lantronix_10qex1002.htm


    AMENDED
AND RESTATED SEVERANCE AGREEMENT

    


     

    This
Amended and Restated Severance Agreement ("Agreement") is made and entered into
by and between LANTRONIX, INC., a Delaware corporation ("Company"), and Reagan
Y. Sakai ("Executive"), and is effective as of December 29, 2008.

     

    RECITALS

     

    WHEREAS,
Executive is employed as Senior Vice President, Chief Financial Officer of the
Company;

     

    WHEREAS,
the Company and the Executive entered into that certain Severance Agreement
effective as of May 15, 2007 (the "Original Agreement") in order to provide
certain benefits to Executive as described therein as an incentive for Executive
to serve the Company; and

     

    WHEREAS,
the Company and Executive desire to amend, restate and completely supersede the
Original Agreement as set forth herein, effective as of the date set forth
above.

     

    AGREEMENT

     

    NOW,
THEREFORE, in consideration of the promises and covenants set forth in this
Agreement and for other valuable consideration, the parties agree to amend,
restate and completely supersede the Original Agreement as of the date set forth
above as follows:

     

    1.        Termination Without Cause or
Resignation With "Good Reason" During Specified Pre-Change Period or Specified
Post-Change Period.  If a "Change of Control" (as hereinafter
defined) of the Company occurs after the effective date hereof, and either (i)
the Company terminates Executive without "Cause" (as hereinafter defined) during
the Specified Post-Change Period or the Specified Pre-Change Period (each as
defined below), or (ii) Executive resigns with "Good Reason" (as hereinafter
defined) during the Specified Post-Change Period or the Specified Pre-Change
Period, then, subject to the terms of this Agreement, as a severance benefit and
in lieu of all other compensation or damages, the Company shall:

     

    a.         Pay
Executive a sum equal to the greater of either (i) twelve (12) months of
his base salary in effect on the date of termination or resignation, or
(ii) twelve (12) months of his base salary in effect as of (A) the
Execution Date (as defined in Paragraph 3(e) below) in the event the Company
terminates Executive without Cause or Executive resigns with Good Reason, during
a Specified Pre-Change Period, or (B) the date of the Change of Control in the
event the Company terminates Executive without Cause or Executive resigns with
Good Reason during a Specified Post-Change Period, payable as follows and less
required tax deductions and withholdings:  (x) one-half of such
amount within thirty (30) days after the later of (1) the date of the
consummation of the Change of Control, or (2) the date of such termination or
resignation, and (y) one-half of such amount following the end of the
Executive's taxable year in which such termination or resignation occurred but
on or before the date that is twelve (12) months following the later of (1) the
date of the consummation of the Change of Control, or (2) the date of such
termination or resignation.  Subject to any delay pursuant to Sections
5 or 8(d) hereof, such payments shall be made to the Executive during the
applicable twelve-month period set forth in the preceding sentence on the
Company's regular payroll dates (in accordance with the Company's payroll
practices in existence on the later of (i) the date of the consummation of the
Change of Control, or (ii) the date of such termination or
resignation);

     

    
      
        
        

      

      
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    b.         Continue
to provide Executive, at the Company's expense, all medical, dental insurance
coverages and executive automobile benefits provided to him immediately prior to
the date of such termination or resignation for a period of twelve (12) months
following the date of such termination or resignation, or, if any of such
benefits cannot be provided to Executive for such twelve (12) month period under
the Company's policies as then in effect or under applicable law (for example,
if Executive must elect COBRA continuation coverage to receive such benefits),
then the Company shall pay Executive an amount equal to the monthly sums paid on
behalf of Executive for such benefits at the time of such termination or
resignation for a period beginning on the date Executive's participation in such
benefits is disallowed and ending on the date that is no more than twelve (12)
months following the date of such termination or resignation, payable in monthly
installments within five business days after the end of each
month.  If the Executive is terminated without Cause or resigns with
Good Reason during a Specified Pre-Change Period, then payments to the Executive
under this Paragraph 1(b) shall not begin until after the consummation of the
Change of Control associated with such Specified Pre-Change Period and the first
payment made to Executive under this Paragraph 1(b) after the consummation of
such Change of Control shall include amounts described in this Paragraph 1(b)
for the period between the date of such termination or resignation and the
consummation of such Change of Control.  Such amounts are subject to
withholding and/or taxation;

     

    c.         Subject
to the provisions of the Company's stock option plan(s), accelerate the vesting
of 100% of all unvested stock options granted to Executive under the Company's
stock option or other benefit plan. Subject to the provisions of the Company's
stock option plan(s), Executive shall have until the earlier of the following
three dates to exercise each of Executive's vested options (including options
accelerated pursuant to the foregoing provisions of this paragraph
c.):  (i) twenty-four (24) months after the date of Executive's
termination or resignation, (ii) for each option, the latest date on which
such option could have expired by its original terms under any circumstances, or
(iii) for each option, ten (10) years after the original grant date of such
option.  Notwithstanding the foregoing provisions of this paragraph
c., if and to the extent that any stock option held by Executive is intended to
be an "incentive stock option," within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), the post-termination
exercise period of such incentive stock option shall not, without the prior
written consent of Executive, be extended beyond three (3) months following the
date of termination or resignation (or twelve (12) months following the date of
termination or resignation if Executive's employment with the Company was
terminated, or Executive resigned, as a result of Executive becoming disabled
(within the meaning of Section 22(e)(3) of the Code)); and

     

    
      
        
        

      

      
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    d.         The
Company shall pay to Executive within 30 days of the later of (1) the date of
the consummation of the Change of Control, or (2) the date of such termination
or resignation, a lump-sum payment, less required tax deductions and
withholdings, equal to the larger of either (i) the highest amount of bonus
incentive cash compensation paid to Executive for services in any past one year
period (if any) or (ii) 100% of the Executive’s Target Bonus (if any) approved
by the Board of Directors.

     

    2.        Termination Without Cause
Not During Specified Pre-Change Period or Specified Post-Change
Period.  If the Company terminates Executive without "Cause"
other than during a Specified Pre-Change Period or a Specified Post-Change
Period (each as defined below), then, subject to the terms of this Agreement, as
a severance benefit and in lieu of all other compensation or damages, the
Company shall:

     

    a.         Continue
to pay Executive his current base salary, less required tax deductions and
withholdings, as in effect on the date of such termination through the end of
the week in which the applicable termination occurred and continuing for a
period of nine (9) months.  Subject to any delay pursuant to Sections
5 or 8(d) hereof, such payments shall be made to the Executive during such
nine-month period on the Company's regular payroll dates (in accordance with the
Company's payroll practices in existence on the effective date of the
Executive's termination);

     

    b.         Continue
to provide Executive, at the Company's expense, all medical, dental insurance
coverages and executive automobile benefits provided to him immediately prior to
the date of such termination for a period of nine (9) months following the date
of such termination, or, if any of such benefits cannot be provided to Executive
for such nine (9) month period under the Company's policies as then in effect or
under applicable law (for example, if Executive must elect COBRA continuation
coverage to receive such benefits), then the Company shall pay Executive an
amount equal to the monthly sums paid on behalf of Executive for such benefits
at the time of such termination for a period beginning on the date Executive's
participation in such benefits is disallowed and ending on the date that is nine
(9) months following the date of such termination, payable in monthly
installments within five business days after the end of each month. Such sums
are subject to withholding and/or taxation;

     

    c.         Allow
Executive to exercise any and all stock options that were granted to Executive
and vested as of the date of termination.  Subject to the provisions
of the Company's stock option plan(s), Executive shall have until the earlier of
the following three dates to exercise each of Executive's vested
options:  (i) eighteen (18) months after the date of Executive's
termination, (ii) for each option, the latest date on which such option
could have expired by its original terms under any circumstances, or
(iii) for each option, ten (10) years after the original grant date of such
option.  Notwithstanding the foregoing provisions of this paragraph
c., if and to the extent that any stock option held by Executive is intended to
be an "incentive stock option," within the meaning of Section 422 of the Code,
the post-termination exercise period of such incentive stock option shall not,
without Executive's prior written consent, be extended beyond three (3) months
following the date of termination (or twelve (12) months following the date of
termination if Executive's employment with the Company was terminated as a
result of Executive becoming disabled (within the meaning of Section 22(e)(3) of
the Code)); and

     

    
      
        
        

      

      
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    d.         Pay
to Executive a prorated bonus, less applicable tax withholdings and deductions,
based on the percentage of the current bonus period during which Executive was
included in the bonus plan and the actual bonus pool amount for the position
granted by the Company’s Board of Directors for the current bonus period,
payable within five business days such bonuses are calculated and paid
generally.

     

    3.         Definitions.

     

    a.         Change of
Control.  For purposes of this Agreement, the term "Change of
Control" means the occurrence of any of the following events, but only if such
event also constitutes a "change in control event" as defined in Treasury
Regulation Section 1.409A-3(i)(5)(i):

     

    (i)           Any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing more than fifty percent
(50%) of the total voting power represented by the Company's then outstanding
voting securities; or

     

    (ii)          The
consummation of the sale or disposition by the Company of all or substantially
all of the Company's assets; or

     

    (iii)         The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least seventy
percent (70%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

     

    
      
        
        

      

      
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      b.         Termination without
Cause.  The Company in its sole discretion may terminate
Executive's employment at will at any time with or without Cause or notice, and
this Agreement does not obligate the Company to continue Executive's employment
for any specified term, or at all.  For purposes of this Agreement,
the Company shall be deemed to have terminated Executive's employment without
"Cause" if Executive's employment is terminated at will, or for any reason other
than the following: (i) Executive's commission of a felony or misdemeanor
or his possession, use or sale of a controlled substance (other than the use or
possession of legally prescribed medication used for their prescribed purpose);
(ii) Executive's significant neglect, or materially inadequate performance of,
his duties as an employee of the Company; (iii) Executive's breach of a
fiduciary duty to the Company or its shareholders; (iv) Executive's willful
breach of duty in the course of his employment; (v) Executive's material
violation of the Company's personnel or business policies; (vi) Executive's
willful misconduct; (vii) Executive's death; or (viii) Executive's
disability.  For purposes of this Agreement, Executive shall be
considered disabled if Executive has been physically or mentally unable to
perform his essential job duties hereunder for (x) a continuous period of at
least one hundred twenty (120) days or (y) a total of one hundred fifty (150)
days during any one hundred and eighty (180) day period, and Executive has not
recovered and returned to the full time performance of his duties within thirty
(30) days after written notice is given to Executive by the Company following
such 120 day period or 180 day period, as the case may be.

       

    

    c.         Resignation with Good
Reason.  Executive may resign at any time with or without Good
Reason. For purposes of this Agreement, Executive shall be deemed to have
resigned with "Good Reason" only if he resigns during a Specified Pre-Change
Period or a Specified Post-Change Period and such resignation occurs within one
hundred eighty (180) days (but no later than the end of the Specified Pre-Change
Period if Executive resigns with Good Reason during a Specified Pre-Change
Period) after the Company has taken any of the following actions without
Executive's express written consent (the "Good Reason Resignation Period"): (i)
the Company "Substantially Lessens Executive's Title" (as defined on Exhibit "A" attached
hereto); (ii) the Company Substantially Reduces Executive's Senior Authority (as
defined on Exhibit
"A" attached hereto); (iii) the Company assigns material duties to
Executive which are materially inconsistent with Executive's then-current
status; (iv) the Company reduces Executive's base salary or benefits from that
in effect at (A) the Execution Date (as defined Paragraph 3(e) below) if the
Executive resigns with Good Reason during a Specified Pre-Change Period, or (B)
the time of the consummation of the Change of Control if the Executive resigns
during the Specified Post-Change Period, (unless, in either case, such reduction
is in connection with a salary or benefit reduction program of general
application at Executive's level) (v) the Company requires Executive to be based
more than fifty (50) miles from his present office location, except for required
travel consistent with Executive's business travel obligations; or (vi) the
Company fails to obtain the assumption of this Agreement by any successor or
assign of the Company.  Notwithstanding the foregoing provisions of
this subparagraph (c), Good Reason shall not exist unless Executive provides the
Company written notice of the existence of one or more of the actions,
conditions or events set forth above in this definition of Good Reason within
ninety (90) days after the initial existence or occurrence of such action,
condition or event, and if such action, event or condition is curable, the
Company fails to cure such action, event or condition within thirty (30) days
after its receipt of such notice.

    
       

      
        
        

      

      
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      The
parties acknowledge that, in the event of a Change of Control, it may be
mutually advantageous for Executive and the Company to discuss and implement
changes in Executive’s employment on a trial basis even though such employment
changes may constitute "Good Reason" under the terms of this
Agreement.  Accordingly, the parties may agree in writing to extend
the Good Reason Resignation Period referred to above in this subparagraph (c),
but in no event may the Good Reason Resignation Period be extended to a date
that is later than one (1) year after the Company has taken any of the foregoing
actions described in clauses (i) through (vi) of this subparagraph
(c).

       

    

    d.         The
executive’s Target Bonus for Fiscal Year 2008 is equal to 60% of Executive’s
base salary and any payout thereof shall be made no later than March 15,
2009.

     

    e.         Specified Pre-Change Period
and Specified Post-Change Period.  For purposes of this
Agreement, the term "Specified Pre-Change Period" means the period beginning on
the date a definitive agreement is executed by all parties thereto (the
"Execution Date") for a transaction that will constitute a Change of Control of
the Company when consummated, and ending on the date the Change of Control
governed by such definitive agreement is consummated; provided, however, that if
the Change of Control governed by such definitive agreement is not consummated
within sixty (60) days after the Execution Date or if such definitive agreement
is terminated before the Change of Control governed by such definitive agreement
is consummated, there shall be no Specified Pre-Change Period with respect to
such definitive agreement or the Change of Control governed by such definitive
agreement.  For the avoidance of doubt, the parties agree that the
determination of whether a Specified Pre-Change Period exists cannot be made
until it has been determined whether a Change of Control has been consummated
pursuant to the applicable definitive agreement within 60 days after the
Execution Date of such definitive agreement.  For purposes of this
Agreement, the term "Specified Post-Change Period" means the period beginning on
the date of the consummation of a Change of Control of the Company, and ending
on the two-year anniversary date of the consummation of such Change of
Control.

     

    4.         Confidential Information;
Non-Solicitation of Employees.

     

    a.         As
a material inducement and condition to the payment of the above-referenced
severance monies, Executive acknowledges and agrees that he shall continue to be
bound by and comply with each and every term and condition of the Company's
Employment, Confidential Information and Invention Assignment Agreement and any
other proprietary or confidentiality agreement(s) between Executive and the
Company.

     

    b.       As
a further material inducement and condition to the payment of the
above-referenced severance monies, Executive agrees that for a period of one (1)
year following Executive's date of termination or resignation, he will not,
either directly or indirectly, or either on his own behalf or on behalf of any
other person, recruit or solicit for hire any individual who is then employed by
the Company.

     

    
      
        
        

      

      
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    c.         Executive
acknowledges and agrees that the restrictions contained in this Paragraph 4 are
reasonable and appropriate. Executive further acknowledges and agrees that the
restrictions contained in this Paragraph 4 will not preclude him from engaging
in any trade, business or profession that he is qualified to engage
in.

     

    5.        General Release of
Claims.  As a condition of receiving the above-referenced
severance monies, Executive shall be required to execute a general release of
all known and unknown claims in a form reasonably acceptable to the Company at
the time of his termination or resignation. In order to receive any severance
payments or benefits set forth in this Agreement, the general release of claims
set forth above (the “Release”) must become effective within fifty-two (52) days
following Executive’s employment termination date or such earlier date as
required by the Release (such deadline, the “Release Deadline”).  No
severance payments or benefits pursuant to this Agreement will be paid or
provided until the Release becomes effective.  Any severance payments
or benefits to which Executive is entitled during such fifty-two (52) day period
shall be paid by the Company to Executive in cash and in full arrears on the
fifty-third (53rd) day following Executive’s employment termination date or such
later date as is required to avoid the imposition of additional taxes under
Internal Revenue Code Section 409A. The Release shall not release Lantronix from
any obligations it may have under its Articles of Incorporation, Bylaws, or
applicable law, to indemnify Executive for his actions as an employee of
Lantronix.

     

    6.        The Company's Obligations
Under This Agreement.  Executive shall not be entitled to any
of the benefits of Paragraphs 1 and 2 if the Company terminates Executive's
employment, or if Executive resigns, under circumstances other than as
specifically set forth in Paragraphs 1 and 2.  The benefits set forth
in Paragraphs 1 and 2 constitute the sole obligations of the Company to
Executive upon any termination or resignation and are in lieu of any damages or
other compensation that Executive may claim under other Company policies or
otherwise, except for Executive's base salary which has been earned up to the
date of termination or resignation, compensation for any accrued and unused
vacation up to the date of termination or resignation, reimbursement for
business expenses incurred up to the date of termination or resignation (in
accordance with the customary policies of the Company), and any benefits that
the Company is required to provide to Executive after the date of termination or
resignation under COBRA or pursuant to any ERISA plan(s) of the
Company.  The benefits on termination or resignation provided in this
Agreement are in substitution for any severance or termination benefits
otherwise available under Company policies of general
application.  The benefits on termination or resignation provided in
this Agreement shall not be reduced by any compensation or benefits received by
Executive from any subsequent employer or any other third party.

     

    7.         Withholding of Taxes; Tax
Reporting.  The Company may withhold from any amounts payable
under this Agreement all such federal, state, city and other taxes, and may file
with appropriate governmental authorities all such information, returns or other
reports with respect to the tax consequences of any amounts payable under this
Agreement, as may, in its judgment, be required by law.

     

    
      
        
        

      

      
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    8.        Sections 280G, 162(m) and
Compliance with Section 409A.

     

    a.              Notwithstanding
anything contained in this Agreement to the contrary, any payments to be made to
or for the benefit of Executive, or any vesting of stock options or other
benefits for the benefit of Executive, which are deemed to be "parachute
payments" as that term is defined in Section 280G of the Code, may be modified
or reduced to the extent deemed to be necessary by the Board of Directors of the
Company to avoid the imposition of excise taxes on Executive under Section 4999
of the Code or the disallowance of a deduction to the Company under Section
280G(a) of the Code.

     

    b.              Notwithstanding
anything in this Agreement to the contrary, if the Board of Directors of the
Company determines that any acceleration, extension or other modification of
Executive's stock options pursuant to this Agreement could reasonably be
expected to cause such options to lose their status as "qualified
performance-based compensation" under Code Section 162(m) and Treasury
Regulation Section 1.162-27(e), such accelerations, extensions or other
modifications may be modified or reduced to the extent deemed necessary by the
Company's Board of Directors to prevent such options from losing their status as
qualified performance-based compensation.

     

    c.              In
the event cash payments or vesting, extension or other modifications of stock
options are reduced pursuant to this Paragraph 8, such reduction shall, to the
extent legally permissible, be made to stock options first and cash payments
last.

     

    d.              Notwithstanding
anything to the contrary in this Agreement, no severance payments or benefits
payable to Executive, if any, pursuant to this Agreement that, when considered
together with any other severance payments or separation benefits, is considered
deferred compensation under Section 409A (together, the “Deferred Payments”)
will be payable until Executive has a “separation from service” within the
meaning of Section 409A.  Similarly, no severance payable to
Executive, if any, pursuant to this Agreement that otherwise would be exempt
from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)
will be payable until Executive has a “separation from service” within the
meaning of Section 409A.

    


               Further,
if Executive is a “specified employee” within the meaning of Section 409A
at the time of separation from service (other than due to death), any Deferred
Payments that otherwise are payable within the first six (6) months following
Executive’s separation from service will become payable on the first payroll
date that occurs on or after the date six (6) months and one (1) day following
the date of Executive’s separation from service.  All subsequent
Deferred Payments, if any, will be payable in accordance with the payment
schedule applicable to each payment or benefit.  Notwithstanding
anything herein to the contrary, in the event of Executive’s death following
Executive’s separation from service but prior to the six (6) month anniversary
of Executive’s separation from service (or any later delay date), then any
payments delayed in accordance with this paragraph will be payable in a lump sum
as soon as administratively practicable after the date of Executive’s death and
all other Deferred Payments will be payable in accordance with the payment
schedule applicable to each payment or benefit.  Each payment and
benefit payable under the Agreement is intended to constitute a separate payment
for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

    


    
      
        
        

      

      
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               Any
severance payment that satisfies the requirements of the “short-term deferral”
rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not
constitute Deferred Payments for purposes of the Agreement.  Any
severance payment that qualifies as a payment made as a result of an involuntary
separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury
Regulations that does not exceed the Section 409A Limit will not constitute
Deferred Payments for purposes of the Agreement.  For purposes of this
paragraph, “Section 409A Limit” will mean the lesser of two (2) times: (i)
Executive’s annualized compensation based upon the annual rate of pay paid to
Executive during the Company’s taxable year preceding the Company’s taxable year
of Executive’s separation from service as determined under Treasury Regulation
Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance
issued with respect thereto; or (ii) the maximum amount that may be taken into
account under a qualified plan pursuant to Section 401(a)(17) of the Code for
the year in which Executive’s employment terminates.

     

    The
foregoing provisions are intended to comply with the requirements of
Section 409A so that none of the severance payments and benefits to be
provided under the Agreement will be subject to the additional tax imposed under
Section 409A, and any ambiguities herein will be interpreted to so
comply.  You and the Company agree to work together in good faith to
consider amendments to the Agreement and to take such reasonable actions which
are necessary, appropriate or desirable to avoid imposition of any additional
tax or income recognition prior to actual payment to you under Section
409A

     

    e.              The
costs of all legal and accounting fees required to make the Company's
determinations and estimates for purposes of this Paragraph 8 will be paid for
by the Company.

     

    9.        Assignment.  Executive
may not assign this Agreement. The Company shall be entitled to assign this
Agreement to any successor in interest to its business.  The Company
will obtain an assumption of this Agreement by any successor or assign to all or
substantially all of the business and/or assets of the Company (whether direct
or indirect, by acquisition, merger, consolidation or otherwise), but the
failure to obtain such assumption shall not prevent or delay such acquisition,
merger, consolidation or other transaction or relieve the Company of its
obligations under the Agreement.  This Agreement shall bind and inure
to the benefit of the Company's successors and assigns, as well as Executive's
heirs, executors, administrators, and legal representatives.

     

    
      
        
        

      

      
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    10.           Notices.  Any
notice, request, demand or other communication required or permitted hereunder
shall be deemed to be properly given when personally served or three (3) days
after deposit in the United States mail, registered or certified, postage
prepaid, return receipt requested, addressed to the Company at its principal
office or to Executive at Executive's last known address.

     

    11.          Entire Agreement.
This Agreement, together with the documents referenced herein, contains the
entire integrated agreement of the parties hereto with respect to the subject
matter hereof and it supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter
hereof.  Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding. This Agreement may
not be modified or amended by oral agreement, but only by an agreement in
writing signed by the Chairman of the Board of the Company and
Executive.

     

    12.           Mutual Arbitration
Agreement.  To the fullest extent allowed by law, any
controversy, claim or dispute between Executive and the Company (and/or any of
its affiliated, subsidiary, or related entities, owners, directors, officers,
employees, volunteers or agents) relating to or arising out of this Agreement or
Executive's employment (or the cessation thereof), will be submitted to final
and binding arbitration in Orange County, California, for determination in
accordance with the American Arbitration Association's ("AAA") Employment
Arbitration Rules as the exclusive remedy for such controversy, claim or
dispute.  In any such arbitration, the parties may conduct discovery
to the same extent as would be permitted in a court of law.  The
arbitrator shall issue a reasoned, written decision, and shall have full
authority to award all remedies which would be available in
court.  The Company shall pay the arbitrator's fees and any AAA
administrative expenses.  Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction
thereof.  Possible disputes covered by the above include (but are not
limited to) unpaid wages, breach of contract (including this Agreement), torts,
violation of public policy, discrimination, harassment, or any other
employment-related claims under laws including, but not limited to, Title VII of
the Civil Rights Act of 1964, the Americans With Disabilities Act, the
California Labor Code, the California Fair Employment and Housing Act, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, and any
other statutes or laws relating to Executive’s relationship with the Company
regardless of whether such dispute is initiated by Executive or the
Company.  Thus, this bilateral arbitration agreement fully applies to
any and all claims that the Company may have against Executive, including but
not limited to claims for misappropriation of Company property, disclosure of
proprietary information or trade secrets, interference with contracts, trade
libel, gross negligence, or any other claim for alleged wrongful conduct or
breach of the duty of loyalty.  However, claims for workers’
compensation benefits, unemployment insurance and those arising under the
National Labor Relations Act (or any other claims where mandatory arbitration is
prohibited by law) are not covered by this arbitration agreement, and such
claims may be presented to the appropriate court or government
agency.  BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH
EXECUTIVE AND THE COMPANY GIVE UP ALL RIGHTS TO TRIAL BY JURY.  This
arbitration agreement is to be construed as broadly as is permissible under
applicable law.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    13.           Attorneys'
Fees.  In the event of any arbitration arising out of this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party its costs and expenses (including reasonable attorneys'
fees) incurred in such arbitration.

     

    14.           No Tax
Advice.  The Company has provided no tax or legal advice to
Executive with respect to this Agreement or any payments or benefits to be
provided to Executive hereunder.  Executive is solely responsible for
all taxes (and any related penalties and/or interest) imposed on Executive as a
result of any payments or benefits provided to Executive hereunder, including,
without limitation, under Section 409A of the Internal Revenue
Code.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the dates set
forth below.

     

    


    


     

    
      	
              EXECUTIVE:

               

               

               

            	 	 
	/s/
      Reagan Y. Sakai 	 	12/29/08
	 	 	 	Date
	
               

              COMPANY:

              
              

              
                LANTRONIX,
      INC.

                A
      Delaware Corporation

                 

                 

              

            	 	 
	By:	/s/
      Allison K. Garcia 	 	12/29/08
	Name:	Allison K.
      Garcia 	 	Date 
	Its:	VP of Human
      Resources 	 	 


    

     

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
A

     

    "Substantially
Lessens Executive's Title" shall mean that the Executive does not have the title
of Chief Financial Officer, which results in a material diminution of the
Executive's authority, duties or responsibilities.

     

    "Substantially
Reduces Executive's Senior Authority" shall mean that the Executive no longer
has substantially similar authority, scope of responsibility, functions or
duties as Chief Financial Officer, which results in a material diminution of the
Executive's authority, duties or responsibilities.

     

     

    -13-