* Common
Stock outstand and reserved is measured as of September 23, 2009.
15,201,639 shares are currently reserved for issuance pursuant to the
Company’s equity compensation plans.
Please
note that the number of shares of common stock authorized will remain unchanged
following the reverse stock split, which will have the effect of increasing the
number of authorized but unissued shares of common stock available for future
issuance. The Company has no current plans, proposals or arrangements
to issue any of these authorized and unreserved/unissued
shares.
The Board
believes that stockholder approval of multiple potential exchange ratios (rather
than a single exchange ratio) provides the flexibility to achieve the desired
results of the reverse stock split. If the stockholders approve this proposal,
the reverse stock split would be effected, if at all, only upon a determination
by the Board that the reverse stock split is in the best interests of the
stockholders at that time. In connection with any determination to effect a
reverse stock split, the Board would set the timing for such a split and select
the specific ratio from among the ratios set forth herein. No further action on
the part of stockholders will be required to either implement or abandon the
reverse stock split. The Board reserves its right to elect not to proceed, and
abandon, the reverse stock split if it determines, in its sole discretion, that
this proposal is no longer in the best interests of our
stockholders.
The text
of the form of proposed Certificate of Amendment to our Amended and Restated
Certificate of Incorporation, is attached to this proxy statement as Appendix A,
provided however, that the text of the Certificate of Amendment is subject to
modification to include changes as may be required by the office of the
Secretary of State of the State of Delaware and as the Board may deem necessary
or advisable to effect a reverse stock split. The Board may also elect not to do
the reverse stock split at all.
Reasons for the Reverse Stock
Split
The Board
believes that a reverse stock split may be desirable for two reasons. The
primary reason the reverse stock split is being proposed is to attempt to
maintain the eligibility of our common stock for listing on The Nasdaq Capital
Market and avoid delisting. Second, the Board believes a reverse stock split
could improve the marketability of our common stock. The Board believes that a
reverse stock split will result in the market price of our common stock rising
to the level necessary to satisfy the $1.00 minimum market price continued
listing requirement. However, our common stock may not remain equal to or in
excess of $1.00 for a substantial period of time. The market price of our common
stock is also based on other factors in addition to the number of shares
outstanding, including our future performance.
The Board
also believes that the increased market price of our common stock expected as a
result of a reverse stock split could improve the marketability of our common
stock and encourage interest and trading in the common stock. Many brokerage
houses and institutional investors have internal policies and practices that
either prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. Some
of those policies and practices may function to make the processing of trades in
low-priced stocks economically unattractive to brokers. Additionally, because
brokers’ commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced stocks, the
current average price per share of our common stock can result in individual
stockholders paying transaction costs representing a higher percentage of their
total share value than would be the case if the share price were substantially
higher. However, it should be noted that a reverse stock split would decrease
the total number of shares outstanding, which may impact our liquidity. In
addition, if a reverse stock split is implemented, holders of fewer than 100
shares of common stock after the reverse stock split is effected may be charged
brokerage fees that are proportionately higher than holders of more than 100
shares of common stock. The Board is hopeful that the anticipated higher market
price will reduce, to some extent, the negative effects on the liquidity and
marketability of our common stock inherent in some of the policies and practices
of institutional investors and brokerage houses described above.
The Board
does not intend for this transaction to be the first step in a series of plans
or proposals of a “going private transaction” within the meaning of Rule 13e-3
of the Securities Exchange Act of 1934, as amended.
Certain
Risk Factors Associated with the Reverse Stock Split
The effect of the reverse stock
split upon the market prices for our common stock is difficult to predict, and a
decline in the market price of our common stock after the reverse stock split
may result in a greater percentage decline than would occur in the absence of a
reverse stock split.
Stockholders
should note that the effect of the reverse stock split upon the market prices
for our common stock cannot be accurately predicted. In particular, there is no
assurance that prices for shares of our common stock after the reverse stock
split is implemented will be three to six times, as applicable, the price for
shares of the common stock immediately prior to the reverse stock split.
Furthermore, the proposed reverse stock split may not achieve the desired
results that have been outlined above. Any reverse stock split may adversely
impact the market price of our common stock and any increased price per share of
the common stock immediately after the reverse stock split may not be sustained
for any prolonged period of time.
If the
reverse stock split is effected and the market price of our common stock
declines, the percentage decline may be greater than would occur in the absence
of a reverse stock split. The market price of our common stock will, however,
also is based on our performance and other factors, which are unrelated to
the number of shares outstanding.
The
reduction in the number of shares outstanding may have an adverse impact on some
stockholders who would own “odd-lots” of shares following the reverse stock
split, may be construed as having an anti-takeover effect and may adversely
affect the liquidity of our common stock.
If
implemented, a reverse stock split may result in some stockholders owning
“odd-lots” of less than 100 shares of common stock, particularly as the ratio
for the reverse stock split increases. Brokerage commissions and other costs of
transactions in odd-lots may be higher, particularly on a per-share basis, than
the cost of transactions in even multiples of 100 shares. The reduction in the
number of shares outstanding would also result in an effective increase in the
number of authorized but unissued shares of common stock, which may be construed
as having an anti-takeover effect by permitting the issuance of shares to
purchasers who might oppose a hostile takeover bid or oppose any efforts to
amend or repeal certain provisions of our Amended and Restated Certificate of
Incorporation or Bylaws. Furthermore, the liquidity of our common stock could be
adversely affected by the reduced number of shares that would be outstanding
after the reverse stock split.
Effects of the Reverse Stock Split on
Voting Rights
Proportionate
voting rights and other rights of the holders of our common stock would not be
affected by the reverse stock split, other than as a result of the payment of
cash in lieu of fractional shares as described below. For example, a holder of
1% of the voting power of the outstanding shares of our common stock immediately
prior to the effective time of the reverse stock split would continue to hold 1%
of the voting power of the outstanding shares of our common stock after the
reverse stock split. Although the reverse stock split would not affect the
rights of stockholders or any stockholder’s proportionate equity interest in our
company, subject to the treatment of fractional shares, the number of authorized
shares of our common stock would not be reduced and would increase significantly
the ability of the Board to issue authorized and unissued shares without further
stockholder action. The number of stockholders of record would not be affected
by the reverse stock split, except to the extent that any stockholder holds only
a fractional share interest and receives cash for that interest after the
reverse stock split.
Effect
of the Reverse Stock Split on Stock Option Plans
The
reverse stock split would reduce the number of shares of our common stock
available for issuance under our stock option plans in proportion to the
exchange ratio of the reverse stock split.
We have
outstanding stock options and warrants to purchase shares of common stock. Under
the terms of the outstanding stock options and warrants, the reverse stock split
will effect a reduction in the number of shares of common stock issuable upon
exercise of the stock options and warrants in proportion to the exchange ratio
of the reverse stock split and will effect a proportionate increase in the
exercise price of the outstanding stock options and warrants. In connection with
the reverse stock split, the number of shares of common stock issuable upon
exercise or conversion of outstanding stock options and warrants will be rounded
to the nearest whole share and no cash payment will be made in respect of such
rounding.
Effective Date
The
reverse stock split would become effective as of 5:00 p.m. Eastern time on the
date of filing of the Certificate of Amendment with the office of the Secretary
of State of the State of Delaware. Except as explained below with respect to
fractional shares, on the effective date of the reverse stock split, not less
than three and not more than six shares, as applicable, of common stock issued
and outstanding immediately prior that effective date will be, automatically and
without any action on the part of the stockholders, combined, converted and
changed into one share of common stock in accordance with the ratio of the
reverse stock split determined by the Board within the limits set forth in this
proposal.
Payment for Fractional
Shares
No
fractional shares of common stock would be issued as a result of the reverse
stock split. In lieu of any fractional share interest, each holder of common
stock who, as a result of the reverse stock split would otherwise receive a
fractional share of common stock, will be entitled to receive cash in an amount
equal to the product obtained by multiplying (i) the closing sales price of the
Company’s common stock on the effective date of the reverse stock split as
reported on The Nasdaq Capital Market by (ii) the number of shares of the
Company’s common stock held by a holder that would otherwise have been exchanged
for a fractional share interest. This amount would be issued to the holder in
the form of a check in accordance with the exchange procedures outlined under
“Exchange of Stock Certificates” below. Holders of as many as six shares (if the
Company were to implement a 6-for-1 reverse stock split) of the Company’s common
stock would be eliminated as a result of the payment of fractional shares in
lieu of any fractional share interest in connection with the reverse stock
split. The exact number of stockholders that would be eliminated as a result of
the payment of fractional shares in lieu of the issuance of any fractional share
interests will depend on the reverse stock split ratio and the number of
stockholders that hold a number of shares less than the reverse stock split
ratio.
Exchange of Stock
Certificates
Shortly
after the effective date of the reverse stock split, each holder of an
outstanding certificate theretofore representing shares of our common stock will
receive from BNY Mellon Shareowner Services, our transfer agent for the reverse
stock split, instructions for the surrender of the certificate to the transfer
agent. The instructions will include a form of transmittal letter to be
completed and returned to the transfer agent. As soon as practicable after the
surrender to the exchange agent of any certificate that prior to the reverse
stock split represented shares of our common stock, together with a duly
executed transmittal letter and any other documents the exchange agent may
specify, the exchange agent shall deliver to the person in whose name the
certificate had been issued certificates registered in the name of that person
representing the number of full shares of common stock into which the shares of
common stock previously represented by the surrendered certificate shall have
been reclassified and a check for any amounts to be paid in cash in lieu of any
fractional share interest. Each certificate representing shares of common stock
issued in connection with the reverse stock split will continue to bear any
legends restricting the transfer of the shares that were borne by the
surrendered certificates representing the shares of common stock. Until
surrendered as contemplated herein, each certificate which immediately prior to
the reverse stock split represented any shares of common stock shall be deemed
at and after the reverse stock split to represent the number of full shares of
common stock contemplated by the preceding sentence.
No
service charges, brokerage commissions or transfer taxes shall be payable by any
holder of any certificate which prior to approval of the reverse stock split
represented any shares of common stock, except that if any certificates of
common stock are to be issued in a name other than that in which the
certificates for shares of common stock surrendered are registered, it shall be
a condition of the issuance that (i) the person requesting the issuance shall
pay to us any transfer taxes payable by reason thereof (or prior to transfer of
the certificate, if any) or establish to our satisfaction that the taxes have
been paid or are not payable, (ii) the transfer shall comply with all applicable
federal and state securities laws, and (iii) the surrendered certificate shall
be properly endorsed and otherwise be in proper form for transfer.
No Appraisal
Rights
Under the
Delaware General Corporation Law, our stockholders are not entitled to appraisal
rights with respect to the reverse stock split.
Accounting
Matters
The
reverse stock split will not affect the par value per share of our common stock.
As a result, as of the effective time of the reverse stock split, the stated
capital attributable to our common stock on its balance sheet will be reduced
proportionately based on the reverse stock split ratio selected by the Board,
and the additional paid-in capital account will be credited with the amount by
which the stated capital is reduced. The per-share net income or loss and net
book value of our common stock will be restated because there will be fewer
shares of our common stock outstanding.
Certain Material U.S. Federal Income
Tax Consequences of the Reverse Stock Split
The
following is a summary of certain material U.S. federal income tax consequences
of the reverse stock split, and does not purport to be a complete discussion of
all of the possible U.S. federal income tax consequences of the reverse stock
split. The summary assumes that the pre-reverse stock split shares were, and the
post- reverse stock split shares will be, held as "capital assets" as defined in
the Internal Revenue Code of 1986, as amended, referred to as the Code, which
generally means property held for investment. It does not address stockholders
subject to special rules, such as non-U.S. stockholders, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities, traders in
securities that elect the mark-to-market method of accounting, mutual funds, S
corporations, partnerships or other pass-through entities, U.S. persons with a
functional currency other than the U.S. dollar, stockholders who hold the
pre-reverse stock split shares as part of a straddle, hedge, integration,
constructive sale or conversion transaction, stockholders who hold the
pre-reverse stock split shares as qualified small business stock within the
meaning of Section 1202 of the Code, stockholders who are subject to the
alternative minimum tax provisions of the Code, and stockholders who acquired
their pre-reverse stock split shares pursuant to the exercise of employee stock
options or otherwise as compensation. This summary is based upon the provisions
of the U.S. federal income tax law as of the date hereof, which is subject to
change, possibly with retroactive effect. It does not address tax considerations
under state, local, non-U.S, and non-income tax laws. Furthermore, the Company
has not obtained a ruling from the Internal Revenue Service or an opinion of
legal or tax counsel with respect to the consequences of the reverse stock
split.
The
reverse stock split is intended to constitute a reorganization within the
meaning of Section 368(a) of the Code. Assuming the reverse stock split
qualifies as a reorganization, a stockholder generally will not recognize gain
or loss on the reverse stock split, except to the extent of cash, if any,
received in lieu of a fractional share interest in the post-reverse stock split
shares. The aggregate tax basis of the post-reverse stock split shares received
will be equal to the aggregate tax basis of the pre-reverse split shares
exchanged therefore, excluding any portion of the holder's basis allocated to
fractional shares, and the holding period of the post-reverse stock split shares
received will include the holding period of the pre-reverse stock split shares
exchanged.
A holder
of the pre-reverse stock split shares who receives cash in lieu of a fractional
share interest in the post-reverse stock split shares generally will be treated
as if the fractional share were issued and then immediately redeemed for
cash. Such holder will recognize gain or loss equal to the difference
between the cash received and the portion of the tax basis of the pre-reverse
stock split shares allocated to the fractional share interest. This gain or loss
will be a capital gain or loss, and will be long term capital gain or loss if
the pre-reverse stock split shares were held for more than one year, and short
term capital gain or loss if the shares were held for one year or less, as of
the effective date.
Information
reporting and backup withholding at a current rate of 28% may apply to any cash
payments to a non-corporate stockholder in lieu of a fractional share interest
in the post-reverse stock split shares, unless a correct taxpayer identification
number is furnished and such stockholder certifies that it is not subject to
backup withholding on the substitute form W-9 or successor form included in the
letter of transmittal or is otherwise exempt from backup
withholding. Any amounts withheld under the backup withholding rules
will be allowed as a refund or credit against such stockholder’s U.S. federal
income tax liability if the required information is furnished to the Internal
Revenue Service.
TAX
MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
DEPEND UPON THE PARTICULAR CIRCUMSTANCES OF EACH
STOCKHODLERS. ACCORDINGLY, EACH STOCKHOLDER IS ADVISED TO CONSULT HER
OR HIS TAX ADVISOR WITH RESPECT TO ALL OF THE POTENTIAL TAX CONSEQUENCES TO HER
OR HIM OF A REVERSE STOCK SPLIT.
Required
Vote; Recommendation of the Board of Directors
The
affirmative vote of a majority of the outstanding shares of stock of the Company
is necessary to approve this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE “FOR” AUTHORIZATION OF THE BOARD TO IMPLEMENT, IN ITS DISCRETION, A REVERSE STOCK
SPLIT OF OUR OUTSTANDING SHARES OF COMMON STOCK WITH A RANGE OF ONE-THIRD OF A
SHARE TO ONE-SIXTH OF A SHARE FOR EACH OUTSTANDING SHARE OF COMMON STOCK, AND TO
FILE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT SUCH A REVERSE
STOCK SPLIT
PROPOSAL
THREE
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
We are
asking our stockholders to ratify the Audit Committee’s selection of McGladrey
& Pullen, LLP as our independent registered public accountants for the
fiscal year ending June 30, 2010.
McGladrey
& Pullen, LLP was engaged in January 2005 and has served as our independent
registered public accountants for since then. A representative of
McGladrey & Pullen, LLP will be present at the Annual Meeting and will have
the opportunity to make a statement if he or she desires to do so and be
available to answer any appropriate questions.
Audit and Related
Fees
The
following table is a summary of the fees billed for professional services
performed by McGladrey & Pullen, LLP, our independent registered public
accountants for the fiscal years ended June 30, 2009 and 2008:
|
|
Years
Ended June 30,
|
|
Fee
Category
|
|
2009
|
|
|
2008
|
|
Audit
fees
|
|
$ |
447,305 |
|
|
$ |
502,893 |
|
Audit
-related fees
|
|
|
- |
|
|
|
- |
|
Tax
fees
|
|
|
54,770 |
|
|
|
- |
|
All
other fees
|
|
|
- |
|
|
|
- |
|
Total
fees
|
|
$ |
502,075 |
|
|
$ |
502,893 |
|
Audit Fees. Consists of fees
billed for professional services rendered for the audit of our consolidated
financial statements and review of our quarterly interim consolidated financial
statements, as well as services that are normally provided by our independent
registered public accountants in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees. Normally
consists of fees billed for audits required by statute in certain locations
outside the U.S. where we have operations and accounting
consultations. There were no fees billed for this category during the
fiscal years ended June 30, 2009 and 2008.
Tax Fees. Consists of fees
billed for professional services, including tax advice and tax planning and
assistance regarding federal, state and international tax compliance and related
services. McGladrey & Pullen, LLP was engaged to assist the
company with their tax compliance during the fiscal year ended June 30,
2009.
All Other Fees. There were no
fees for this category during the fiscal years ended June 30, 2009 and
2008.
Before
selecting McGladrey & Pullen, LLP, the Audit Committee carefully considered
the firm’s qualifications as independent registered public accountants. This
included a review of the qualifications of the engagement team, the quality
control procedures the firm has established, as well as its reputation for
integrity and competence in the fields of accounting and auditing. The Audit
Committee’s review included inquiry concerning any litigation involving
McGladrey & Pullen, LLP and any proceeding by the SEC against the firm. In
this respect, the Audit Committee concluded that the ability of McGladrey &
Pullen, LLP to perform services for us is in no way adversely affected by such
litigation or investigation. The Audit Committee’s review also included matters
required to be considered under the SEC’s rules on auditor independence,
including the nature and extent of non-audit services, to ensure that the
auditors’ independence will not be impaired. The Audit Committee pre-approves
all audit and non-audit services provided by McGladrey & Pullen, LLP, or
subsequently approves non-audit services in those circumstances where a
subsequent approval is necessary and permissible. All of the services, if any,
provided by McGladrey & Pullen, LLP described under “Audit-Related Fees,”
“Tax Fees” and “All Other Fees” were pre-approved by the Audit Committee. The
Audit Committee of our Board of Directors has determined that the provision of
services by McGladrey & Pullen, LLP other than for audit related services is
compatible with maintaining the independence of McGladrey & Pullen, LLP as
our independent registered public accountants.
Required
Vote; Recommendation of the Board of Directors
The
affirmative vote of a majority of the Votes Cast is necessary to approve this
proposal. Assuming a quorum is present, abstentions will have the effect of a
vote “against” this proposal.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE
APPOINTMENT OF MCGLADREY & PULLEN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30, 2010
AUDIT
COMMITTEE REPORT
The
information contained in this report shall not be deemed to be “soliciting
material” or “filed” or incorporated by reference in future filings with the
SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act
of 1934 (the “Exchange Act”), except to the extent that we specifically
incorporate it by reference into a document filed under the Securities Act of
1933, as amended, or the Exchange Act.
The Audit Committee of our Board of
Directors performs general oversight of our financial accounting and reporting
process, systems of internal control, audit process and the process for
monitoring compliance with laws and regulations and our Code of Business Conduct
and Ethics. The Audit Committee members are not professional
auditors, and their functions are not intended to duplicate or to certify the
activities of management and the independent registered public
accountants. The Audit Committee oversees our financial reporting
process on behalf of the Board of Directors. Our management has
primary responsibility for preparing our financial statements and our financial
reporting process, including our system of internal controls. Our
independent registered public accountants, McGladrey & Pullen, LLP, are
responsible for expressing an opinion on the conformity of our audited financial
statements to generally accepted accounting principles. The Audit
Committee meets periodically with the independent registered public accountants,
with and without management present, to discuss the results of the independent
registered public accountants’ examinations and evaluations of our internal
controls and the overall quality of our financial reporting.
For the
fiscal year ended June 30, 2009, the Audit Committee met in person seven
times. The members of the Audit Committee took the following actions
in fulfilling its oversight responsibilities:
|
(i)
|
reviewed
and discussed the annual audited financial statements and the quarterly
results of operation with management, including a discussion of the
quality and the acceptability of our financial reporting and controls as
well as the clarity of disclosures in the financial
statements;
|
|
(ii)
|
discussed
with McGladrey & Pullen, LLP the matters required to be discussed by
the Statement on Auditing Standards No. 61, as amended, as adopted by the
Public Company Accounting Oversight Board in Rule
3200T;
|
|
(iii)
|
received
from McGladrey & Pullen, LLP written disclosures and the letter from
McGladrey & Pullen, LLP as required by applicable requirements of the
Public Company Oversight Board regarding the independent accountant’s
communications with the Audit Committee concerning independence and has
discussed with McGladrey & Pullen, LLP its independence;
and
|
|
(iv)
|
based
on the review and discussion referred to above, recommended to the Board
of Directors that the audited financial statements be included in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2009, for
filing with the SEC.
|
The Audit
Committee had several meetings dealing with Sarbanes-Oxley Section 404 testing
to ensure compliance with regulatory and related guidance.
The Audit
Committee
Howard T.
Slayen, Chair
Larry
Sanders
Thomas M.
Wittenschlaeger
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth certain information with respect to beneficial
ownership of our common stock as of September 23, 2009, by: (i) each
person known by us to be the beneficial owner of more than 5% of our common
stock based on filings pursuant to Sections 13(d) or (g) of the Exchange Act;
(ii) each of our current directors and nominees for director; (iii) each of our
executive officers set forth in the Summary Compensation Table; and (iv) all
current 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
23, 2009, but excludes shares of common stock underlying options or warrants
held by any other person. Percentage of beneficial ownership is based
on 61,689,246 shares
of common stock outstanding as of September 23, 2009.
|
|
Beneficial
Ownership
|
Beneficial
Owner Name
|
|
Number
of
Shares
|
|
|
Percentage
Ownership
|
Greater
than 5% Stockholders:
|
|
|
|
|
|
TL
Investment GmbH (3)
|
|
|
23,711,027 |
|
|
|
38.4% |
Empire
Capital Management, LLC, 1 Gorham Island, Westport, CT 06880
(1)
|
|
|
6,230,000 |
|
|
|
10.1% |
Heartland Advisors,
Inc./WilliamJ. Nasgovitz, 789 North Water St. Milwaukee, WI 53202
(2)
|
|
|
5,740,000 |
|
|
|
9.3% |
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
Bernhard
Bruscha, Director (3)
|
|
|
23,966,927 |
|
|
|
38.9% |
Howard
T. Slayen, Director (4)
|
|
|
624,279 |
|
|
|
1.0% |
Curtis
Brown, Director (5)
|
|
|
59,674 |
|
|
|
* |
Larry
Sanders, Director (6)
|
|
|
291,808 |
|
|
|
* |
Lewis
Solomon, Director (7)
|
|
|
229,934 |
|
|
|
* |
Thomas
M. Wittenschlaeger, Director (8)
|
|
|
255,380 |
|
|
|
* |
Jerry
D. Chase, President and Chief Executive Officer (9)
|
|
|
408,000 |
|
|
|
* |
Reagan
Y. Sakai, Chief Financial Officer and Secretary (10)
|
|
|
286,921 |
|
|
|
* |
All
current executive officers and directors as a group (8 persons)
(11)
|
|
|
26,122,923 |
|
|
|
42.3% |
*
Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.
(1)
|
Based
upon information contained in a report in a Schedule 13G/A filed with the
SEC on February 13, 2009. Includes 3,014,641 shares held by
Empire Capital Partners, L.P. (“Empire Capital”), and its general partner,
Empire GP, LLC (“Empire GP”). Includes 3,215,359 shares held by
Empire Capital Management, LLC (“Empire Management”). Mr. Scott
Fine and Mr. Peter Richards are the Members of Empire GP and Empire
Management, and in their capacities direct the operations of Empire GP and
Empire Management.
|
(2)
|
Based
upon information contained in a Schedule 13G/A filed jointly by Heartland
Advisors, Inc. and William J. Nasgovitz with the Securities Exchange
Commission on February 11, 2009. 6,650,600 shares may be deemed
beneficially owned by (1) Heartland Advisors, Inc. by virtue of its
investment discretion and voting authority granted by certain clients,
which may be revoked at any time; and (2) William J. Nasgovitz, as a
result of his ownership interest in Heartland Advisors,
Inc. Heartland Advisors, Inc. and Mr. Nasgovitz each
specifically disclaim beneficial ownership of any of our
securities. The Heartland Value Fund, a series of the Heartland
Group, Inc., a registered investment company, owns 5,740,000
shares. The remaining shares are owned by various other
accounts managed by Heartland Advisors, Inc. on a discretionary
basis.
|
(3)
|
Includes
23,711,027 shares held by TL Investment GmbH of which Mr. Bruscha is sole
owner. Includes 255,900 shares of common stock issuable upon
exercise of stock options exercisable within 60 days of September 23,
2009.
|
(4)
|
Includes
449,279 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(5)
|
Includes
59,674 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(6)
|
Includes
264,308 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(7)
|
Includes
229,934 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(8)
|
Includes
255,380 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(9)
|
Includes
270,000 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(10)
|
Includes
181,750 shares of common stock issuable upon exercise of stock options
exercisable within 60 days of September 23,
2009.
|
(11)
|
Includes
an aggregate of 1,966,225 shares issuable upon exercise of stock options
within 60 days of September 23,
2009.
|
DIRECTOR
COMPENSATION
Cash Compensation. In fiscal year 2009,
each director received $26,000 cash compensation as an annual payment for his
services as a director. The Chairman of the Board and Chairman of the
Audit Committee received an additional $10,000 annual payment. The
Chairman of the Compensation Committee and Chairman of the Corporate Governance
and Nominating Committee each received an additional $3,000 annual
payment. The annual retainers are based on four in-person meetings
per year, one per quarter. Directors also receive $1,000 for each
additional full-day in-person meeting in excess of one meeting per quarter and
$500 for each telephonic conference.
Stock Option Program. Members of our Board of
Directors who are not employees of ours, or any parent or subsidiary of ours
(“Non-Employee Directors”), are eligible to participate in our 2000 Stock Plan.
Under the 2000 Stock Plan, Non-Employee Directors are eligible to receive a
discretionary grant of non-statutory stock options on the date such Non-Employee
Director first joins our Board. Each Non-Employee Director is also
eligible for an additional annual option grant. The exercise price
for these options is 100% of the fair market value of the shares on the date of
grant. These options have a term of ten years; provided, however,
that they will terminate earlier depending on different
circumstances.
Grants
issued on or prior to December 2007 vest as follows: Twelve months after the
date of grant, 50% of the options vest. The balance of 50% vests 1/24
per month each month thereafter, until vested in full; provided, however, the
optionee continues to serve on our Board on such dates.
Grants
issued to each Non-Employee Director from January 2008 to June 2008 vest as
follows: each option vests as to 30% of the shares 12 months after the date of
grant, as to 30% of the shares 24 months after the date of grant, and as to 40%
of the shares 36 months after the date of grant; provided, however, the optionee
continues to serve on the Board on such dates. Notwithstanding the
foregoing vesting schedule, vesting may accelerate upon satisfaction of certain
performance criteria related to the Company’s closing stock price on the Nasdaq
Capital Market.
Grants
issued to each Non-Employee Director during fiscal 2009 fully vest 12
months after the date of grant.
Except as
described above, directors do not receive any other compensation for their
services as our directors or as members of committees of the Board of
Directors.
We do not
anticipate any changes to non-employee director compensation for fiscal year
2010.
The table
below summarizes the compensation paid by us to non-employee directors for the
fiscal year ended June 30, 2009:
|
|
Fees
Earned
or
Paid
in
Cash
|
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive
Plan Compensation
|
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All
Other
Compensation
|
|
|
|
Name
|
|
($) (1)
|
|
|
($)
(2)
|
|
($) (2)
|
|
($)
|
|
|
($)
|
|
($)
|
|
Total
($)
|
|
Lewis
Solomon
|
|
|
31,550
|
|
|
|
- |
|
63,304
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
94,854
|
|
Curtis
Brown
|
|
|
26,700
|
|
|
|
49,096
|
|
28,477
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
104,272
|
|
Bernhard
Bruscha
|
|
|
-
|
|
|
|
-
|
|
70,861
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
70,861
|
|
Larry
Sanders
|
|
|
29,200
|
|
|
|
-
|
|
74,230
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
103,430
|
|
Howard
T. Slayen
|
|
|
37,700
|
|
|
|
-
|
|
89,994
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
127,694
|
|
Thomas
M. Wittenschlaeger
|
|
|
30,550
|
|
|
|
-
|
|
69,425
|
|
|
-
|
|
|
|
-
|
|
- |
|
|
99,975
|
|
(1) For
a description of annual non-employee director retainer fees and retainer fees
for chair positions, see the disclosure above .
(2) The
amounts shown are the compensation costs (disregarding an estimate for
forfeitures) recognized in our financial statements for the 2009 fiscal year
related to grants of stock awards and stock options to each non-employee
director in 2009 and prior years, to the extent we recognized compensation cost
in 2009 fiscal year for such awards in accordance with the provisions of
SFAS 123R. For a discussion of the valuation assumptions used in the
SFAS 123R calculations, see Note 7 of Notes to Consolidated Financial
Statements, included in Part IV, Item 15 of our Annual Report on
Form 10-K for the fiscal year ended June 30, 2009, referred to in this
proxy statement as our fiscal 2009 Form 10-K.
Summary
Compensation
The
following table sets forth summary information concerning compensation earned
during the 2009 and 2008 fiscal years by all persons who served as an executive
officer at any time (referred to as the “Named Executive
Officers”).
Summary
Compensation Table for 2009 and 2008 Fiscal Years
|
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
All
Other
Comp-
ensation
|
|
Name
and Principal Position
|
Year
|
($)
|
($)
|
($)
(1)
|
($)
(1)
|
($)
|
Total
($)
|
President
& CEO, Jerry D. Cie (2)
|
2009
|
348,410
|
92,675
|
70,837
|
153,090
|
34,559
|
699,571
|
CFO,
Reagan Y. Sakai (3)
|
2009
|
236,539
|
-
|
26,584
|
85,303
|
9,196
|
357,621
|
President
& CEO, Jerry D. Cie (4)
|
2008
|
116,308
|
65,000
|
4,150
|
56,133
|
3,231
|
244,822
|
CFO,
Reagan Y. Sakai (5)
|
2008
|
250,000
|
35,000
|
-
|
60,770
|
12,875
|
358,645
|
Former
CEO, Marc H. Nussbaum (6)
|
2008
|
101,711
|
-
|
-
|
27,624
|
6,104
|
135,439
|
(1)
|
The
amounts shown are the compensation costs recognized (disregarding an
estimate for forfeitures) in our financial statements for fiscal year 2009
and 2008 related to grants of stock options or restricted stock to each
employee in 2009 and 2008 and prior years, to the extent we recognized
compensation cost in fiscal year 2009 and 2008 for such awards in
accordance with the provisions of SFAS 123R. For a discussion of the
valuation assumptions used in the SFAS 123R calculations, see
Note 7 of Notes to Consolidated Financial Statements, included in
Part IV, Item 15 of our Annual Report on Form 10-K for the
fiscal year ended June 30, 2009 and 2008, referred to in this proxy
statement as our fiscal 2009 and 2008 Form 10-K. All
option grants during fiscal 2009 and 2008 were made under our 2000 Stock
Plan.
|
(2)
|
Mr.
Chase’s bonus was pursuant to his employment agreement. All
Other Compensation amounts consisted of payments related to relocation
assistance of $24,559 pursuant to Mr. Chase’s employment agreement and his
automobile allowance of $10,000.
|
(3)
|
All
Other Compensation amounts consisted of payment of Mr. Sakai’s automobile
allowance of $8,450 and 401(k) match of
$746.
|
(4)
|
Mr.
Chase’s bonus was a signing bonus pursuant to his employment
agreement. All Other Compensation amounts consisted of payment
of Mr. Chase’s automobile allowance of
$3,231.
|
(5)
|
Mr.
Sakai’s bonus was approved by the Board of Director’s as compensation for
his role as interim CEO. All Other Compensation amounts
consisted of payment of Mr. Sakai’s automobile allowance of $8,450 and
401(k) match of $4,425.
|
(6)
|
Mr.
Nussbaum resigned as our Chief Executive Officer and President in
September 2007. All Other Compensation amounts consisted of
payment of Mr. Nussbaum’s automobile allowance of $2,998 and 401(k) match
of $3,106.
|
The table
below shows all outstanding equity awards held by our Named Executive Officers
at the end of fiscal year ended June 30, 2009.
Outstanding
Equity Awards at 2009 Fiscal Year End
|
|
Option
Awards |
|
Stock
Awards |
|
|
|
Number
of
Securities
|
|
|
Number
of
Securities
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
of
Stock
|
|
|
|
|
|
Market
Value
of
Shares
of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
That
|
|
|
|
|
|
Stock
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
|
|
|
|
Option
|
|
Option
|
|
Have
Not
|
|
|
|
|
|
That
Have
|
|
|
|
Options
(# )
|
|
|
Options
(#)
|
|
Grant
|
|
|
|
|
Exercise
|
|
Expiration
|
|
Vested
|
|
|
|
|
|
Not
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
Date
|
|
|
|
|
Price
($)
|
|
Date
|
|
|
(#) |
|
|
|
|
|
($)
(6)
|
|
Jerry
D. Chase
|
|
|
270,000 |
|
|
|
630,000 |
|
2/19/2008
|
|
(1) |
|
|
|
0.83 |
|
2/19/2018
|
|
|
502,000 |
|
|
(4) |
|
|
|
230,920 |
|
Reagan
Y. Sakai
|
|
|
93,750 |
|
|
|
56,250 |
|
12/1/2006
|
|
(2) |
|
|
|
1.52 |
|
12/1/2016
|
|
|
250,000 |
|
|
(5) |
|
|
|
115,000 |
|
|
|
|
13,000 |
|
|
|
- |
|
11/19/2007
|
|
(3) |
|
|
|
0.98 |
|
11/19/2017
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
75,000 |
|
|
|
175,000 |
|
2/29/2008
|
|
(1) |
|
|
|
0.72 |
|
2/28/2018
|
|
|
- |
|
|
|
|
|
|
- |
|
(1)
|
The
grant cliff vests over 3-years at the rate of 30% of the shares on
the first anniversary, 30% of the shares on the second anniversary, and
40% of the shares on the third anniversary; or accelerated
vesting upon the Company’s stock price reaching the following thresholds
for 120 consecutive days: (i) 30% vests at $1.50; (ii) 30% vests at $2.50;
and (iii) 40% vests at $4.00.
|
(2)
|
25%
of the stock options vest on the anniversary of the grant date and the
remaining 75% of
the stock options vest monthly at 1/36 per month for the next 36
months.
|
(3)
|
25%
vest each quarter ending December 31,
2008.
|
(4)
|
Represents
70,000 unvested shares granted on 2/19/2008 that cliff vest over 3-years
at the rate of 30% of the shares on the first anniversary, 30% of the
shares on the second anniversary, and 40% of the shares on the third
anniversary; or accelerated vesting upon the Company’s stock
price reaching the following thresholds for 120 consecutive days: (i) 30%
vests at $1.50; (ii) 30% vests at $2.50; and (iii) 40% vests at $4.00, and
432,000 unvested shares granted on 11/13/2008 that cliff vest on a pro
rata basis over 4 years beginning September 1,
2009.
|
(5)
|
250,000
unvested shares granted on 11/13/2008 that cliff vest on a pro rata basis
over 4 years beginning September 1,
2009.
|
(6)
|
Market
value based on the June 30, 2009 closing stock price of $0.46 multiplied
by the shares of stock that have not
vested.
|
Post-Employment
and Change-in-Control Payments
No Named
Executive Officer has or had an employment agreement that provides for a
specific term of employment. Accordingly, the employment of each executive
officer may be terminated at any time at the discretion of the Board of
Directors.
We have
entered into agreements with each of our Named Executive Officers that provide
certain benefits upon the termination of his employment under certain prescribed
circumstances. Those agreements are summarized below:
Jerry
D. Chase - President and Chief Executive Officer. In February 2008, we
entered into a severance agreement with Mr. Chase. If within six months after a
change in control (as defined in the severance agreement) occurs, and either (i)
we terminate Mr. Chase without cause or (ii) Mr. Chase resigns with good reason,
we will continue to pay him 150% of his then current base salary and incentive
bonus target in regular payroll installments and continue certain of his
employee benefits for one year after his termination date. In addition, upon
such a termination event, Mr. Chase’s outstanding unvested stock options
will immediately vest in full.
If we
either (i) terminate Mr. Chase without cause or (ii) Mr. Chase resigns with good
reason, we will continue to pay him 100% of his then current base salary and
incentive bonus target in regular payroll installments and continue certain of
his employee benefits for one year after his termination date.
Under Mr.
Chase’s agreement, “cause” is generally defined as: (i) executive’s
commission of a felony or misdemeanor or his possession, use or sale of a
controlled substance (other than the use or possession of legally prescribed
medication used for its prescribed purpose); (ii) executive’s significant
neglect, or materially inadequate performance of, his duties as an employee of
Lantronix; (iii) executive’s breach of a fiduciary duty to us or our
stockholders; (iv) executive’s willful breach of duty in the course of his
employment; (v) executive’s material violation of our personnel or business
policies; (vi) executive’s willful misconduct; (vii) executive’s
death; or (viii) executive’s disability. For purposes of the agreement,
executive shall be considered disabled if executive has been physically or
mentally unable to perform his essential job duties hereunder for (x) a
continuous period of at least 120 days or (y) a total of 150 days during any 180
day period, and executive has not recovered and returned to the full time
performance of his duties within 30 days after written notice is given to
executive by us following such 120 day period or 180 day period, as the case may
be.
Under Mr.
Chase’s agreement, “good reason” is generally defined as: (i) we substantially
lessen executive’s title; (ii) we substantially reduces executive’s senior
authority; (iii) we assign material duties to executive which are materially
inconsistent with executive’s then-current status; (iv) we reduce executive’s
base salary or benefits from that in effect at (A) the execution date if the
executive resigns with good reason after we have entered into a definitive
agreement for a change of control, or (B) the time of the consummation of the
change of control if the executive resigns during the period beginning on the
date of the consummation of a change of control, and ending on the two-year
anniversary date of the consummation of such change of control, (unless, in
either case, such reduction is in connection with a salary or benefit reduction
program of general application at executive’s level); (v) we require
executive to be based more than 50 miles from his present office location,
except for required travel consistent with executive’s business travel
obligations; or (vi) we fail to obtain the assumption of the agreement by any
successor or assignee of Lantronix.
The
following table presents the calculation of potential payments upon Mr. Chase’s
termination or change in control assuming that such event had occurred on June
30, 2009:
|
|
Estimated Value of Change in Control and
Severance
|
|
Compensation
and Benefits |
|
NEO
Termination for Good
Reason
or Without Cause
Related
to a Change of
Control
($)
|
|
|
NEO
Termination for Good
Reason
or Without Cause
Unrelated
to a Change of
Control
($)
|
|
Base
Salary
|
|
|
540,000 |
|
|
|
360,000 |
|
Bonus
(1)
|
|
|
375,000 |
|
|
|
250,000 |
|
Acceleration
of Vesting of Stock Options (2)
|
|
|
5,040 |
|
|
|
- |
|
Benefits
(3)
|
|
|
16,984 |
|
|
|
16,984 |
|
(1)
|
Cash
incentive bonus per employment
agreement.
|
(2)
|
The
amount shown as the value of each option represents the fair value of that
option estimated by using the Black-Scholes option pricing model, in
accordance with the provisions of SFAS 123R, multiplied by the
assumed number of option shares vesting on an accelerated basis on
June 30, 2009.
|
(3)
|
Represents
the aggregate value of the continuation of certain employee benefits after
the date of termination. For the purposes of this calculation, expected
costs have not been adjusted for any actuarial assumptions related to
mortality, likelihood that the executives will find other employment, or
discount rates for determining present
value.
|
Reagan
Y. Sakai - Chief Financial Officer and Secretary. In June 2007, we entered
into a severance agreement with Mr. Sakai. If a change in control occurs (as
defined in the severance agreement) , and either (i) we terminate Mr. Sakai
without cause or (ii) Mr. Sakai resigns with good reason, we will continue to
pay him his then current base salary in regular payroll installments and
continue certain of his employee benefits for one year after his termination
date. We will also pay Mr. Sakai a cash bonus equal to the highest amount
of bonus incentive cash compensation paid to Mr. Sakai for services in any past
one-year period (if any) or 100% of the Mr. Sakai’s target bonus (if any)
approved by the Board of Directors. In addition, upon such a
termination event, Mr. Sakai’s outstanding unvested stock options will
immediately vest in full and his options will remain exercisable for
24 months from the date of termination (but not beyond the expiration of
their respective maximum terms).
If we terminate Mr. Sakai without cause
we will continue to pay him his then current base salary in regular payroll
installments and continue certain of his employee benefits for nine months after
his termination date. We will also pay Mr. Sakai a prorated cash bonus
based on the percentage of the current bonus period during which Mr. Sakai was
included in the bonus plan and the actual bonus pool amount for the position
granted by our Board of Directors for the current bonus period. In
addition, upon such a termination event, Mr. Sakai’s vested options will
remain exercisable for 18 months from the date of termination (but not
beyond the expiration of their respective maximum terms).
Under Mr.
Sakai’s agreement, “cause” is generally defined as: (i) executive’s
commission of a felony or misdemeanor or his possession, use or sale of a
controlled substance (other than the use or possession of legally prescribed
medication used for their prescribed purpose); (ii) executive’s significant
neglect, or materially inadequate performance of, his duties as an employee of
Lantronix; (iii) executive’s breach of a fiduciary duty to us or our
shareholders; (iv) executive’s willful breach of duty in the course of his
employment; (v) executive’s material violation of our personnel or business
policies; (vi) executive’s willful misconduct; (vii) executive’s
death; or (viii) executive’s disability. For purposes of the agreement,
executive shall be considered disabled if executive has been physically or
mentally unable to perform his essential job duties hereunder for (x) a
continuous period of at least 120 days or (y) a total of 150 days during any 180
day period, and executive has not recovered and returned to the full time
performance of his duties within 30 days after written notice is given to
executive by us following such 120 day period or 180 day period, as the case may
be.
Under Mr.
Sakai’s agreement, “good reason” is generally defined as: (i) we substantially
lessen executive’s title; (ii) we substantially reduces executive’s senior
authority; (iii) we assign material duties to executive which are materially
inconsistent with executive’s then-current status; (iv) we reduce executive’s
base salary or benefits from that in effect at (A) the execution date if the
executive resigns with good reason after we have entered into a definitive
agreement for a change of control, or (B) the time of the consummation of the
change of control if the executive resigns during the period beginning on the
date of the consummation of a change of control, and ending on the two-year
anniversary date of the consummation of such change of control, (unless, in
either case, such reduction is in connection with a salary or benefit reduction
program of general application at executive’s level); (v) we require
executive to be based more than 50 miles from his present office location,
except for required travel consistent with executive’s business travel
obligations; or (vi) we fail to obtain the assumption of the agreement by any
successor or assignee of Lantronix.
The
following table presents the calculation of potential payments upon Mr. Sakai’s
termination or change in control assuming that such event had occurred on June
30, 2009:
|
|
Estimated Value of Change in Control and
Severance
|
|
Compensation
and Benefits |
|
NEO
Termination for Good
Reason
or Without Cause
Related
to a Change of
Control
($)
|
|
|
NEO
Termination for Good
Reason
or Without Cause
Unrelated
to a Change of
Control
($)
|
|
Base
Salary
|
|
|
250,000 |
|
|
|
187,500 |
|
Bonus
(1)
|
|
|
150,000 |
|
|
|
150,000 |
|
Acceleration
of Vesting and Extension of Exercise Term of Stock Options
(2)
|
|
|
19,650 |
|
|
|
- |
|
Extension
of Exercise Term of Stock Options (2)
|
|
|
- |
|
|
|
|
|
Benefits
(3)
|
|
|
15,434 |
|
|
|
11,576 |
|
(1)
|
Assumes
a TIP bonus payout of 60% of base salary is earned and paid at 100% of
target.
|
(2)
|
The
amount shown as the value of each option represents the fair value of that
option estimated by using the Black-Scholes option pricing model, in
accordance with the provisions of SFAS 123R, multiplied by the
assumed number of option shares vesting on an accelerated basis on
June 30, 2009 and taking into account the extended 24-month
post-employment exercise period for each such
option.
|
(3)
|
The
amount shown as the value of each option represents the fair value of that
option estimated by using the Black-Scholes option pricing model, in
accordance with the provisions of SFAS 123R, multiplied by the
assumed number of vested options shares and taking into account the
extended 18-month post-employment exercise period for each such
option.
|
(4)
|
Represents the aggregate value of
the continuation of certain employee benefits after the date of
termination. For the purposes of this calculation, expected costs have not
been adjusted for any actuarial assumptions related to mortality,
likelihood that the executives will find other employment, or
discount rates for determining present
value.
|
No
director serving on the Compensation Committee during any part of fiscal year
2009 was, at any time either during or before such fiscal year, an officer or
employee of the Company or any of its subsidiaries. No interlocking relationship
exists between the Board or Compensation Committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed during the last fiscal year.
OTHER
INFORMATION
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our officers, directors and beneficial owners
of more than 10% of our common stock to file reports of ownership and changes in
ownership with the SEC. Copies of these filings must be furnished to
us. Based solely upon a review of the forms filed with the SEC by our
officers, directors and beneficial owners of 10% or more of our common stock
regarding their ownership of, and transactions in, our common stock and upon
written representations from such persons that no additional forms were
required, we believe that during fiscal 2009 all Section 16(a) reports
were timely filed.
Our Board
of Directors is committed to upholding the highest legal and ethical conduct in
fulfilling its responsibilities and recognizes that related party transactions
can present a heightened risk of potential or actual conflicts of
interest.
Our Audit
Committee charter requires that members of the Audit Committee, all of whom are
independent directors, review and approve all related party
transactions. Current SEC rules define a related party transaction to
include any transaction, arrangement or relationship in which:
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the amount involved exceeds
$120,000; and
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an executive officer, director or
director nominee, or any person who is known to be the beneficial owner of
more than 5% of our common stock, or any person who is an immediate family
member (as defined under Item 404 of Regulation S-K) of an executive
officer, director or director nominee or beneficial owner of more than 5%
of our common stock had or will have a direct or indirect material
interest.
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In
addition, the Audit Committee is responsible for reviewing and investigating any
matters pertaining to the integrity of management, including conflicts of
interest and adherence to our Code of Ethics. Under our Standards of Business
Conduct, directors, officers and all other members of the workforce are expected
to avoid any relationship, influence or activity that would cause or even appear
to cause a conflict of interest. All directors must
recuse themselves from any discussion or decision affecting their personal,
business or professional interests.
All
related party transactions shall be disclosed in our applicable filings with the
SEC as required under SEC rules.
Related
Party Transactions
Three
international customers, transtec AG, barix AG and Triple Stor GmbH are related
parties due to common ownership by Bernhard Bruscha, our largest stockholder and
current member of the Board of Directors, accounted for approximately 2% of our
net revenues for both the 2009 and 2008 fiscal years.
Thomas W.
Burton, a former director on the Board of Directors, currently has an
outstanding loan from us pursuant to a non-recourse promissory note, dated April
16, 2001, with a current aggregate principal amount owed to us of $94,000 as of
June 30, 2009. The note bears an interest rate of 5.19% per annum,
compounded annually. Mr. Burton executed the note for a loan from us for Mr.
Burton to pay income tax liabilities he incurred as a result of various
exercises of stock options to purchase our common stock. No amounts were
paid by Mr. Burton during 2009 fiscal year.
Indemnification
and Insurance
Our
Certificate of Incorporation and Bylaws provide that we shall indemnify our
directors and officers to the fullest extent permitted by Delaware law. We have
also entered into indemnification agreements with our officers and directors
containing provisions that may require us, among other things, to indemnify our
officers and directors against liabilities that may arise by virtue of their
status or service as directors or officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. We are currently involved in litigation under which
indemnification claims might be made.
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any document we file with the SEC at the
SEC’s Public Reference Room at 100 F. Street, N.E., Room 1580,
Washington, D.C. 20549 or at the offices of the National Association of
Securities Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C.
20006. Our SEC filings are also available to the public at the SEC’s website at
www.sec.gov and through
our website at www.lantronix.com.
If you
would like to inquire about stock transfer requirements, lost certificates and
change of stockholder address, please call our transfer agent, BNY Mellon
Shareowner Services at (800) 522-6645. You may also visit their web site at
www.melloninvestor.com for
step-by-step transfer instructions.
BY ORDER
OF THE BOARD OF DIRECTORS
Irvine,
California
October
9, 2009
APPENDIX
A
CERTIFICATE
OF AMENDMENT
TO
THE AMEDNED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LANTRONIX, INC.
A
Delaware Corporation
Lantronix,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the “Corporation”), hereby certifies that:
A: The
name of this Corporation is Lantronix, Inc.
B:
Pursuant to Section 242 of the Delaware General Corporation Law, this
Certificate of Amendment hereby amends the provisions of the Corporation’s
Amended and Restated Certificate of Incorporation by deleting the first
paragraph of Article IV and substituting therefor a new first paragraph to read
in its entirety as follows:
ARTICLE
IV
This
corporation is authorized to issue two classes of shares to be designated,
respectively, “Common Stock” and “Preferred Stock.” The total number of shares
that the Corporation is authorized to issue is two hundred five million
(205,000,000) shares. The number of shares of Common Stock authorized is two
hundred million (200,000,000) shares. The par value of each share of Common
Stock is $0.0001 per share. The number of shares of Preferred Stock authorized
is five million (5,000,000) shares. The par value of each share of
Preferred Stock is $0.0001 per share. Upon filing of this Certificate
of Amendment, each [three (3) to six
(6)]* outstanding shares of Common Stock shall automatically and without
any action on the part of the respective holders thereof, be combined and
converted into one (1) share of Common Stock. No fractional shares
shall be issued and, in lieu thereof, any holder of less than one (1) share of
Common Stock shall be entitled to receive cash for such holder’s fractional
share based upon the closing sales price of the corporation’s Common Stock as
reported on the NASDAQ Global Market, as of the date this Certificate of
Amendment is filed with the Secretary of State of the State of
Delaware.
C: This
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation has been duly adopted by the stockholders of the Corporation in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law.
[Remainder of Page Intentionally Left
Blank]
IN
WITNESS WHEREOF, Lantronix, Inc. has caused this Certificate of Amendment to the
Amended and Restated Certificate of Incorporation to be signed by Jerry D.
Chase, its President and Chief Executive Officer, this
[ ] day of September, 2009.
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LANTRONIX,
INC.
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______________________________________ |
Jerry
D. Chase
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President
and Chief Executive Officer
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* These
amendments approve the combination of any whole number of shares of Common Stock
between and including three (3) and six (6) into one (1) share of
Common Stock and a corresponding reduction in the total number of shares of
Common Stock that the Corporation is authorized to issue. By these amendments,
the stockholders would approve each of the four amendments proposed by the Board
of Directors. The Certificate of Amendment filed with the Secretary of State of
the State of Delaware will include only that amendment determined by the Board
of Directors to be in the best interests of the Corporation and its
stockholders. The other three proposed amendments will be abandoned. The Board
of Directors may also elect not to do any reverse split and corresponding
reduction in the total number of shares of Common Stock that Corporation is
authorized to issue, in which case all four proposed amendments will be
abandoned. In accordance with the resolutions to be adopted by the stockholders,
the Board of Directors will not implement any amendment providing for a
different split ratio.
A-2