Document:

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                                                                     EXHIBIT 4.3

                                LANTRONIX, INC.

                           INVESTOR RIGHTS AGREEMENT

     This Investor Rights Agreement (the "Agreement") is made as of December 29,
2000 (the "Effective Date") by and among Lantronix, Inc., a Delaware corporation
(the "Company"), Donald Dunstan and Diane Dunstan (the "Stockholders") and In
trust, Dunstan Charitable Remainder Unitrust, UAD, December 22, 2000 (the
"Trust").

     WHEREAS, the Company and the Stockholders have entered into that certain
Agreement and Plan of Reorganization, dated December 16, 2000 (the "Merger
Agreement");

     WHEREAS, the Company desires to grant to the Stockholders certain
registration rights;

     NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:

     1.  Certain Definitions.  All capitalized terms used and not otherwise
         -------------------
defined herein shall have the meanings given to them in the Merger Agreement. As
used in this Agreement, the following terms shall have the following respective
meanings:

         "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.

         "Common Stock" means the Common Stock of the Company.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or successor federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.

         "Holder" shall mean (i) any of the Stockholders holding Registrable
Securities, and (ii) any person holding Registrable Securities to whom the
rights under this Agreement have been transferred.

         "Registrable Securities" means the Common Stock and any Common Stock of
the Company issued or issuable in respect of the Common Stock upon any stock
split, stock dividend, recapitalization or similar event, or any Common Stock
otherwise issuable with respect to the Conversion Stock.  As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) they
shall have been distributed to the public pursuant to Rule 144, or any successor
provision, under the Securities Act, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
them shall not require registration or qualification of them under the
Securities Act or any similar state law then in force, (iv) they shall have
ceased to be outstanding, (v) in the written opinion of counsel to the Company,
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they may be freely transferred without registration or qualification under the
Securities Act or any similar state law then in force (provided, however, that
in such event, at the Holder's request, the Company shall remove the restrictive
legend upon presentation of the stock certificates for such purpose) or (vi)
otherwise sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction.

         The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

         "Registration Expenses" shall mean all expenses, except as stated in
Section 4.4 hereof, incurred by the Company in complying with Sections 4.1, 4.2
and 4.3 hereof, including, without limitation, all registration, qualification
and filing fees, printing expenses, fees and disbursements of counsel for the
Company, disbursements of one counsel to the Holders (such disbursements to
Holders' counsel shall not exceed $12,500 per registration), blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company); provided that
Registration Expenses shall in no event include Selling Expenses.

         "Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 10.

         "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar or successor federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

         "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth in the definition of Registration Expenses,
all reasonable fees and disbursements of counsel, accountants or other
professional service providers to any Holder and any other expenses attributable
to the Holders.

     2.  Restrictions on Transferability.  The Common Stock and any other
         -------------------------------
securities issued in respect thereof upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Stockholder will cause any proposed
purchaser, assignee, transferee or pledgee of any such shares held by the
Stockholder to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Agreement.

     3.  Notice of Proposed Transfers.  The holder of each certificate
         ----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, or (ii) in transactions
involving the distribution without consideration of Restricted Securities by a
Holder to any of its partners or members, or retired partners or members, or to
the estate of any of its partners or members or retired partners or members),
unless there is in effect a registration statement under the

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Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such sale,
transfer, assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed sale, transfer, assignment or pledge in sufficient
detail, and shall be accompanied, at such holder's expense by either (i) an
unqualified written opinion of legal counsel who shall be, and whose legal
opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. It is agreed that the Company will not request an
opinion of counsel or "no action" letter for the holder for transactions made in
reliance on Rule 144 under the Securities Act except in unusual circumstances,
the existence of which shall be determined in good faith by the Board of
Directors of the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
10, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.

     4.  Registration.
         ------------

         4.1  Company Registration.
              --------------------

              (a)  Notice of Registration.  If at any time or from time to time
                   ----------------------
after the initial Company-initiated registered public offering of its stock the
Company shall determine to register any of its equity securities under the
Securities Act for sale for cash, whether for its own account or the account of
any of its security holders or both, other than (i) a registration relating
solely to employee benefit plans, (ii) a registration relating solely to a Rule
145 transaction, (iii) a registration in which the only equity security being
registered is Common Stock issuable upon conversion of convertible debt
securities which are also being registered, (iv) on a Form S-4, Form S-8 (or
Form S-3, if such registration covers an offering of the type contemplated by
Form S-8) or any successor or similar forms or any registration form that does
not permit secondary sales or (iv) a registration pursuant to an agreement
which, by its terms, would prohibit the inclusion of Registrable Securities,
unless such prohibition is waived, the Company will:

                   (i)  give to each Holder written notice thereof; and

                   (ii) subject to the terms of this Agreement, use its
reasonable efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within ten (10) business days after receipt of such written
notice from the Company, by any Holder; provided that the provisions of this
Section 4.1(a) are subject in all respect to the provisions of Section 4.1(b)
regarding underwritten offerings.

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     Notwithstanding anything to the contrary contained herein, the Company
shall have no obligation to include Registrable Securities in any registration
pursuant to this Section 4.1 unless so requested by a Holder after delivery of a
notice as provided in Section 4.1(a).

              (b)  Underwriting.  If the registration of which the Company gives
                   ------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 4.1(a)(i). In such event the right of any Holder to
registration pursuant to this Section 4.1 shall be conditioned upon such
Holder's participation in such underwriting, and the inclusion of Registrable
Securities in the underwriting shall be limited to the extent provided herein.

     All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company.  Notwithstanding any other provision of this Section 4.1, if the
managing underwriter of such underwritten offering advises the Company that
marketing factors require a limitation of the number of shares to be
underwritten, the Company may exclude some or all of the Registrable Securities
from such registration and underwriting.  The Company shall so advise all
Holders distributing their securities through such registration and underwriting
of the number of shares that may be included in the registration, if any, and
the underwriting shall be allocated first to the Company and, if additional
shares may be sold, subject to any agreement which by its terms would give any
other person priority over, or rights similar to those held by, the Holders
relating to the inclusion of shares in such registration, such additional shares
shall be allocated among all Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities initially sought to be
registered by such Holders in connection with such registration.

     If any Holder disapproves of the terms of the underwriting, such Holder may
elect as its sole remedy to withdraw therefrom by written notice, given not less
than thirty (30) days prior to the expected effective date of the registration
statement filed in connection with such offering, to the Company and the
managing underwriter.  If any Holder does not agree to the terms of any such
underwriting, such Holder shall be excluded therefrom by written notice from the
Company or the managing underwriter.  No Registrable Securities excluded from
the underwriting by reason of the managing underwriter's marketing limitation or
otherwise withdrawn from the underwriting shall be included in such
registration. Any securities excluded or withdrawn from an underwriting shall be
withdrawn from such registration, and shall continue to be subject to the terms
of this Agreement including Section 5 hereof.  To facilitate the allocation of
shares in accordance with the above provisions, the Company or the underwriters
may round the number of shares allocated to any Holder to the nearest 100
shares.  The rights of the Company under this Section 4.1(b) shall not be deemed
to limit the Company's rights not to include Registrable Securities in any such
registration or to delay or terminate registration pursuant to the other
provisions of this Section 4.1.

              (c)  Right to Terminate or Delay Registration.  The Company shall
                   ----------------------------------------
have the right to terminate or withdraw any registration initiated by it under
this Section 4.1 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. If, at any
time after delivery of a notice of registration pursuant to Section 4.1(a) and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason to delay
registration of its securities, the Company may in

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its sole discretion delay such registration upon notice of such determination to
each Holder, and the Company shall be permitted to delay registering any
Registrable Securities for any period it deems necessary in its reasonable
discretion.

         4.2  Expenses of Registration.  All Registration Expenses incurred in
              ------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company. All Selling Expenses, and any other
expenses in connection with a registration to be borne by the Holders of such
securities, shall be borne by the Holders whose shares are included in the
registration pro rata on the basis of the number of their shares so registered;
provided, however, that the Company shall not be required to pay any
Registration Expenses if, as a result of the withdrawal of any Holders from a
registration, the registration statement does not become effective. If the
Company is not required to pay any Registration Expenses, then the Holders
requesting registration shall bear such Registration Expenses pro rata on the
basis of the number of their shares so included in the registration request.

         4.3  Indemnification.
              ---------------

              (a)  The Company will indemnify each Holder, each of such Holder's
officers and directors, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any such underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, to which they or any of them may become subject under
the Securities Act, the Exchange Act, state securities law or any rule or
regulation promulgated under such laws applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of such Holder's officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any reasonable legal and any other expenses
reasonably incurred by them in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action insofar as any such
claim, loss, damage, liability or action arises out of or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement, or any post-effective amendment thereof, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used before the effective date of such registration
statement, or contained in the prospectus as amended or supplemented if the
Company files any amendment thereof or supplement thereto with the Commission,
if used within the period during which the Company is required to keep the
registration statement to which such prospectus relates current pursuant to the
terms hereof, or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense (or action or proceeding in respect thereof)
arises out of or is based on any untrue statement or alleged untrue statement or
omission or alleged omission, made in such registration statement, or any post-
effective amendment thereof, or any such preliminary prospectus, final
prospectus or summary prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information

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furnished to the Company through an instrument executed by such Holder,
director, officer, controlling person or underwriter and stated to be for use
therein; provided, further, that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
on file with the Commission at the time the registration statement becomes
effective or the amended prospectus is filed with the Commission pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure
to the benefit of any person who participates as an underwriter in the offering
or sale of Registrable Securities or to any other person, if any, who controls
such underwriter within the meaning of Section 15 of the Securities Act, or to
any Holder or director, officer or controlling person thereof, if there is no
underwriter, if a copy of the Final Prospectus was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act, and if such statement or omission was
corrected in such final prospectus.

         (b)  Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify (in the same manner and to the same
extent as provided in Section 4.3(a), without giving effect to the provisos
contained therein) the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
such Holder's officers and directors and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof) with respect to
any statement or alleged statement in or omission or alleged omission from such
registration statement, or any post-effective amendment thereof, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or any such underwriter through an
instrument executed by such Holder stating that it is for use in the preparation
of such registration statement, or any post-effective amendment thereof,
preliminary prospectus, final prospectus or summary prospectus, or any amendment
or supplement thereto; provided that such Holder shall not be liable to any
person who participates as an underwriter in the offering or sale of Registrable
Securities or to any other person, if any, who controls such underwriter within
the meaning of Section 15 of the Securities Act, in any such case to the extent
that any such loss, claim, damage, liability (or investigation, action or
proceeding in respect thereof) or expense arises out of such person's failure to
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the time such
action is required by the Securities Act if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company,
each underwriter, each other Holder, any controlling persons thereof and each
director or officer thereof, and shall survive the transfer of such securities
by such Holder.

         (c)  Each party entitled to indemnification under this Section 4.3 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought; provided
that the failure of any Indemnified Party to give notice

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as provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless and to the extent the failure to give such notice is
prejudicial to an Indemnifying Party's ability to defend such action. In case
any such action is brought against an Indemnified Party, unless and except to
the extent that in the reasonable judgment of the Indemnified Party and the
Indemnifying Party, based on advice of their respective counsel, a conflict of
interest between such Indemnified and Indemnifying Parties exists in respect of
such claim, the Indemnifying Party shall be entitled to participate in and to
assume the defense thereof, jointly with any other Indemnifying Party similarly
notified, to the extent that the Indemnifying Party may wish, with counsel
reasonably satisfactory to such Indemnified Party and, after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume the
defense thereof, the Indemnifying Party shall not be liable to such Indemnified
Party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of investigation
made at the request of the Indemnifying Party; provided, however, that if such
Indemnified Party has a reasonable basis to believe, and does believe, that its
interests in such action conflict with those of the Indemnifying Party, the
Indemnified Party may so notify such Indemnifying Party and the Indemnifying
Party will remain liable to such Indemnified Party for all reasonable fees,
costs and expenses incurred by such Indemnified Party in retaining one separate
counsel to participate in the defense of such action. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement of any such action
without the consent of such Indemnifying Party, which consent shall not be
unreasonably withheld. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

          (d)  If the indemnification provided for in this Section 4.3 is held
by a court of competent jurisdiction to be unavailable to the Indemnified
Parties, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the aggregate amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, liabilities
or expenses in such proportions as are appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and the Indemnified Party on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party on the
one hand and the Indemnified Party on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

     The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 4.3(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any expenses reasonably incurred by such Indemnified Party in connection
with investigating any such action or claim. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against

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another party or parties under this Section 4.3, notify such party or parties
from whom contribution may be sought, and such notice shall be a condition
precedent to the other party's or parties' liability under this Section 4.3 or
otherwise.

          (e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.

     4.4  Information by Holder.  The Holder or Holders of Registrable
          ---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request from time to time in connection with any registration, qualification or
compliance referred to in this Agreement.

     4.5  Delay of Registration by a Holder.  No Holder shall have any right to
          ---------------------------------
take any action to restrain, enjoin or otherwise delay any registration as a
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 4.

     4.6  Allocation of Registration Opportunities.  In any circumstance in
          ----------------------------------------
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently issued or unissued series of Preferred Stock of the
Company) with registration rights (the "Other Shares") requested to be included
in a registration on behalf of the Holders or other selling stockholders cannot
be so included as a result of limitations on the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, subject to any
preferential rights to register any such Other Shares, the number of shares of
Registrable Securities and Other Shares that may be so included shall be
allocated among the Holders and other selling stockholders requesting inclusion
of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to such Holder or other
selling stockholder pursuant to the above-described procedure, in which case the
remaining portion of such Holder's or other selling stockholder's allocation
shall be reallocated among those requesting Holders and other selling
stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares which
would be held by such Holders and other selling stockholders, assuming
conversion, and this procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares which may be included in the
registration on behalf of the Holders and other selling stockholders have been
so allocated.

     4.7  Termination of Registration Rights.  The rights granted pursuant to
          ----------------------------------
Section 4 of this Agreement to the Holders shall terminate at the earlier of (i)
five (5) years after the date of this Agreement; (ii) with respect to a Holder,
at such time as the Holder is able to sell all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder pursuant to Rule 144
promulgated under the Securities Act, during any three (3) month period,
provided that the

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Company is subject to the reporting requirements of the Exchange Act; or (iii)
with respect to a Holder, such time as such Holder ceases to own any Common
Stock.

     5.  Standoff Agreement.  In connection with any public offering of the
         ------------------
Company's securities, each Stockholder agrees, upon request of the Company or
the underwriters managing any underwritten offering of the Company's securities,
not to offer, sell, contract to sell, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected to,
result in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the undersigned or any
affiliate of the undersigned or any person in privity with the undersigned or
any affiliate of the undersigned) directly or indirectly, or file (or
participate in the filing of) a registration statement with the Securities and
Exchange Commission in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Exchange Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock (other than those included in
the registration), or publicly announce an intention to effect any such
transaction, without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the underwriters, provided that the officers and directors of
the Company also agree to such restrictions. The Stockholders agree that the
Company may instruct its transfer agent to place stop-transfer notations in its
records to enforce the provisions of this Section 5.

     6.  Amendment.  Neither this Agreement nor any provision hereof may be
         ---------
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination may be sought. Notwithstanding the foregoing, any
provision of this Agreement may be amended, waived, discharged or terminated on
behalf of all Stockholders (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of not less than a majority of the Registrable
Securities then outstanding, provided that if an amendment by its terms affects
the rights of a subset, series or class of securities differently than other
securities, such amendment must be approved by written consent of not less than
a majority of the holders of that subset, class or series of securities. Any
amendment or waiver effected in accordance with the preceding sentence shall be
binding upon each Stockholder and each Holder of Registrable Securities at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.

     7.  Governing Law / Mediation and Arbitration.  The parties shall attempt
         -----------------------------------------
to resolve any dispute as to the interpretation or enforcement of any part of
this Agreement first, if reasonably possible, by mediation. The parties shall
make all reasonable efforts to select a mutually agreeable mediator. If the
parties are unable to agree upon a mediator, then, utilizing the services of
American Arbitration Association ("AAA") or Arbitration Service of Portland,
Inc. ("ASPI"), collectively "Arbitration Service," the Arbitration Service
selected by Parent ("Selected Arbitration Service") shall select a mediator. No
arbitration shall proceed to resolve a dispute until after the mediator
determines that the parites have reached an impasse and that further mediation
would not likely result in success. Each party shall pay its attorneys' fees and
costs for the mediation and one-half of the mediator's fees and costs.

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     If the mediation reaches such an impasse, said dispute shall be determined
by binding arbitration in accordance with the Selected Arbitration Service.  The
mediator shall not be the arbitrator, unless the parties so mutually stipulate.
If the parties are not able to agree upon a single arbitrator within ten (10)
days following demand therefor, then the arbitrator shall be appointed by the
Selected Arbitration Service.  Any mediator or arbitrator must be independent,
and shall have no prior business or personal relationship with any of the
parties, or their affiliates and no prior business or personal relationship with
the attorneys, accountants or other professional advisors of any the parties or
their affiliates of such nature to cause actual bias or a reasonable appearance
of bias.

     Each party shall pay one-half of the arbitrator's fees and costs, unless
one party is ruled the prevailing party by the arbitrator, in which case the
arbitrator, subsequent to the arbitration itself, may award the prevailing
party's attorneys fees and costs.  Any mediation or arbitration shall be brought
in the City of Portland, Oregon unless the parties mutually agree on a location
outside of Portland, Oregon.  The parties agree that the law of the State of
California will apply to all proceedings arising out of or relating to this
Agreement

     8.  Entire Agreement; Assignment.  This Agreement, together with all
         ----------------------------
Exhibits hereto, constitutes the full and entire understanding and agreement
between the parties regarding the matters set forth herein. Any such waiver,
modification, amendment, discharge or termination shall be binding on all
Stockholders. Except as otherwise expressly provided herein, this Agreement
shall inure to the benefit of and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto; provided that no
Stockholder may transfer or assign its rights hereunder to any person unless
such person agrees in writing to be bound by and to perform all of the terms and
conditions of this Agreement. Any attempted transfer or assignment in violation
of any provision of this Agreement shall be null and void and of no force or
effect and the Company shall not be required to recognize any assignee as a
Stockholder under this Agreement.

     9.  Notices.  All notices, demands and other communications required or
         -------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or three (3) days after
deposit with the United States mail, by registered or certified mail, postage
prepaid, return receipt requested, addressed (a) if to a Stockholder, at such
Stockholder's address as set forth on the Schedule of Stockholders attached
hereto, or at such other address as such Stockholder shall have furnished to the
Company in writing in accordance with this Section 9, (b) if to any other holder
of Common Stock, at such address as such holder shall have furnished the Company
in writing in accordance with this Section 9, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder thereof who has so furnished an address to the Company, and (c) if to the
Company, at its principal office, with a copy to John T. Sheridan, Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA  94304.  Any
party may designate a different address to which notices, demands or other
communications shall thereafter be directed and such designation shall be made
by written notice given in the manner hereinabove required.

     10.  Legended Certificates.
          ---------------------

          10.1  Each certificate representing the Common Stock and any other
securities issued in respect of the Common Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of

                                      -10-
<PAGE>

Section 3 above) be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any legend required under
applicable state securities laws):

     THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENTS COVERING
THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.

          10.2  Each Holder consents to the Company's making a notation on its
records and giving instructions to any transfer agent for the Common Stock in
order to implement the restrictions on transfer established in this Agreement.

     11.  Counterparts.  This Agreement may be executed in any number of
          ------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

     12.  Titles and Subtitles.  The titles of the paragraphs and subparagraphs
          --------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing or interpreting this Agreement

     13.  Rights; Separability.  Unless otherwise expressly provided herein, a
          --------------------
Stockholder's rights hereunder are several rights, not rights jointly held with
any of the other Stockholders.  In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

     14.  Information Confidential.  Each Stockholder acknowledges that the
          ------------------------
information received by them pursuant hereto may be confidential and for its use
only, and it will not use any such confidential information in violation of the
Securities Act, the Exchange Act or reproduce, disclose or disseminate such
information to any other person (other than its employees or agents having a
need to know the contents of such information, and its attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or such Stockholder
is required to disclose such information by a governmental body.

           (The remainder of this page is left intentionally blank.)

                                      -11-
<PAGE>

     IN WITNESS WHEREOF, the foregoing agreement is hereby executed as of the
date first above written.

                                    "COMPANY"

                                    LANTRONIX, INC.

                                    By:       /s/ STEVEN V. COTTON
                                       -----------------------------------
                                       Name:  Steven V. Cotton
                                       Title:  Chief Financial Officer

                                    "STOCKHOLDERS"

                                             /s/ DONALD DUNSTAN
                                    --------------------------------------
                                                Donald Dunstan

                                              /s/ DIANE DUNSTAN
                                    --------------------------------------
                                                 Diane Dunstan

                                    "TRUST"

                                    In trust, Dunstan Charitable Remainder
                                    Unitrust, UAD, December 22, 2000

                                    By:       /s/ LAWRENCE EVANS
                                       -----------------------------------
                                            Lawrence Evans, Trustee

                 (Signature page to Investor Rights Agreement)<PAGE>

                                                                    EXHIBIT 10.4

                                LANTRONIX, INC.

                                2000 STOCK PLAN

     1.   Purposes of the Plan.  The purposes of this 2000 Stock Plan are:
          --------------------

          .    to attract and retain the best available personnel for positions
               of substantial responsibility,

          .    to provide additional incentive to Employees, Directors and
               Consultants, and

          .    to promote the success of the Company's business.

          Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

     2.   Definitions.  As used herein, the following definitions shall apply:
          -----------

          (a)  "Administrator" means the Board or any of its Committees as shall
                -------------
be administering the Plan, in accordance with Section 4 of the Plan.

          (b)  "Applicable Laws" means the requirements relating to the
                ---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Cause" means (i) any act of personal dishonesty taken by the
                -----
Optionee in connection with his responsibilities as an Employee which is
intended to result in personal enrichment of the Optionee, (ii) the Optionee's
conviction of a felony, (iii) any act by the Optionee that constitutes
misconduct, and (iv) continued violations by the Optionee of the Optionee's
obligations to the Company.

          (e)  "Change of Control" means the occurrence of any of the following
                -----------------
               events:

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

              (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.

          (f)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (g)  "Committee" means a committee of Directors appointed by the Board
                ---------
in accordance with Section 4 of the Plan.

          (h)  "Common Stock" means the common stock of the Company.
                ------------

          (i)  "Company" means Lantronix, Inc., a Delaware corporation.
                -------

          (j)  "Consultant" means any person, including an advisor, engaged by
                ----------
the Company or a Parent or Subsidiary to render services to such entity.

          (k)  "Director" means a member of the Board.
                --------

          (l)  "Disability" means total and permanent disability as defined in
                ----------
Section 22(e)(3) of the Code.

          (m)  "Employee" means any person, including Officers and Directors,
                --------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

          (n)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (o)  "Fair Market Value" means, as of any date, the value of Common
                -----------------
Stock determined as follows:

                                      -2-
<PAGE>

               (i)    If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

              (ii)    If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or

             (iii)    In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

          (p)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (q)  "Inside Director" means a Director who is an Employee.
                ---------------

          (r)  "IPO Effective Date" means the date upon which the Securities and
                ------------------
Exchange Commission declares the initial public offering of the Company's Common
Stock as effective.

          (s)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

          (t)  "Notice of Grant" means a written or electronic notice evidencing
                ---------------
certain times and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.

          (u)  "Officer" means a person who is an officer of the Company within
                -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (v)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (w)  "Option Agreement" means an agreement between the Company and an
                ----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (x)  "Option Exchange Program" means a program whereby outstanding
                -----------------------
Options are surrendered in exchange for Options with a lower exercise price.

          (y)  "Optioned Stock" means the Common Stock subject to an Option or
                --------------
Stock Purchase Right.

                                      -3-
<PAGE>

          (z)  "Optionee" means the holder of an outstanding Option or Stock
                --------
Purchase Right granted under the Plan.

          (aa) "Outside Director" means a Director who is not an Employee.
                ----------------

          (bb) "Plan" means this 2000 Stock Option Plan, as amended and
                ----
restated.

          (cc) "Restricted Stock" means shares of Common Stock acquired pursuant
                ----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (dd) "Restricted Stock Purchase Agreement" means a written agreement
                -----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

          (ee) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (ff) "Section 16(b) " means Section 16(b) of the Exchange Act.
                -------------

          (gg) "Service Provider" means an Employee, Director or Consultant.
                ----------------

          (hh) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 14 of the Plan.

          (ii) "Stock Purchase Right" means the right to purchase Common Stock
                --------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (jj) "Subsidiary" means a "subsidiary corporation", whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan. Subject to the provisions of Section 14 of
          -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,000,000 Shares. The number of Shares reserved for issuance
under the Plan shall increase annually on the first day of the calendar year
beginning in 2001 by an amount of Shares equal to the lesser of (i) 1,000,000
Shares, (ii) 5% of the outstanding Shares on such date or (iii) an amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.

          If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

                                      -4-
<PAGE>

     4.   Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

               (i)    Multiple Administrative Bodies. The Plan may be
                      -------------------------------
administered by different Committees with respect to different groups of Service
Providers.

              (ii)    Section 162(m).  To the extent that the Administrator
                      --------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

             (iii)    Rule 16b-3. To the extent desirable to qualify
                      ----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

              (iv)    Other Administration. Other than as provided above, the
                      --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b)  Powers of the Administrator.  Subject to the provisions of the
               ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i)    to determine the Fair Market Value;

              (ii)    to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

             (iii)    to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

              (iv)    to approve forms of agreement for use under the Plan;

               (v)    to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

              (vi)    to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                                      -5-
<PAGE>

             (vii)    to institute an Option Exchange Program;

            (viii)    to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

              (ix)    to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

               (x)    to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

              (xi)    to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;

             (xii)    to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

            (xiii)    to make all other determinations deemed necessary or
advisable for administering the Plan.

          (c)  Effect of Administrator's Decision. The Administrator's
               ----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

     5.  Eligibility.  Nonstatutory Stock Options and Stock Purchase Rights may
         -----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

     6.  Limitations.
         -----------

          (a)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

                                      -6-
<PAGE>

          (b)  Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without Cause.

          (c)  The following limitations shall apply to grants of Options:

               (i)    No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 400,000 Shares.

              (ii)    In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares,
which shall not count against the limit, set forth in subsection (i) above.

             (iii)    The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.

              (iv)    If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

     7.   Term of Plan.  Subject to Section 20 of the Plan, the Plan shall
          ------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

     8.   Term of Option.  The term of each Option shall be stated in the Option
          --------------
Agreement.  In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.  Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

     9.   Option Exercise Price and Consideration.
          ---------------------------------------

          (a)  Exercise Price.  The per share exercise price for the Shares to
               --------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

               (i)    In the case of an Incentive Stock Option

                    (A)  granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all

                                      -7-
<PAGE>

classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.

                    (B)  granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

              (ii)    In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

             (iii)    Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.

          (b)  Waiting Period and Exercise Dates. At the time an Option is
               ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

          (c)  Form of Consideration.  The Administrator shall determine the
               ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

               (i)    cash;

              (ii)    check;

             (iii)    promissory note;

              (iv)    other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

               (v)    consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

              (vi)    a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

             (vii)    any combination of the foregoing methods of payment; or

                                      -8-
<PAGE>

            (viii)    such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

     10.  Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option
               -----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

               An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.

               Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

          (b)  Termination of Relationship as a Service Provider.  Subject to
               -------------------------------------------------
Section 14, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status) or
from Consultant to Employee), such Optionee may, but only within such period of
time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

                                      -9-
<PAGE>

          (c)  Disability of Optionee.  If an Optionee ceases to be a Service
               ----------------------
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Option is
vested on the date of termination. If, on the date of termination, the Optionee
is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

          (d)  Death of Optionee.  If an Optionee dies while a Service Provider,
               -----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

          (e)  Buyout Provisions.  The Administrator may at any time offer to
               -----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

     11.  Stock Purchase Rights.
          ---------------------

          (a)  Rights to Purchase.  Stock Purchase Rights may be issued either
               ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

          (b)  Repurchase Option.  Unless the Administrator determines
               -----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

                                      -10-
<PAGE>

          (c)  Other Provisions.  The Restricted Stock Purchase Agreement shall
               ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

          (d)  Rights as a Shareholder. Once the Stock Purchase Right is
               -----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.

     12.  Non-Transferability of Options and Stock Purchase Rights.  Unless
          --------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.  If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

     13.  Formula Option Grants to Outside Directors. Outside Directors shall be
          ------------------------------------------
granted Options in accordance with the following provisions:

          (a)  All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the terms and conditions of the Plan.

          (b)  Except as provided in subsection (d) below, each person who first
becomes an Outside Director on or after the IPO Effective Date, whether through
election by the stockholders of the Company or appointment by the Board to fill
a vacancy shall be automatically granted an Option to purchase up to 25,000
Shares (the "First Option") on the date he or she first becomes an Outside
Director; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.

          (c)  Except as provided in subsection (d) below, each Outside Director
shall be automatically granted an Option to purchase up to 10,000 Shares (a
"Subsequent Option") following each annual meeting of the stockholders of the
Company occurring after the end of the Company's fiscal year 2000, if
immediately after such meeting, he or she shall continue to serve on the Board
and shall have served on the Board for at least the preceding six (6) months.

          (d)  Notwithstanding the provisions of subsections (b) and (c) hereof,
any exercise of an Option granted before the Company has obtained stockholder
approval of the Plan in accordance with Section 20 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
20 hereof.

          (e)  The terms of each First Option granted pursuant to this Section
shall be as follows:

                                      -11-
<PAGE>

               (i)    the term of the Option shall be ten (10) years.

              (ii)    the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.

             (iii)    50% of the Shares subject to the Option shall vest twelve
months after the date of grant and 1/24 of the Shares subject to the Option
shall vest each month thereafter. provided that the Outside Director shall
continue to serve on the Board on such dates.

          (f)  The terms of each Subsequent Option granted pursuant to this
Section shall be as follows:

               (i)    the term of the Option shall be ten (10) years.

              (ii)    the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.

             (iii)    50% of the Shares subject to the Option shall vest twelve
months after the date of grant and 1/24 of the Shares subject to the Option
shall vest each month thereafter provided that the Outside Director shall
continue to serve on the Board on such dates.

     14.  Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
          ----------------------------------------------------------------

          (a)  Changes in Capitalization.  Subject to any required action by the
               -------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

          (b)  Dissolution or Liquidation.  In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until

                                      -12-
<PAGE>

fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

          (c)  Merger or Asset Sale. Subject to Section 15 below, in the event
               --------------------
of a merger of the Company with or into another corporation, or the sale of
substantially all of the assets of the Company (a "Merger"), each outstanding
Option and Stock Purchase Right shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation (the "Successor Corporation"). In the event that the
Successor Corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a Merger, the Administrator shall
notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
Section 14(c), the Option or Stock Purchase Right shall be considered assumed
if, following the Merger, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the Merger, the consideration (whether
stock, cash, or other securities or property) received in the Merger by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Merger is not
solely common stock of the Successor Corporation or its Parent, the
Administrator may, with the consent of the Successor Corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the Successor Corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the Merger.

     15.  Change of Control.  In the event of a Change of Control, each
          -----------------
outstanding Option granted to an Outside Director pursuant to Section 13 shall
vest and become exercisable in full as to all of the Optioned Stock, including
Shares as to which the Outside Director would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable as provided in
this paragraph, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option shall
terminate upon the expiration of such period.

     16.  Date of Grant.  The date of grant of an Option or Stock Purchase Right
          -------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or

                                      -13-
<PAGE>

Stock Purchase Right, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.

     17.  Amendment and Termination of the Plan.
          -------------------------------------

          (a)  Amendment and Termination.  The Board may at any time amend,
               -------------------------
alter, suspend or terminate the Plan.

          (b)  Shareholder Approval.  The Company shall obtain shareholder
               --------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

          (c)  Effect of Amendment or Termination.  No amendment, alteration,
               ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     18.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance.  Shares shall not be issued pursuant to the
               ----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               --------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

     19.  Inability to Obtain Authority.  The inability of the Company to obtain
          -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     20.  Reservation of Shares.  The Company, during the term of this Plan,
          ---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     21.  Shareholder Approval.  The Plan shall be subject to approval by the
          --------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

                                      -14-

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