 5 times. The members
of the Audit Committee took the following actions:
(i) reviewed and discussed the annual audited financial
statements and the quarterly results of operation with management;
(ii) discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, as may be
modified or supplemented;
(iii) received from the auditors disclosures regarding the
auditor's independence required by Independence Standard No. 1, as may
be modified or supplemented, and discussed with the auditors the
auditors' 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, 2002, for filing with
the SEC.
In addition, 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. As a result of that
investigation, certain prior financial statements of the Company were restated.
During the course of the investigation, one or more members of the Audit
Committee was in almost daily contact with the investigating team. Also, the
chair of the Audit Committee joined counsel and the accountants in an informal
meeting with staff of the SEC to present our tentative findings of the
investigation and the Company's tentative conclusions regarding the scope of the
proposed corrective action to be undertaken by the Company.
Our Board of Directors has adopted a written charter for the Audit
Committee, which was published with last year's proxy statement. For the fiscal
year ended June 30, 2002 the Company's Audit Committee has consisted of H. K.
Desai, Thomas Burton and Howard Slayen. All three are "independent directors"
as that term is defined in the December 21, 1999 NASDAQ bulletin entitled
"Changes to NASDAQ Independent Director and Audit Committee Requirements."
This report of the Audit Committee shall not be deemed incorporated by
reference by an 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 Slayen, Chair
Thomas Burton
H. K. Desai
22
AUDIT AND RELATED FEES
AUDIT FEES
Audit fees billed to us by Ernst & Young LLP for the audit of our annual
financial statements for the fiscal year ended June 30, 2002, and the review of
our financial statements included in our quarterly reports on Form 10-Q during
the fiscal year ended June 30, 2002, totaled approximately $573,469.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not engage Ernst & Young LLP for any advice regarding
financial information systems design or implementation during the fiscal year
ended June 30, 2002 and thus there were no fees incurred.
ALL OTHER FEES
Other audit-related fees for Fiscal Year 2002 were an additional $787,440,
which included, among other things, fees for acquisition-related work,
registration statements, assistance in responding to SEC inquiries, audits
required by statute in certain locations outside the US where the Company has
operations, procedures performed in connection with restatement of the Company's
historical financial statements, accounting consultations and acquisition
required audits. Fees billed to the Company for non-audit-related services that
Ernst & Young LLP rendered for Fiscal Year 2002 were $1,256,670, which included
fees for tax compliance and tax consulting services, and special investigation
services requested by the Board of Directors concerning management and
accounting practices. All fees billed to us by Ernst & Young LLP in the
aggregate, including audit-related fees, totaled $2,617,579.
The Audit Committee of the Board of Directors has determined that the
provision of the services disclosed under the subheadings "Financial Information
Systems Design and Implementation Fees" and "All Other Fees" above by Ernst &
Young LLP is compatible with maintaining such accountants' independence.
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, 2002. 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.
LANTRONIX INC
Cumulative Total Return
8/4/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
------ ----- ----- ----- ------ ----- ----- ----- -----
LANTRONIX, INC. 100.00 95.00 63.75 50.31 103.00 61.00 63.20 25.90 8.50
NASDAQ STOCK MARKET (U.S.) 100.00 96.68 64.74 48.33 56.96 39.50 51.35 48.66 38.82
RDG TECHNOLOGY COMPOSITE 100.00 94.39 64.29 48.30 53.27 36.08 47.81 45.63 33.03
23
The Company previously used a stock price performance graph from the JP
Morgan H&Q Technology Index, however, this index was discontinued in March 2002
and therefore ceased to exist. In compliance with SEC disclosure rules, the
following chart demonstrates the comparison of the RDG Technology Composite
Index with the JP Morgan H&Q Technology Index for the available retroactive
period.
LANTRONIX INC
Cumulative Total Return
8/4/00 9/00 12/00 3/01 6/01
------ ------ ----- ----- ------
LANTRONIX, INC. 100.00 95.00 63.75 50.31 103.00
NASDAQ STOCK MARKET (U.S.) 100.00 96.68 64.74 48.33 56.96
JP MORGAN H & Q TECHNOLOGY 100.00 105.32 68.44 47.86 53.35
RDG TECHNOLOGY COMPOSITE 100.00 94.39 64.29 48.30 53.28
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Irvine, California
October 15, 2002
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.
24
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, 2002 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 15, 2002. 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.
25
APPENDIX A
CHARTER - CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
OVERVIEW - THE ROLE OF THE BOARD OF DIRECTORS:
It is the paramount duty of the Board of Directors to oversee the CEO and
other senior management in the competent and ethical operation of the
corporation on a day-to-day basis. To satisfy this duty the directors will take
a proactive, focused approach to their position, and set standards to ensure
that the corporation is committed to business success through maintenance of the
highest standards of responsibility and ethics.
Directors bring to the corporation a wide range of experience, knowledge
and judgment, and bring these skills to bear for the corporation. These varied
skills mean that good governance depends on far more than a "check the box"
approach to standards or procedures. The governance structure in the company is
designed to be a working structure for principled actions, effective
decision-making and appropriate monitoring of both compliance and performance.
Effective directors maintain an attitude of constructive skepticism and
careful review. Our directors know that their job requires them to ask probing
questions of management and to take the action necessary to get accurate and
honest answers. Our directors also rely on the advice, reports and opinions of
management, counsel and our expert advisers. In doing so the board constantly
evaluates the qualifications of those it relies upon for information and advice,
and also looks to the process used by managers and advisers in reaching their
recommendations.
Finally our board prides itself on keeping up to date on best governance
practices. We, working together with management and our advisers, look to the
knowledge and information of others in the governance debate for additional
information on how to manage our affairs. We particularly note the recent
efforts by the various exchanges as well as the Securities and Exchange
Commission and the Business Roundtable to promote better governance. We intend
to continually monitor the way we govern ourselves, including reviewing whether
there are alternatives or new ideas which would strengthen our governance
structures.
DIRECTOR QUALIFICATIONS:
The board shall have a majority of directors who meet the criteria for
independence established by the NASDAQ. The Corporate Governance and Nominating
Committee ("CGN Committee") of the board, in accordance with the charter and
principles of that committee, will nominate individuals to serve on the board.
The CGN Committee is responsible for reviewing with the board, on an annual
basis, the appropriate skills and characteristics required of board members as
well as the composition of the board as a whole. This assessment will include
members' qualification as independent, as well as consideration of diversity,
skills, age and experience in such areas as operations, finance, marketing, and
sales, as well as the general needs of the board. The board, together with the
Chairman of the CGN Committee and the Chairman of the Board, shall extend the
actual invitation to join the board.
The board currently has three members. The board reviews from time to time
the appropriateness of its size. The board would consider expanding its size to
accommodate outstanding candidates.
The board, through the CGN Committee, will have the opportunity to review
the appropriateness of the continued service of directors who change their
position or responsibility that they held when they were elected to the board.
Each board member must ensure that other existing and anticipated future
commitments do not materially interfere with the members' service as director.
Directors should advise the CGN Committee of any invitations to join the board
of any other public company prior to accepting another directorship.
The board believes that term limits are on balance not the best way to
maximize the effectiveness of the board. While terms limits would likely
introduce fresh perspectives and make new viewpoints available to the board,
they may have the countervailing effect of causing the loss of the benefit
gained from the contributions of directors who have developed, over time,
increasing insight into the Company. As an alternative to term limits the CGN
Committee will review the appropriateness of each board member's continued
service every three years.
DIRECTOR RESPONSIBILITIES:
The fundamental role of the directors is to exercise their business
judgment to act in what they reasonably believe to be the best interests of the
Company and its shareholders. In fulfilling that responsibility the directors
should be able to rely on the honesty and integrity of the Company's senior
management and expert legal, accounting, financial and other advisors. The
directors have the benefit of directors' and officers' insurance, paid by the
company, to indemnification to the fullest extent allowed under the Company's
charter and Delaware law, and to exculpation as provided by Delaware law and the
Company's charter.
Board members are expected to prepare for, attend and participate in all
board and applicable committee meetings, and to spend the time needed and meet
as often as necessary to properly discharge their obligations. Information and
data that are important to the board's understanding of the business to be
conducted at a board or committee meeting should generally be distributed in
writing to the directors prior to the meeting, so that board meeting time may be
conserved and discussion time focused on questions that the board has about the
materials. Particularly sensitive subject matters may be discussed at the
meeting without advance distribution of written materials.
The board does not have a policy on whether or not the roles of Chief
Executive Officer and Chairman of the Board should be separate and, if they are
to be separate, whether the Chairman should be selected from the non-employee
directors or be an employee. The board believes these issues should be
considered as part of the board's broader succession planning process. In the
event the Chairman is an employee of the corporation, the non-employee directors
shall select a Lead Independent Director. The Lead Independent Director, if one
is needed, will be selected by the outside directors and will assume the
responsibility of chairing meetings of outside directors and bear such further
responsibilities that the outside directors as a whole might designate from time
to time. The identity of the Lead Independent Director will be disclosed in the
annual proxy statement.
The Chairman of the Board will establish the agenda for each board meeting
and the Secretary will distribute it in advance to the board. At the beginning
of each year the Chairman will, to the extent foreseeable and practicable, set a
schedule of agenda items to be discussed during the year. Each board member is
free to suggest the inclusion of items on the agenda and to raise at any board
meeting subjects that are not on the agenda for that meeting. The board will
review the Company's long-term strategic plans and the big-picture challenges
faced by the Company in executing on these plans during at least one board
meeting per year.
The board's policy is to have a separate meeting time for the outside
directors. Such meetings should occur at least annually.
The board believes that management speaks for the Company. Individual
board members may occasionally meet or otherwise communicate with various
constituencies that are involved with the Company, but it is expected that board
members would do this with the knowledge of management and, in most instances,
absent unusual circumstances or as contemplated by the committee charters, at
the request of management.
BOARD COMMITTEES:
A Nominating and Governance Committee, Audit Committee and Compensation
Committee of the board shall exist at all times. All of the members of these
committees will meet the criteria for independence established by the Nasdaq
Stock Market. The members of these committees will also meet the other
membership criteria specified in the respective charters for these committees.
Committee members will be appointed by the board upon recommendation by the CGN
Committee of the board, in accordance with the charter and principles of that
committee. There will, from time to time, be occasions on which the board may
want to rotate committee members, but the board does not believe that a formal
policy of rotation is mandated.
Each committee shall have its own charter. The charter will set forth the
principles, policies, objectives and responsibilities of the committees in
addition to the qualifications for committee membership, procedures for
committee member nomination and removal, committee organization and functioning
and how the committee will communicate with the board. The charters will
provide that each committee will meet to review its performance at least once a
year.
The Chairman of each committee will, in consultation with the appropriate
committee members and members of management, and in accordance with the
committee's charter, determine the frequency and length of committee meetings
and develop the committee's agenda. At the beginning of the year each committee
will establish a schedule of agenda subjects to be discussed during the year (to
the extent these can be foreseen). The schedule for each committee will be
furnished to the full board.
The board and each committee shall have the authority to obtain advice, reports
or opinions from internal and external counsel and expert advisors and shall
have the power to hire independent legal, financial and other advisors as they
may deem necessary, without consulting with, or obtaining approval from, any
officer of the Company in advance.
The board may, from time to time, form new committees as it deems appropriate.
BOARD EVALUATION:
The CGN Committee will oversee the annual board evaluation process in
accordance with the charter and principles of that committee. As part of this
process directors will conduct a self-evaluation to review the progress and
effectiveness of the board and its committees, and will submit its comments to
the CGN Committee. The CGN Committee will then report back to the board, and the
full board will consider and discuss the committee's report.
MANAGEMENT SUCCESSION:
The CGN Committee should conduct an annual review on succession planning,
in accordance with the charter and principles of that committee. The committee
should report its recommendation to the board. The entire board, along with the
committee, will nominate and evaluate potential successors to the CEO. The CEO
should make available his or her recommendation for potential successors,
together with the reasons for such recommendation and any suggested strategy or
development plans for that person.
DIRECTOR ORIENTATION AND CONTINUING EDUCATION:
The Company will have an orientation program for new directors, and each
new director must participate in the program within two months of the date on
which he or she is elected or appointed to the board. The orientation program
will include presentations that review the Company's business strategies, its
financial and accounting systems and risk management controls, its code of
business conduct and methods and compliance programs, and its internal and
independent auditor. The Orientation should include an introduction to the
Company's senior management, visits its corporate headquarters and to the extent
practicable its significant facilities.
INCUMBENT DIRECTORS MAY ALSO BE INVITED TO ATTEND THE ORIENTATION PROGRAM.
APPENDIX B
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
LANTRONIX, INC.
Lantronix, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
(1) The name of the Corporation is Lantronix, Inc. The date of the filing
of its original Certificate of Incorporation (the "Original Certificate") with
the Secretary of State of the State of Delaware was May 24, 2000, under the name
Lantronix, Inc.
(2) Pursuant to Section 242(b) of the Delaware General Corporation Law the
Board of Directors of the Corporation has duly adopted, and a majority of the
outstanding stock entitled to vote thereon has approved, the amendments to the
Certificate of Incorporation of the Corporation set forth in this Certificate of
Amendment.
(3) Article IV. of the Certificate of Incorporation of the Corporation is
amended to insert the following paragraph as the second paragraph of Article
IV.:
"Effective immediately upon the filing of this Certificate of Amendment
with the Delaware Secretary of State, every three (3) outstanding shares of
Common Stock shall without further action by this Corporation or the holder
thereof be combined into and automatically become one (1) share of Common
Stock. The authorized shares of the Corporation shall remain as set forth
in this Certificate of Incorporation. No fractional share shall be issued
in connection with the foregoing stock split; all shares of Common Stock so
split that are held by a stockholder will be aggregated and each fractional
share resulting from such aggregation shall be rounded down to the nearest
whole share. In lieu of any interest in a fractional share of Common Stock
to which a stockholder would otherwise be entitled as a result of the
foregoing split, the Corporation shall pay a cash amount to such
stockholder equal to the fair value as determined by the Board of Directors
of such fractional share as of the effective date of the foregoing split."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of the Certificate of Incorporation on this [ ]day of[ ], 200[ ].
LANTRONIX, INC.
By: ____________________
Marc Nussbaum
Interim Chief Executive Officer
Attest:
By: ____________________
Michael Oswald
Secretary
APPENDIX C
PROXY
LANTRONIX, INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF LANTRONIX, INC.
The undersigned stockholder of LANTRONIX, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated October 15, 2002, and hereby appoints Marc Nussbaum
and Michael Oswald or either of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of Lantronix,
Inc. to be held on November 12, 2002 at 9:00 a.m., local time, at the corporate
office of Lantronix, Inc. at 15353 Barranca Parkway, Irvine, California 92618,
and at any adjournment or adjournments thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEE AS A DIRECTOR, "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS,
AND APPROVAL FOR THE DISCRETION OF THE BOARD OF DIRECTORS TO APPROVE A 1:3
REVERSE STOCK SPLIT IF IT DETERMINES IT IS IN THE BEST INTEREST OF THE COMPANY,
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[BACK OF PROXY]
DETACH HERE
[X] Please mark
your votes as
indicated
1. ELECTION OF A DIRECTOR
Nominee: Thomas Burton
FOR THIS NOMINEE WITHHELD FROM THIS NOMINEE
[ ] [ ]
FOR AGAINST ABSTAIN
2. PROPOSAL TO RATIFY THE APPOINTMENT [ ] [ ] [ ]
OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE
FISCAL YEAR ENDING JUNE 30, 2003.
FOR AGAINST ABSTAIN
3. PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS [ ] [ ] [ ]
TO APPROVE A 1:3 REVERSE-STOCK SPLIT IF IT
DETERMINES IT IS IN THE BEST INTEREST OF THE
COMPANY AND IN ORDER TO MAINTAIN LISTING OF
THE COMPANY'S SECURITIES ON THE NASDAQ
NATIONAL MARKET.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT(S) THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1 THROUGH 3.
Signature: ____________________ Signature: _____________________ Date: _________
This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.