Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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On August 30, 2016, the Compensation Committee
(the “Committee”) of the Board of Directors of Lantronix, Inc. (the “Company”) approved the performance
goals, minimum performance thresholds, and bonus formulas under the Lantronix, Inc. Annual Bonus Program (the “Bonus Program”)
for fiscal 2017. Selected employees, including all of the Company’s named executive officers, are eligible to participate
in the Bonus Program. Each participant in the Bonus Program is assigned a target annual cash bonus expressed as a percentage of
the participant’s base salary or as a fixed amount of cash, the payment of which is subject to the achievement of certain
performance goals and objectives as outlined in the Bonus Program. Bonuses paid under the Bonus Program, if any, are based upon
two semi-annual performance periods, corresponding to the first and second half of the Company’s fiscal year, respectively
(each, a “Performance Period”). For each Performance Period, the Committee establishes a limit on the maximum aggregate
amount of bonuses that all participants will be eligible to receive during a Performance Period (the “Bonus Pool”).
The Committee designated the following named
executive officers as participants in the Bonus Program for fiscal 2017: Jeffery Benck, the Company’s Chief Executive Officer,
Jeremy Whitaker, the Company’s Chief Financial Officer, and Daryl Miller, the Company’s Vice President of Engineering.
The Committee also designated other Lantronix officers and employees who are not named executive officers as Bonus Program participants
for fiscal year 2017.
For fiscal year 2017, the Committee approved
two performance measures for Messrs. Benck and Whitaker. These goals relate to the Company achieving certain levels of revenue
and the Company’s earnings before interest, taxes, depreciation, amortization, and share-based compensation, excluding the
impact of certain non-recurring charges or gains (if any) and the total amount of bonus payments awarded under the Bonus Program
for the Performance Period (“Adjusted EBITDAS”). The goals are weighted 60% towards revenue and 40% towards Adjusted
EBITDAS.
For all other participants, including Mr. Miller,
in addition the revenue and Adjusted EBITDAS goals, bonus determinations take into account achievement towards goals established
by the Committee relating to certain corporate and individual MBOs, or management by objectives. The goals for all participants
other than Messrs. Benck and Whitaker are weighted 40% towards revenue, 30% towards Adjusted EBITDAS and 30% towards MBOs. Bonus
payouts for all participants are weighted 50% towards the first half of the fiscal year and 50% for the second half of the fiscal
year.
The actual bonuses payable for fiscal year
2017, if any, will vary depending on the extent to which actual performance meets, exceeds or falls short of the goals approved
by the Committee. In addition, the Committee retains discretion to reduce or eliminate or otherwise adjust the bonus that otherwise
would be payable based on actual performance. In addition, the Committee retains the discretion to exclude one-time non-recurring
expenses in calculating the extent to which Adjusted EBITDAS is achieved.
For fiscal 2017, the Bonus Pool will be funded
by (1) eighty percent (80%) of the Company’s Adjusted EBITDAS during the applicable Performance up to 50% of the aggregate
amount of target bonuses, and (2) fifty percent (50%) of the Company’s Adjusted EBITDAS thereafter. If the Bonus Pool during
a Performance Period is insufficient to fully fund the bonuses earned during the Performance Period, each participant’s bonus
will be ratably reduced.
Under the Bonus Program for fiscal 2017, (1)
the target bonus for Mr. Benck is 75% of his base salary, with the opportunity to earn up to 200% of this amount (
i.e.
,
150% of his base salary) based on the level of achievement of the Company’s financial goals; (2) the target bonus for Mr.
Whitaker is 55% of his base salary, with the opportunity to earn up to 200% of this amount (
i.e.
, 110% of his base salary)
based on the level of achievement of the Company’s financial goals; and (3) the target bonus for Mr. Miller is 40% of his
base salary, with the opportunity to earn up to 170% of this amount (
i.e.
, 68% of his base salary) based on the level of
MBO performance and the achievement of the Company’s financial goals.
The foregoing description of the Bonus Program
is qualified in its entirety by reference to the Summary of Lantronix, Inc. Annual Bonus Program, as amended, which has been filed
as Exhibit 99.1 to the Current Report on Form 8-K dated September 1, 2015 and is incorporated in this Report by reference.
On August 31, 2016, the Company entered into
a letter agreement with Mr. Whitaker (the “Letter Agreement”) setting forth certain terms of his employment as the
Company’s Chief Financial Officer.
Under the Letter Agreement, Mr. Whitaker is
eligible for severance payments if within five years his employment is terminated involuntarily by the Company without Cause
or by Mr. Whitaker for Good Reason, in each case as defined in the Letter Agreement. Severance payments for Mr. Whitaker consist
of 6 months of base salary plus an amount equal to 50% the amount of bonuses (if any) paid to Mr. Whitaker during the 12 months
preceding termination. If the termination occurs in connection with a Change in Control (as defined in the Letter Agreement) Mr.
Whitaker is entitled to “double trigger” severance payments as follows: (1) if the market capitalization of the Company
at the time of the Change in Control is $50 million or less, Mr. Whitaker will receive 6 months of base salary plus an amount equal
to 50% the amount of bonuses (if any) paid to Mr. Whitaker during the 12 months preceding termination, and up to 6 months of COBRA
benefits; and (2) if the market capitalization of the Company at the time of the Change in Control is greater than $50 million,
Mr. Whitaker will receive 12 months of base salary plus payment of an amount equal to 100% of his target bonus, and up to 12 months
of COBRA benefits. In addition, the Letter Agreement provides that if Mr. Whitaker’s employment is terminated in connection
with a Change in Control, all of Mr. Whitaker’s outstanding equity awards will accelerate and become fully vested.
The foregoing description of the Letter Agreement
is qualified in its entirety by the Letter Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.