8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

August 5, 2011

 LANTRONIX, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	1-16027	33-0362767
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

167 Technology Drive

Irvine, California 92618

(Address of principal executive offices, including zip code)

(949) 453-3990

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.02  Termination of a Material Definitive Agreement

As disclosed previously on a Form 8-K filed with the United States Securities and Exchange Commission on November 29, 2010, Lantronix, Inc. (the “Company”) entered into an agreement dated November 29, 2010 with TL Investment GmbH (the “TLI”) in settlement of a proxy contest (the “Settlement Agreement”).  TLI is an entity controlled by Bernhard Bruscha, a director of the Company.  Certain major provisions of the Settlement Agreement are summarized below:

1.   The Settlement Agreement states that at the 2011 Annual Meeting of the Company’s Stockholders (the “2011 Annual Meeting”) in connection with the election of directors to the Company’s Board of Directors (the “Board”), the Company shall nominate seven persons for election to the Board, of which TLI shall be entitled to nominate three members.  The Company currently expects to hold its 2011 Annual Meeting on November 16, 2011;

2.   The Settlement Agreement precludes TLI, pursuant to a standstill provision, from acquiring any voting securities of the Company such that TLI’s beneficial ownership of the Company’s common stock would exceed 38% of the then currently outstanding common stock, and from making any public announcement with respect to, or submitting a proposal for or offer of (with or without conditions) any merger, business combination, recapitalization, restructuring or other extraordinary transaction involving the Company or any of its securities or assets; and

3.   The Settlement Agreement, by its terms, would terminate the day after the Company’s 2011 Annual Meeting (i.e., November 17, 2011), if not terminated previously by the mutual agreement of the Company and TLI.

Following a review of the current corporate governance of the Company in light of two recent resignations from the Board (and one pending resignation from the Board as discussed under Item 5.02 below) and the current scope of the Company’s operations, the Board has concluded that the Company would presently be best served with a board comprised of fewer than seven members.  The Board believes that it would currently be in the best interests of the Company to reduce the size of the Board to four members effective upon the date of the 2011 Annual Meeting.  As will be more fully described in a proxy statement to be delivered to the Company’s stockholders prior to the November 16, 2011 Annual Meeting, the Board intends to nominate the incumbent directors Bernhard Bruscha, Hoshi Printer, John Rehfeld and Tom Wittenschlaeger as the four nominees to the Board.  The Board intends to actively consider expanding the number of directors in the future as the scope of the Company’s operations dictate.

As a pre-requisite to reducing the size of the Board, the Company has entered into an agreement with TLI and Mr. Bruscha dated August 9, 2011 (the “Termination Agreement”) to terminate the Settlement Agreement on such date, prior to the date the Settlement Agreement would otherwise have expired on November 17, 2011.  Pursuant to the terms of the Termination Agreement: (1) Mr. Bruscha, in his capacity as a member of the Board, agreed to recuse himself from deliberating and voting with regard to the appointment of a fifth director of the Company in the event the Board determines to expand the size of the Board following the Company’s 2011 Annual Meeting (with such agreement terminating on March 15, 2012); and (2) TLI agreed that until November 16, 2011, it shall not, alone or in conjunction with any third party, without the prior written consent of the Company make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any merger, business combination, recapitalization, restructuring or other extraordinary transaction involving the Company or any of its securities or assets.

A copy of the Termination Agreement is attached as Exhibit 10.1.

Item 5.02  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (a) and (b) Resignation of Directors and Officers

Howard Slayen has resigned as a member of the Board effective on the day preceding the 2011 Annual Meeting, currently scheduled for November 16, 2011.  Mr. Slayen has set forth his reasons for resigning in a letter dated August 5, 2011 delivered to the Board which is attached as Exhibit 17.1 as required by applicable federal law, rules and regulations.  The content of Mr. Slayen’s resignation letter reflects his own views, and should not be viewed as having been endorsed by any other member of the Board.

Item 9.01  Financial Statements and Exhibits

(d)  Exhibits

Exhibit Number	Description
10.1	Termination Agreement between the Company and TL Investment GmbH, dated August 9, 2011.
17.1	Resignation Letter addressed by Howard Slayen to the Board of Directors of the Company dated August 5, 2011.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  August 9, 2011	LANTRONIX, INC., a Delaware corporation
By:	/s/Thomas M. Wittenschlaeger Thomas M. Wittenschlaeger Chairman of the Board of Directors

EXHIBIT INDEX

Exhibit Number	Description
10.1	Termination Agreement between the Company and TL Investment GmbH, dated August 9, 2011.
17.1	Resignation Letter addressed by Howard Slayen to the Board of Directors of the Company dated August 5, 2011.

EX-10.1

Exhibit 10.1

LANTRONIX, INC.

TERMINATION OF AGREEMENT

This Termination of Agreement (the “Termination Agreement”) is made by and between Lantronix, Inc. (the “Company”), Bernhard Bruscha and TL Investment GmbH (together with any affiliate thereof, “TLI”) (collectively referred to as the “Parties”).

WHEREAS, TLI and Company entered into an Agreement (the “Settlement Agreement”) dated as of November 29, 2010;

WHEREAS, the Company and TLI desire to terminate the Settlement Agreement in its entirety;

WHEREAS, as a pre-requisite to entering into this Termination Agreement the Parties agree that Bernhard Bruscha shall recuse himself from certain matters as a member of the Company’s Board of Directors as provided in Section 2 below;

WHEREAS, the Board of Directors has determined to hold the 2011 Annual Meeting of Shareholders (“2011 Meeting”) on November 16, 2011, and to reduce the size of the board effective as of the date of the 2011 Meeting, to four directors and has nominated Thomas Wittenschlaeger, Hoshi Printer, John Rehfeld and Bernhard Bruscha for election at the 2011 Meeting; and

NOW THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and TLI hereby agree as follows:

1.Effective Date.  This Termination Agreement shall be effective as of August 9, 2011.

2.Director Election. Bernhard Bruscha, in his capacity as a member of the Company’s Board of Directors, agrees to recuse himself from deliberation and voting with regard to the appointment of a fifth director in the event the board determines to expand the size of the board following the 2011 Meeting.  Such agreement by Mr. Bruscha shall terminate on March 15, 2012.

3.Termination of Settlement Agreement.  TLI and Company hereby terminate the Settlement Agreement in its entirety, and no provisions thereof shall survive the termination.

4.Entire Agreement.  This Termination Agreement constitutes the full and complete understanding and agreement between the Parties with regard to the subject matter hereof.  This Termination Agreement may not be amended, waived, discharged or terminated other than by a written instrument signed by the Parties hereto.

5.Standstill.  TLI agrees that until November 16, 2011, it shall not, alone or in conjunction with any third party, without the prior written consent of the Company make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any merger, business combination, recapitalization, restructuring or other extraordinary transaction involving the Company or any of its securities or assets.

6.Governing Law.  This Termination Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Delaware.

7.Counterparts.  This Termination Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned Parties.

(Remainder of page intentionally left blank; signature page follows immediately hereafter)

IN WITNESS WHEREOF, the Parties have executed this Termination Agreement effective as of the 9th day of August 2011.

LANTRONIX, INC.
By:	/s/ Thomas Wittenschlaeger
	Thomas Wittenschlaeger
	Chairman of the Board
TL INVESTMENT GMBH
By:	/s/ Manfred Rubin-Schwarz
	Managing Director
BERNHARD BRUSCHA
/s/ Bernhard Bruscha

EX-17.1

Exhibit 17.1

Howard Slayen

August 5, 2011

To The Directors of Lantronix, Inc.

I hereby resign as a director of Lantronix, Inc., effective at the close of business on the day preceeding the annual meeting, currently scheduled for November 16, 2011. Further, in view of the current situation I will not agree to stand for reelection to the Board of Directors.

I enumerated my concerns regarding effective Board governance and Mr. Bruscha's overbearing behavior in the Board meeting held on July 12, 2011. I believe that respectful, passionate discussions and occasional disagreements are healthy for an effective board. Unfortunately, Mr. Bruscha does not tolerate disagreement and has exhibited a pattern of seeking the removal of directors who challenge his views. Under these circumstances, and in view of recent events, I feel that I can no longer effectively perform the duties of a director of a public company. I summarize my views in the remainder of this letter.

As you know, in a Board of Directors' meeting held on July 15, 2010, Mr. Bruscha, a director and largest shareholder of the Company announced that he would file a Form 13D and nominate an alternative slate of directors unless Mr. Solomon and I would resign from the Board and that Mr. Chase be terminated as CEO. There was no support for Mr. Bruscha, at the time, by any other Board member. Negotiations on that day resulted in a compromise in which Mssrs. Sanders, Brown, and Wittenschlaeger would resign immediately, and my continuing membership on the Board would be discussed at the beginning of calendar year 2011. Within a short period of time, Mr. Bruscha had a change of commitment over the agreement he had entered into, and continued with his proxy submission. He nominated a former CEO who owes a considerable amount of money to the Company, and a former CFO who has never served on the Board of a public Company. The latter, supposedly was to be my replacement as Chair of the Audit Committee. Subsequently, after both Mr. Bruscha and the Company incurred substantial expenses in a proxy contest, a negotiated settlement was agreed to in which Mr. Solomon agreed to resign and Mr. Bruscha dropped the former CEO from his alternative slate. At the end of the day, Mr. Bruscha, caused the Company to incur substantial expense and he achieved only one of his three desired personnel changes. I believe he could have achieved the same results by negotiating in good faith with the Board, but instead he chose to try to dominate the Board by causing it to either concede to his demands or incur expenses unnecessarily contesting his proxy solicitation.

In December 2010 the current Board agreed to a number of goals and objectives for the remainder of the fiscal year. Among the objectives was a process to evaluate the performance of the CEO. All members of the Board agreed to this process, including Mr. Bruscha. (And in fact Mr. Sanders in his resignation as a member of the Board of Directors pointed to Mr. Bruscha not complying with the spirit of this agreement.) However, in February 2011, Mr. Bruscha, in a letter to the Audit Committee delivered on February 14 (the "Letter") called for an independent investigation of several matters. On balance, very few of his allegations were sustained. I believe that Mr. Bruscha was not prudently sensitive to the expense he would be causing the Company to incur in the course of the investigation. Other means of inquiry were available which would have served the shareholders and Company more effectively. It is my personal view that Mr. Bruscha believed that his letter would cause the CEO and CFO to enter into negotiations for their voluntary resignations, and that an investigation would not need to be undertaken. He was either rash in his behavior, and/or perhaps poorly advised as to the destructive consequences of his sending the Letter.

Page 2 August 5, 2011

It should also be noted that two of the four items enumerated in the Letter had already been or were being investigated internally. The Chair of the Nominating and Governance Committee had done a limited review of the director's final expense report and identified the issues that should be reviewed. The Board, including Mr. Bruscha, had agreed to an investigation by inside counsel. This review was well underway at the time of Mr. Bruscha's Letter. As a result of the Letter, the internal investigation was halted and the matters became part of the special investigation.

The NEO (Named Executive Officer) grants had been reviewed internally in November 2009 at the request of Mr. Bruscha and the Nominating and Governance committee. That internal review found that the Compensation Committee had the power and did in fact grant the NEO options. The review also pointed out a number of deficiencies in the process of granting the options and communicating the Compensation Committee's actions to the full Board. Thus, before the Letter, Mr. Bruscha's concerns were therefore agreed to in part, and rejected in part. Portions of this review were also shared with the new Chair of the Compensation Committee in the latter half of 2010. He concurred with the findings of the internal review. If after almost a year and one-half Mr. Bruscha was not satisfied by the internal investigation he could have requested that the matter be reviewed in detail with all or a subset of the Board. Rather, he chose to include the NEO option grants as one of the four matters in his Letter.

The findings of the investigation did not support Mr. Bruscha's allegations regarding the option grants. However, as a result of the investigation, other issues, not raised by Mr. Bruscha, were found with the granting of stock options in August 2009.

Mr. Bruscha's actions over the past year have resulted in a significant degradation of the Company's financial stability. It triggered a technical default in the Company's bank indebtedness. It has had a negative impact on employee morale. It has potentially impacted several other areas critical to the Company. It has consumed far more dollars than what the Company was able to enjoy by an employee furlough program during the recession, and what a company this size can afford.

While Mr. Bruschas' goals would seem to be consistent with that of other shareholders, i.e. a substantial increase in shareholder value, his actions have diminished effective Board governance in my judgment, and have resulted in Mr. Bruscha being able to effectively control the Corporation, based on his goals and desires, rather than allowing an independent Board of Directors to consider the interests of the other 62% owners of the Company. He seems to have been emboldened by his proclaimed victory in the investigation, and is continuing to take actions based on his personal desires, rather than allowing the Board to effectively govern. He does not tolerate disagreement and has successfully sought to remove directors who fail to accede to his demands.

For the reasons set forth above, and the other matters I raised in the Board of Directors' meeting on July 12, 2011, I tender my resignation.

Sincerely,

/s/ Howard Slayen

Howard Slayen