Document:

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                                                                    EXHIBIT 10.2

                                   LANTRONIX
                       1993 INCENTIVE STOCK OPTION PLAN

     1.   Definitions.
          1.1   Corporation. "Corporation" shall mean LANTRONIX, a California
corporation.

          1.2   Affiliate. "Affiliate" shall mean a corporation which is a
parent or subsidiary corporation of the Corporation or a corporation or a parent
or a subsidiary corporation of the company issuing or assuming the incentive
stock options issued under this Plan (defined below) in a transaction to which
Section 425(a) of the Code (defined below) applies.

          1.3   Board of Directors. "Board of Directors" shall mean the board of
directors of the Corporation.

          1.4   Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.

          1.5   Common Stock. "Common Stock" shall mean the Corporation's no par
value common stock.

          1.6   Effective Date. "Effective Date" shall mean August 20, 1993, the
date upon which the Board of Directors originally adopted this Plan.

          1.7   Eligible Person. "Eligible Person" shall mean any full-time
employee of the Corporation or an Affiliate.

          1.8   Optionee. "Optionee" shall mean an Eligible Person to whom an
option has been granted under the Plan.

          1.9   Plan. "Plan" shall mean the incentive stock option plan set
forth in this document.

          1.10  Separation from Service. "Separation from Service" shall mean
any voluntary or involuntary termination of an Optionee's employment with the
Corporation or an Affiliate for any reason, including, without limitation,
disability or retirement, but shall not include termination of employment by
reason of an Optionee's death or by reason of his or her transfer from the
Corporation or Affiliate to the Corporation or an Affiliate.
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     2.   Purpose.

       The purpose of this Plan is to promote the interests of the Corporation
and its shareholders by encouraging key employees of the Corporation, and any
Affiliates, to invest on reasonable terms in the Corporation's Common Stock by
means of "incentive stock options" as defined in Section 422 of the Code. Such
investment could effectively increase the investors' proprietary interest in the
Corporation's business, at the same time increasing their personal interest in
its continued success and progress and encouraging employee investors to remain
in the Corporation's employ. This plan may be known as the LANTRONIX 1993
INCENTIVE STOCK OPTION PLAN.

     3.   Administration.

          3.1  General. This Plan shall be administered by the Board of
Directors which, subject to the terms and conditions of this Plan, shall have
the authority to determine, in its sole discretion, all questions arising under
this Plan, including, without limitation, the selection of the Optionees to whom
grants of options under this Plan shall be made, the terms and conditions of
each such grant, the time at which such grants will be made, the number of
shares to be optioned under such a grant, and all questions relating to
adjustments to be made pursuant to Section 6 of this Plan; provided, however,
that no incentive stock options may be granted to any directors who are not also
employees of the Corporation. The Board of Directors shall also establish and
carry out reasonable interpretations and applications of this Plan and shall
perform or cause to be performed such other further acts as it may deem to be
necessary, appropriate or convenient in the efficient administration of this
Plan. All determinations shall be by the affirmative vote of a majority of the
members of the Board of Directors. Subject to the Corporation's bylaws, all
decisions made by the directors in selecting Optionees, establishing the number
of shares and terms applicable to each option, and in construing the provisions
of this Plan shall be final, conclusive and binding on all persons, including
the Corporation, shareholders and Optionees.

          3.2  Option Agreement.  Each option shall be evidenced by an option
agreement which shall contain such terms and conditions as may be approved by
the Board of Directors or the Committee and shall be signed by an officer of the
Corporation and an Optionee.

          3.3  Modification of Plan. If the laws relating to incentive stock
options are changed during the term of this Plan, the Board of Directors shall
have the power to alter this

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Plan to conform to such changes in the law. The Board shall have such authority
without the necessity of obtaining further stockholder approval unless the
changes require such approval.

     4.   Options.

          4.1  Eligibility. The Board of Directors may grant options under this
Plan to any person who is an Eligible Person.

          4.2  Number of Shares Subject to Options. The aggregate number of
shares of common stock which may be issued upon the exercise of incentive stock
options granted under this Plan shall not exceed 75,000 shares; subject;
however, to the provisions of Section 6.0 of this Plan. The shares of common
stock issued upon the exercise of options under this Plan may be authorized but
unissued shares, shares issued and reacquired by the Corporation, or shares
bought on the market for the purpose of this Plan. In the event any options
shall, for any reason, terminate, expire or be surrendered without having been
exercised in full, the shares subject to such option (but not purchased
thereunder) shall again be available for options to be granted under this Plan.

          4.3  Terms and Conditions of Options. Any option granted under this
Plan shall be evidenced by an agreement executed by the Corporation and the
Optionee, and shall contain such terms and be in such form as the Board of
Directors may from time to time approve subject to the following limitations and
conditions:

               4.3.1  Option Price. The option price per share of common stock
with respect to each incentive stock option shall not be less than the fair
market value of the common stock at the time such option is granted which fair
market value shall be determined, in good faith, by the Board of Directors.

               4.3.2  Duration of Option. Each option shall expire on a date to
be fixed by the Board of Directors at the time the option is granted; provided,
however, that such expiration date shall not be more than ten years from the
date of the grant of the option.

               4.3.3  No Rights Vested as Stockholders. Neither an Optionee nor
his or her successor shall have any of the rights of a stockholder of the
Corporation by reason of the grant of an option under this Plan until he or she
exercises such option and the optioned shares are actually issued to him or her.

               4.3.4  Exercise of Option. Each option shall be exercisable over
a period commencing on the date of the grant and ending upon the expiration or
termination of

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the option; provided, however, that the Board of Directors may by the provisions
of any option agreement, limit the number of shares purchasable thereunder in
any period of time during which the option is exercisable. Upon exercise of an
option, an Optionee shall have been an employee of the Corporation or Affiliate
at all times during the period beginning on the date of the granting of the
option and ending on the day three months before the date of such exercise.

               4.3.5  Payment Upon Exercise of Option. The Board of Directors
shall, in its sole discretion, determine the form and method of payment for
shares of common stock to be issued upon the exercise of an option granted under
this Plan including, without limitation, payment by means of the Optionee's
unsecured promissory note or the payment with shares of the Corporation;
provided, however, that the form and method so selected shall conform to the
requirements of state and federal law and to any rules or regulations
promulgated thereunder.

               4.3.6  Nontransferability of Options. No option granted under
this Plan shall be transferable or assignable by an Optionee other than by will
or the laws of descent and distribution. Each option shall be exercisable,
during the Optionee's lifetime, only by him or her. No option shall be pledged
or hypothecated in any way and no option shall be subject to execution,
attachment or similar process except with the express consent of the Board of
Directors.

               4.3.7  Disposition of Shares Upon Exercise of Option. If
disposition of a share received upon exercise of an option is made by an
Optionee within two years from the date of granting of the option or within one
year after the transfer of such share to the Optionee, such transaction will be
considered a "disqualified disposition" for tax purposes and may imply less
favorable tax consequences for the Optionee.

               4.3.8  Separation from Service. Upon an Optionee's Separation
from Service, the number of shares purchasable by him or her under any option
held by him or her shall be limited to the number of shares which were
immediately purchasable by him or her at the date of such Separation from
Service, and such option privileges shall expire unless exercised by him or her
within three months after the date of such Separation from Service; provided,
however, if the Optionee's employment is terminated as a result of the
Optionee's disability (within the meaning of the Code Section 22(e)(3) after he
or she shall continue to have been employed by the Corporation for one year from
the date of grant of this option), he or she

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may exercise this option within one year immediately following such termination
of employment due to disability, but in no event later than the expiration date
specified in the option.

               4.3.9   Death of Optionee. If an Optionee dies while in the
employ of the Corporation or an Affiliate, the number of shares purchasable by
his or her successor under any option held by the Optionee shall be limited to
the number of shares which were purchasable by the Optionee at the date of his
or her death. Such option privileges shall expire unless exercised by the
Optionee's successor within one year of the Optionee's death, but in no event
later than the expiration date specified in the option.

               4.3.10  Ten Percent Shareholder. No Optionee may, at the time any
incentive stock option is granted under this Plan, own stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the corporation or of its parent or subsidiary corporations unless, if at the
time such option is granted, the option price is at least 110 percent of the
fair market value of the stock subject to the option and such option, by its
terms, is not exercisable after the expiration of five years from the date such
option is granted.

               4.3.11  Maximum Option. The aggregate fair market value
(determined by the Board of Directors as of the time the option is granted) of
the stock with respect to which incentive stock options are exercisable for the
first time by an Optionee during any calendar year (under all incentive stock
option plans of the Corporation or Affiliates, if any) shall not exceed
$100,000. Notwithstanding anything to the contrary in this Section 4.3.11, if,
by virtue of amendments to the Code or the promulgation of any regulations
thereunder it becomes permissible for incentive stock options to be granted in
excess of the limitations contained in this Section 4.3.11, incentive stock
options may be granted to the extent permitted under such law or regulation.

     5.   Amendment, Suspension or Termination.

          5.1  General. The Board of Directors may from time to time suspend or
terminate this Plan or may amend it from time to time in such respects as the
Board of Directors may deem advisable; provided, however, that without the
approval of the stockholders of the Corporation, no such amendment shall (i)
increase the maximum number of shares for which options may be granted under
this Plan except as otherwise provided in Section 6; (ii) change the manner of
determining the purchase price of shares with respect to which an option is
granted except as otherwise provided in Section 6; (iii) change the ten-year
maximum life of options

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specified in Section 4.3.2; (iv) change the expiration date of this Plan; (v)
change the designation of Eligible Person; or (vi) in any manner materially
increase the benefits accruing to participants under this Plan.

          5.2  Effect of Amendments, Suspension or Termination on Existing
Options. No amendment, suspension or termination of this Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations of the
Corporation or the Optionee with respect to any option theretofore granted to
such Optionee.

          5.3  Automatic Termination of Plan. Unless the Board of Directors
terminate this Plan as herein provided prior thereto, this Plan will
automatically terminate on August 20, 2003.

     6.   Adjustments.

          6.1  Recapitalizations. In the event that the outstanding shares of
common stock are, at any time after the Effective Date, increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the corporation or an Affiliate by reason of a recapitalization,
reclassification, stock split-up, combination of shares or dividend or other
distribution payable in capital stock, appropriate adjustment shall be made by
the Board of Directors in the number, price and kind of shares for the purchase
of which options may be granted under this Plan. In addition, the Board of
Directors shall make appropriate adjustment in the number, price and kind of
shares as to which outstanding options, or portions thereof then unexercised,
shall be exercisable, to the end that the proportionate interest of the holder
of the option shall be maintained as before the occurrence of such events. Such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of the option and with a
corresponding adjustment in the option price per share.

          6.2  Dissolution. In the event of the dissolution or liquidation of
the Corporation, any option granted under this Plan shall terminate as of a date
to be fixed by the Board of Directors provided that not less than 30 days'
written notice of the date so fixed shall be given to each Optionee and that
each such Optionee shall have the right during such period to exercise his or
her option as to all or any part of the shares covered thereby, including shares
as to which such option would not otherwise be exercisable by reason of
restrictions in the option

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agreement with him or her relative to the time at which the option or any part
thereof may be exercised.

          6.3  Other Transactions. In the event any of the following
transactions (a "Corporate Transaction") occurs:

               (a) a merger or consolidation in which the Company is not the
          surviving entity, except for a transaction the principal purpose of
          which is the change of the state of the Company's incorporation;

               (b) the sale, transfer or other disposition of all, or
          substantially all, of the Company's assets, or

               (c) any reverse merger in which the Company is the surviving
          entity, but in which fifty percent (50%) or more of the Company's
          outstanding voting stock is transferred to holders different from
          those who held stock immediately prior to such merger,

Each outstanding option will, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares at the
time subject to such option. No such acceleration will occur, however, if (i)
the option is to be assumed by the successor corporation or parent thereof and
replaced by a comparable option to purchase shares of the publicly traded
capital stock of the successor corporation or parent thereof or (ii) the
acceleration of the option is subject to other limitations imposed by the
Committee at the time of grant. Upon the consummation of any Corporate
Transaction in which Lantronix is not the surviving entity, Optionee will be
provided written notice of a 30 day window in which to exercise any and all
outstanding options. The resulting shares of such exercise will be contemplated
in the calculation of total outstanding shares for such triggering Corporate
Transaction. If Optionee fails to exercise such options within the 30 day window
period, any such unexercised options will terminate and cease to be exercisable.

          6.4  Substitute Options. If the Corporation at any time shall succeed
to the business of another corporation through a merger or consolidation, or
through the acquisition of stock or assets of such corporation, options may be
granted under this Plan to those Optionees (but not directors who are not also
Optionees) of such corporation or its subsidiaries who, in connection with such
succession, become employees of the Corporation or its subsidiaries, in
substitution for options to purchase stock of such corporation held by them at
the time of the succession. The Board of Directors shall, in its sole and
absolute discretion, determine the extent

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to which such substitute options shall be granted (if at all), the persons to
receive such substitute options (who need not be all Optionees of such
corporation), the number of options to be received by each such person, the
option price of such options (which may be determined without regard to Section
4.3.1) and the terms and conditions of such substitute options; provided,
however, that the option price of each such substituted option shall be an
amount such that, in the sole and absolute judgment of the Board of Directors
and in compliance with Section 424(a) of the Code, the economic benefit provided
by such option is not greater than the economic benefit represented by the
option in the acquired corporation as of the date of the corporation's
acquisition of such corporation. Any option substituted for another option in
accordance with Section 6.4 shall expire upon the earlier of the expiration date
of such other option or ten years from the date such option is granted, and will
be exercisable during the period in which the other option would have been
exercisable.

     7.   Miscellaneous.

          7.1  Restrictions on Issuing Shares. The Corporation's shares shall
not be issued pursuant to the exercise of an option granted under this plan
unless the transferability of the shares so issued and/or the actual issuance of
the shares comply with all relevant provisions of law, including, without
limitation, the (i) limitations, if any, imposed by the Commissioner of
Corporations of the State of California; (ii) restrictions, if any, imposed by
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder; and (iii) requirements of any stock exchange
upon which the shares may then be listed. The Board of Directors shall, in its
sole discretion, determine if such restrictions or such issuance of shares so
complies with all relevant provisions of law

          7.2  Withholding, Etc. Shares shall not be issued upon the exercise of
any option under this Plan unless and until any withholding tax, if any, or
other withholding liabilities, if any, imposed by any governmental entity have
in the opinion of the Board of Directors, been satisfied or provision for their
satisfaction has been made.

          7.3  Other Restrictions. The Board of Directors may, in any option
agreement with an Optionee, or at the time shares are actually issued pursuant
to the exercise of an option, place such further restrictions on the
transferability of any shares of Common Stock to be issued

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to the Optionee upon the exercise of the Option as the Board of Directors may,
in its sole discretion, determine to be reasonable, appropriate or necessary.

          7.4  Use of Proceeds. The proceeds received by the Corporation from
the sale of Common Stock pursuant to the exercise of options granted under this
Plan shall be added to the Corporation's general funds and used for general
corporate purposes.

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                                   LANTRONIX

                       INCENTIVE STOCK OPTION AGREEMENT

     This Incentive Stock Option Agreement (the "Agreement") is dated
____________________ (the "Date of Grant" hereof), and entered into between
LANTRONIX (the "Corporation") and ___________ ("Employee") (collectively
referred to as the "Parties") and is made with reference to the following facts:

                                R E C I T A L S

     A.  The Corporation has adopted what is known as the 1993 Incentive Stock
Option Plan of Lantronix (the "Plan"), pursuant to which the Corporation may
grant to certain of its employees options to purchase shares of its Common
Stock.

     B.  The Employee is an Eligible Person under the Plan, and the Corporation
desires to grant to Employee an option to purchase shares of Common Stock of the
Corporation in order to strengthen the Corporation by providing incentives as a
means to attract, retain, and motivate Employee.

     C.  It is the intent of the Corporation that the option granted by it under
this Agreement shall be treated as a Qualified Incentive Stock Option under the
Internal Revenue Code of 1986, as amended (the "Code").

                               A G R E E M E N T

     NOW, THEREFORE, in consideration of the above recitals and the covenants,
terms, conditions and agreements herein contained, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Corporation and Employee do hereby agree as follows:

     1.  Option Granted. The Corporation hereby grants Employee an option to
purchase ________ shares of Common Stock of the Corporation at a purchase price
of ________ per share. The Date of Grant of this Option is the date of this
Agreement and it is the determination of the Board of Directors that on this
date, the fair market value of the Corporation's Common Stock is ____ per

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share. This Option is subject to the terms, definitions and provisions of the
Plan which is incorporated herein by this reference.

     2.   Time of Exercise of Option (Vesting). No Options shall be exercisable,
either in whole or in part, prior to twelve (12) months from the date of this
Agreement. The right to exercise this Option shall be cumulative and shall vest
as follows: twenty-five percent (25%) of the number of shares set forth in
Paragraph 1 of this Agreement at _________ and the remaining shares vest
variably on a monthly basis over a thirty-six (36) month period.

          The number of shares vesting under the above schedule shall be rounded
down to the nearest whole number of shares in the event that a fractional number
of shares is computed under the above schedule. Any reduction that results will
be vested on the last vesting date under this section.

     3.   Method of Exercise. This Option shall be exercised by written notice
delivered to the Corporation at its principal place of business, and such notice
shall state the following:

          3.1  A statement of election to exercise this Option, the number of
     shares for which the Option is being exercised, the person in whose name
     the stock certificate or certificates for such shares of Common Stock is or
     are to be registered and such person's address and social security number;

          3.2  A statement of representations and agreements as to the
     registered owner's investment intent with respect to such shares of Common
     Stock as may be required by counsel for the Corporation;

          3.3  The notice shall be signed by the person entitled to exercise
     this Option and, if this Option is being exercised by any person other than
     the Employee, proof satisfactory to counsel for the Corporation of the
     right of such person to exercise the Option; and delivery in person or by
     certified mail to the Secretary of the Corporation; together with an
     acceptable method of payment for such shares in the amount of the purchase
     price.

               The obligation of the Corporation to deliver Common Stock upon
     exercise of this Option shall be subject to applicable federal, state and
     local tax and withholding requirements, and to all other laws, including
     wage and salary controls, and compliance with all securities laws.

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     4.   Payment for Shares. Upon exercise of this Option, payment for the
purchase price shall be made to the Corporation in cash, by certified or bank
cashier's check or at the discretion of the Corporation, through the delivery to
the Corporation of a promissory note equal in principal amount to the Option
Price.

          In the event there exists a public market for the Corporation's Common
Stock at the date of exercise, the Employee can elect to pay the purchase price
wholly or partly with shares of the Corporation's Common Stock, provided that if
such shares were acquired by exercise of an Incentive Stock Option, the Employee
must have first satisfied the holding period requirements under Section
422(a)(1), or any successor thereto, of the Code. In this case, payment shall be
made as follows:

          4.1  The written notice stating the election to exercise shall set
     forth the portion of the purchase price the Employee wishes to pay with
     Common Stock and the number of shares of such Stock to be transferred to
     the Corporation pursuant to the exercise of the Option, which shall be
     determined by dividing the aforementioned portion of the purchase price by
     the average of the last reported bid and asked prices per share of Common
     Stock of the Corporation quoted on the NASD over-the-counter market (or the
     average of the highest and lowest prices of the Stock as reported in the
     Wall Street Journal if listed on a national exchange) for the day on which
     the notice of exercise is sent;

          4.2  Fractional shares shall be disregarded and the Employee shall pay
     in cash an amount equal to such fraction multiplied by the price determined
     under subparagraph 4.1 above;

          4.3  The written notice shall be accompanied by a duly endorsed blank
     stock power with respect to the number of shares of Common Stock set forth
     in the notice, and the certificate(s) representing said shares shall be
     delivered to the Corporation at its principal office within three (3)
     working days from the date of the notice of exercise.

          4.4  The Employee hereby authorizes and directs the Secretary of the
     company to transfer so many of the shares represented by such
     certificate(s) as are necessary to pay the purchase price in accordance
     with the provisions herein.

          4.5  If any such transfer of shares requires the consent of any
     governmental agency, or an opinion of counsel for the Corporation or the
     Employee that such transfer may be effected under applicable federal and
     state securities laws, the time period specified herein

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     shall be extended for such periods as the necessary request for consent to
     transfer is pending before such governmental agency or until counsel
     renders such an opinion, as the case may be; except that any such extension
     shall not continue beyond the maximum time limits provided in Internal
     Revenue Code Section 422, or any successor thereto. All parties agree to
     cooperate in making such request for transfer, or in obtaining such opinion
     of counsel, and no transfer shall be effected without such consent or
     opinion if required by law or if required in the opinion of counsel; and

          4.6  Notwithstanding any other provision herein, the Employee shall
     only be permitted to pay the purchase price with shares of the
     Corporation's Common Stock in the manner and within the time periods
     allowed under 17 CFR Section 240.16b-3 promulgated under the Securities
     Exchange Act of 1934 as such regulation is presently in force, as it is
     amended from time to time, and as it is interpreted now or hereafter by the
     Securities and Exchange Commission.

     5.   Restrictions on Exercise.

          5.1  The Shares of Common Stock available for exercise may be
     purchased, subject to the provisions of this Section 5, at any time and
     from time to time after they become exercisable and prior to the expiration
     of the Option.

          5.2  The minimum number of shares with respect to which this Option
     may be exercised at any one time is ten (10) shares unless the number
     purchased is the total number at the time available for the purchase. This
     Option may be exercised only with respect to full shares of Common Stock;
     no fractional shares will be issued.

          5.3  This Option may not be exercised if the issuance of shares upon
     such exercise would constitute a violation of any applicable federal or
     state securities laws or of other law or valid regulation. As a condition
     to the exercise of this Option, the Corporation may require the Employee to
     make any representation and warranty to the Corporation as in the opinion
     of legal counsel for the Corporation may be required by any applicable law
     or regulation, including the execution and delivery of any appropriate
     investment representation letter, at the time of exercise of this Option.

               The Corporation shall not be under any obligation to file any
     registration statement or to cause any registration statement once filed to
     become or to remain effective as to the Shares subject to this Option and
     makes no representation that it will elect to make

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     a public offering or to file any registration statement unless, in its sole
     discretion, it shall deem such offering, filing and/or effectiveness to be
     desirable and in its own best interest.

          5.4  This Option may not be exercised after its termination as defined
below.

     6.   Non-Transferability of Option. This Agreement, and the option herein
contained shall not be transferable, and shall be exercisable only by the
Employee during his lifetime; except that in the event of Employee's death while
in the employ of the Corporation, his or her personal representatives may
exercise the Option as to any of the shares covered hereunder not previously
exercised by Employee within twelve (12) months of the date of Employee's death.
Each Option shall be exercisable, during the Employee's lifetime, only by him or
her. No Option shall be pledged or hypothecated in any way, and no Option shall
be subject to execution, attachment or similar process, except with the express
consent of the Board of Directors of the Corporation.

     7.   Termination of Option. This Option shall terminate as follows:

          7.1  Upon an Employee's Separation from Service, the number of shares
     purchasable by him or her under any option held by him or her shall be
     limited to the number of shares which were immediately purchasable by him
     or her at the date of such Separation from Service, and such option
     privileges shall expire unless exercised by him or her within three months
     after the date of such Separation from Service; provided, however, if the
     Employee's employment is terminated as a result of the Employee's
     disability (within the meaning of the Code Section 22(e)(3) after he or she
     shall continue to have been employed by the Corporation for one year from
     the date of grant of this option, he or she may exercise this option within
     one year immediately following such termination of employment due to
     disability, but in no event later than the expiration date specified in the
     option; or

          7.2  If an Employee dies while in the employ of the Corporation or an
     Affiliate, the number of shares purchasable by his or her successor under
     any option held by the Employee shall be limited to the number of shares
     which were purchasable by the Employee at the date of his or her death.
     Such option privileges shall expire unless exercised by the Employee's
     successor within one year of the Employee's death, but in no event later
     than the expiration date specified in the option; or

          7.3  This Option shall expire ten years after the Date of Grant of
     this Option;

          7.4  This Option shall terminate upon the dissolution or liquidation
     of the Corporation.

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<PAGE>

          7.5  Any portion of the Option that would otherwise vest under Section
     2 of this Agreement in the month of the Employee's death or Separation from
     Service or thereafter shall be forfeited. In this event, the shares under
     the unvested portion of the Option shall not be considered purchasable for
     all purposes of this Agreement.

     8.   Disposition of Shares Upon Exercise of Option. Upon exercise of his or
her Option, should an Employee make a disposition of a share within two years
from the Date of Grant of this Option or within one year after the transfer of
such share to Employee, then such disposition will be deemed a "disqualified
disposition" for that purpose and may imply less favorable tax consequences to
the Optionee.

     9.   Rights as Shareholder. Employee shall not be deemed to be a holder of
any shares pursuant to the exercise of this Option until payment of the option
price and a stock certificate is delivered to the Employee for those shares. No
adjustments shall be made for dividends or other rights for which the record
date is prior to the date this stock certificate is delivered.

     10.  Adjustments. The existence of this Option shall not affect any way the
right or power of the Corporation or its stockholders to make or authorize any
or all adjustments, recapitalization, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation or any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting the Common Stock or the rights thereto,
or the issuance of any securities convertible into any thereof or of any rights,
options, or warrants to purchase any thereof, or the dissolution or liquidation
of the Corporation, any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding of the Corporation, whether
of a similar character or otherwise.

          In the event of recapitalization, dissolution or other transaction in
which the Corporation is not the surviving or acquiring corporation, or in which
the Corporation is the surviving corporation, the terms and conditions of an
Option under this Agreement shall be subject to Section 6 of the Plan.

          10.1  The shares with respect to which this Option is granted are
     shares of the Common Stock of the Corporation as presently constituted; but
     if and whenever, prior to the delivery by the Corporation of all the shares
     of the stock with respect to which this Option is granted, the Employer
     shall effect a subdivision or consolidation of shares or other capital
     readjustment, the payment of a stock dividend, or other increase or
     reduction of the number

                                       6
<PAGE>

     of shares of the stock outstanding without receiving the compensation
     therefor in money, services, or property, the number of shares of stock
     then remaining subject to option hereunder shall (a) in the event of an
     increase in the number of outstanding shares, be proportionately increased,
     and the cash consideration payable per share shall be proportionately
     reduced; and (b) in the event of a reduction in the number of outstanding
     shares, be proportionately reduced, and the cash consideration payable per
     share shall be proportionately increased.

          10.2  In the event any of the following transactions (a "Corporate
     Transaction") occurs:

                (a) a merger or consolidation in which the Company is not the
          surviving entity, except for a transaction the principal purpose of
          which is the change of the state of the Company's incorporation;

                (b) the sale, transfer, or other disposition of all, or
          substantially, all, of the Company's assets, or

                (c) any reverse merger in which the Company is the surviving
          entity, but in which fifty percent (50%) or more of the Company's
          outstanding voting stock is transferred to holders different from
          those who held stock immediately prior to such merger, each
          outstanding option will, immediately prior to the effective date of
          the Corporate Transaction, become fully exercisable for all of the
          shares at the time subject to such option. No such acceleration will
          occur, however, if (i) the option is either to be assumed by the
          successor corporation or parent thereof or replaced by a comparable
          option to purchase shares of the capital stock of the successor
          corporation or parent thereof or (ii) the acceleration of the option
          is subject to other limitations imposed by the Committee at the time
          of grant. Upon the consummation of the Corporate Transaction, all
          outstanding options will terminate and cease to be exercisable, except
          to the extent assumed by the successor corporation.

     11.  Compliance with Income Tax Laws. The Employee authorizes the
Corporation to withhold in accordance with the applicable law from any
compensation payable to him or her any taxes required to be withheld by federal,
state or local laws as a result of the exercise of this Option. The Employee
agrees to notify the Corporation immediately in the event of any disqualifying
disposition (within the meaning of Section 422, or any successor thereto, of the
Code) of the shares

                                       7
<PAGE>

acquired pursuant to the exercise of this Option. In the event of any
determination that the Corporation has failed to withhold a sum sufficient to
pay all withholding taxes due in connection to the exercise of this Option, or a
disqualifying disposition of the shares acquired upon exercise of this Option,
the Employee agrees to pay the Corporation the amount of such deficiency in cash
within five (5) days after receiving a written demand from the Corporation to do
so, whether or not the Employee is an employee of the Corporation at that time.

     12.  Effect of the Plan. This Option has been granted pursuant to the Plan,
all of the provisions of which, modified to the extent herein specifically
provided, are by this reference incorporated herein. All determinations of the
Committee made in administering the Plan, shall as therein provided, be binding
on the Corporation and on Employee.

     13.  Representation by Employee. Employee acknowledges receipt of a copy of
the Plan, a copy of which is annexed hereto, and represents that he or she is
familiar with the terms and provisions thereof and hereby accepts this Option
subject to all of the terms and provisions thereof. Employee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board or Committee upon any questions arising under the Plan.

     14.  Agreement Voluntary and By Representation. In executing this Agreement
and all other documents or instruments required by this Agreement, the Parties
have not acted under any misapprehension, confusion or doubt as to the effect
thereof, and are acting freely and voluntarily and under no coercion or duress.
Each Party has had the right to secure the services of counsel of its own
choosing prior to the execution of this Agreement.

     15.  Amendments. The provisions of this Agreement may be amended only if
approved by the Parties. Any amendment of this Agreement will be in writing,
dated and executed by all of the Parties. If any conflict arises between the
provisions of any amendment and the Agreement as previously amended, the most
recent provisions will control.

     16.  Authority. The undersigned further represents that each Party has the
right, capacity, power and authority duly delegated by the Board of Directors,
partners, proprietors or principals or agents of each of the Parties to execute
the documents and perform all the acts as may be necessary or desirable under
this Agreement.

     17.  Compliance with Laws. Each Party hereto shall comply with the
requirements of all applicable laws, ordinances and regulations of the United
States or any state, country or other governmental entity. This section
incorporates by reference all provisions required by such laws,

                                       8
<PAGE>

orders, rules, regulations and ordinances. Each Party agrees to indemnify and
hold any other Party harmless from and against any and all claims, actions or
damages, including reasonable attorneys' fees, arising from or caused by any
Party's failure to comply with the foregoing.

     18.  Construction and Interpretation of Agreement. This Agreement has been
prepared jointly by the Parties who acknowledge that they are of equal
bargaining strength and the same shall not be construed for or against any Party
hereto. The language in all parts of this Agreement will be in all cases
construed simply according to its fair meaning and not strictly for or against
any Party. Whenever the context requires, all words used in the singular will be
construed to have been used in the plural, and vice versa, and each gender will
include any other gender. The captions of the sections of this Agreement are for
convenience only and will not affect the construction or interpretation of any
of the provisions herein.

     19.  Cooperation. Each Party agrees to cooperate in good faith with the
other, and to execute and deliver such further instruments, and perform such
other acts as may be reasonably necessary or appropriate to consummate and carry
into effect the transaction contemplated by this Agreement.

     20.  Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same instrument.

     21.  Covenants and Conditions. All of the provisions of this Agreement
shall be construed to be conditions as well as covenants as though the words
specifically expressing or imparting covenants and conditions were used in each
separate provision.

     22.  Entire Agreement. This Agreement contains the entire and complete
understanding between the Parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the Parties, whether oral or written, have been fully merged herein and are
superseded hereby.

     23.  Executed Copy. Any fully executed photocopy or similar reproduction of
this Agreement shall be deemed an original for all premises.

     24.  Force Majeure. Neither Party shall be deemed to be default of or to
have breached any provision of this Agreement, nor shall the Agreement
terminate, solely as a result of any delay, failure in performance or
interruption of service, resulting directly or indirectly from acts of God, acts
of civil or military authorities, civil disturbances, wars, strikes or other
labor disputes, fires,

                                       9
<PAGE>

transportation contingencies, laws, regulations, acts or orders of any
government, or agency or official thereof, other catastrophes or any similar
occurrences beyond the Parties' reasonable control.

     25.  Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California.

     26.  Limitation on Actions. Any claim, dispute, action or cause of action
for any breach of this Agreement, or any action or omission regarding the
objectives of this Agreement, must be brought and legal process or arbitration,
as the case may be, initiated within one year after the cause of action for such
claim first accrued or the breach first occurred, whichever is sooner.

     27.  No Third Party Beneficiary. Any agreement to pay any amount, and any
assumption of liability herein contained, expressly or impliedly, shall be only
for the benefit of the Parties to this Agreement and their respective successors
and assigns, and such agreements and assumptions shall not inure to the benefit
of the obligees of any indebtedness or any other Party, whomsoever, it being the
intention of the Parties that no one shall be deemed to be a third party
beneficiary of this Agreement.

     28.  Notices. Notice to the Secretary of the Corporation shall be deemed
given in writing when personally delivered or mailed by certified mail to the
Secretary of the Corporation at the then principal office of the corporation.

          All notices, requests, demands or other communication (collectively,
"Notice") given to any Party pursuant to this Agreement will not be effective
unless given in writing to the Parties at their respective addresses as set
forth under their respective signatures below. Notice will be deemed duly given
when delivered personally or by telegram, telex or courier, or, if mailed, 48
hours after deposit in the United States mail, certified mail, postage prepaid.
The addresses of the Parties for the purpose of providing Notice pursuant to
this section may be changed from time to time by Notice to the other party duly
given in the foregoing manner.

     29.  References. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month" or "year" will be deemed to be a reference
to a calendar day, month or year, as the case may be. Unless expressly set forth
otherwise herein, all cross-references herein will refer to provisions within
this Agreement, and will not be deemed to be references to the overall
transaction or to any other agreement or document.

                                      10

<PAGE>

     30.  Remedies. All rights, remedies, undertakings, obligations, options,
covenants, conditions and agreements contained in this Agreement will be
cumulative and no one of them will be exclusive of any other.

     31.  Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity will not affect the
validity of the remainder of this Agreement and, wherever possible, intent will
be given to the invalid or unenforceable provision.

     32.  Successors. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective and permitted successors,
assigns, heirs, executors, administrators, and personal representatives.

     IN WITNESS WHEREOF, the Corporation and Employee have duly executed this
Option Agreement on the date first above written.

                              EMPLOYEE:

                              -------------------------------------

                              CORPORATION:

                              LANTRONIX, a California corporation

                              By:
                                    -------------------------------
                                    FREDERICK G. THIEL
                              Its:  President

                                      11<PAGE>

                                                                    Exhibit 10.3

                                   LANTRONIX

                      1994 NONSTATUTORY STOCK OPTION PLAN

     1.   Definitions.

          1.1  Corporation. "Corporation" shall mean LANTRONIX, a California
corporation.

          1.2  Affiliate. "Affiliate" shall mean a corporation which is a parent
or subsidiary corporation of the Corporation or a corporation or a parent or a
subsidiary corporation of the Corporation or a corporation or a parent or a
subsidiary corporation of the company issuing or assuming the nonstatutory stock
options issued under this Plan (as defined below).

          1.3  Board of Directors. "Board of Directors" shall mean the board of
directors of the Corporation.

          1.4  Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.

          1.5  Common Stock. "Common Stock" shall mean the Corporation's no par
value common stock.

          1.6  Effective Date. "Effective Date" shall mean September 20, 1994,
the date upon which the Board of Directors originally adopted this Plan.

          1.7  Eligible Person. "Eligible Person" shall mean any part or full-
time employee of the Corporation, any officer or director, or an Affiliate or
any such other person as the Board of Directors may determine eligible from time
to time in its sole discretion.

          1.8  Optionee. "Optionee" shall mean an Eligible Person to whom an
option has been granted under the Plan.

          1.9  Plan. "Plan" shall mean the nonstatutory stock option plan set
forth in this document.

          1.10  Separation from Service. "Separation from Service" shall mean
any voluntary or involuntary termination of an Optionee's employment with the
Corporation or an Affiliate for any reason, including, without limitation,
disability or retirement, but shall not include termination of employment by
reason of an Optionee's death or by reason of his or her transfer from the
Corporation or Affiliate to the Corporation or an Affiliate.

                                      -1-
<PAGE>

     2.   Purpose.

     The purpose of this Plan is to promote the interests of the Corporation and
its shareholders by encouraging key employees, officers and directors of the
Corporation, and any Affiliates, to invest on reasonable terms in the
Corporation's Common Stock by means of "nonstatutory stock options." Such
investment could effectively increase the investors' proprietary interest in the
Corporation's business, at the same time increasing their personal interest in
its continued success and progress and encouraging affiliated investors to
continue their relationship with the Corporation. This plan may be known as the
LANTRONIX 1994 NONSTATUTORY STOCK OPTION PLAN.

     3.   Administration.

          3.1  General. This Plan shall be administered by the Board of
Directors which, subject to the terms and conditions of this Plan, shall have
the authority to determine, in its sole discretion, all questions arising under
this Plan, including, without limitation, the selection of the Optionees to whom
grants of options under this Plan shall be made, whether the terms and
conditions of each such grant, the time at which such grants will be made, the
number of shares to be optioned under such a grant, and all questions relating
to adjustments to be made pursuant to Section 6 of this Plan. The Board of
Directors shall also establish and carry out reasonable interpretations and
applications of this Plan and shall perform or cause to be performed such other
further acts as it may deem to be necessary, appropriate or convenient in the
efficient administration of this Plan. All determinations shall be by the
affirmative vote of a majority of the members of the Board of Directors. Subject
to the Corporation's bylaws, all decisions made by the Board of Directors in
selecting optionees, establishing the number of shares and terms applicable to
each option, and in construing the provisions of this Plan shall be final,
conclusive and binding on all persons, including the Corporation, shareholders
and Optionees.

          3.2  Modification of Plan. If the laws relating to nonqualified or
nonstatutory stock options are changed during the term of this Plan, the Board
of Directors shall have the power to alter this Plan to conform to such changes
in the law. The Board shall have such authority without the necessity of
obtaining further stockholder approval unless the changes require such approval.

                                      -2-
<PAGE>

     4.   Options.

          4.1  Eligibility. The Board of Directors may grant options under this
Plan to any person who is an Eligible Person.

          4.2  Number of Shares Subject to Options. The aggregate number of
shares of common stock which may be issued upon the exercise of nonstatutory
stock options granted under this Plan shall not exceed 25,000 shares; subject,
however, to the provisions of Section 6.0 of this Plan. The shares of common
stock issued upon the exercise of options under this Plan may be authorized but
unissued shares, shares issued and reacquired by the Corporation, or shares
bought on the market for the purpose of this Plan. In the event any options
shall, for any reason, terminate, expire or be surrendered without having been
exercised in full, the shares subject to such option (but not purchased
thereunder) shall again be available for options to be granted under this Plan.

          4.3  Terms and Conditions of Options. Any option granted under this
Plan shall be evidenced by an agreement executed by the Corporation and the
Employee, and shall contain such terms and be in such form as the Board of
Directors may from time to time approve subject to the following limitations and
conditions:

               4.3.1    Option Price. The option price per share of common stock
with respect to each stock option shall be determined, in good faith, by the
Board of Directors.

               4.3.2    Duration of Option. Each option shall expire on a date
to be fixed by the Board of Directors at the time the option is granted as
stated in the option agreement; provided, however, that such expiration date
shall not be more than ten (10) years from the date of the grant of the option,
subject to Sections 4.3.7 and 5.3.1

               4.3.3    No Rights Vested as Stockholders. Neither an Optionee
nor his or her successor shall have any of the rights of a stockholder of the
Corporation by reason of the grant of an option under this Plan until he or she
exercises such option and the optioned shares are actually issued.

               4.3.4    Exercise of Option. Each option shall be exercisable
over a period commencing on the date of the grant and ending upon the expiration
or termination of the option as stated in the option agreement; provided,
however, that the Board of Directors may by the provisions of any option
agreement, limit the number of shares purchasable thereunder in

                                      -3-
<PAGE>

any period of time during which the option is exercisable. Upon exercise of an
option, an Optionee shall have been an employee or a director of the Corporation
or an affiliate at all times during the period beginning on the date of the
granting of the Option and ending on the date three months before the date of
such exercise. This period of service requirement shall not apply in the event
that the exercise of the option is subsequent to the death or disability of the
Optionee. In the event of death or disability of the Optionee, the exercise of
the option shall be construed in accordance with Section 4.3.7 below.

          4.3.5    Payment Upon Exercise of Option. The Board of Directors
shall, in its sole discretion, determine the form and method of payment for
shares of common stock to be issued upon the exercise of an option granted under
this Plan including, without limitation, payment by means of the Optionee's
unsecured promissory note or the payment with shares of the Corporation;
provided, however, that the form and method so selected shall conform to the
requirements of state and federal law and to any rules or regulations
promulgated thereunder.

          4.3.6    Nontransferability of Options. No option granted under this
Plan shall be transferable or assignable by an Optionee other than by will or
the laws of descent and distribution. Each option shall be exercisable only
during the Optionee's lifetime, by Optionee. No option shall be pledged or
hypothecated in any way and no option shall be subject to execution, attachment
or similar process except with the express written consent of the Board of
Directors.

          4.3.7    Death or Disability of Optionee. If an Optionee dies or is
permanently disabled while in the employ of the Corporation or an Affiliate, the
number of shares purchasable by his or her successor, trustee, conservator, or
estate, as the case may be, under any option held by the Optionee shall be
limited to the number of shares which were purchasable by the Optionee at the
date of his or her death or disability. The Optionee, his or her successor,
trustee, conservator or estate are no longer able to participate in future
acquisition of previously promised options.  Nevertheless, the vested option
privileges at the date of death or disability shall not expire unless exercised
by the Optionee's successor, trustee, conservator or estate per their original
terms, but in no event later than the expiration date specified in the option
agreement.

                                      -4-
<PAGE>

     5.   Amendment, Suspension or Termination.

          5.1  General. The Board of Directors may from time to time suspend or
terminate this Plan or may amend it from time to time in such respects as the
Board of Directors may deem advisable; provided, however, that without the
approval of the stockholders of the Corporation, no such amendment shall (i)
increase the maximum number of shares for which options may be granted under
this Plan except as otherwise provided in Section 6.0; (ii) change the manner of
determining the purchase price of shares with respect to which an option is
granted except as otherwise provided in Section 6 3(b); (iii) change the ten
(10)-year maximum life of options specified in Section 4.3.2; (iv) change the
expiration date of this Plan; (v) change the designation of Eligible Person; or
(vi) in any manner materially increase the benefits accruing to participants
under this Plan.

          5.2  Effect of Amendments, Suspension or Termination on Existing
Options. No amendment, suspension or termination of this Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations of the
Corporation or the Optionee with respect to any option theretofore granted to
such Optionee.

          5.3  Automatic Termination of Plan. Unless the Board of Directors
terminate this Plan as herein provided prior thereto, this Plan will
automatically terminate exactly ten (10) years from the effective date of this
agreement as provided in Section 1.6 herein. Further, if the stockholders of the
Corporation do not approve this Plan prior to ten (10) years from the effective
date of this agreement as provided in Section 1.6 herein, this Plan will
terminate and be of no force or effect.

               5.3.1    Separation from Service. Upon an Optionee's Separation
from Service, the number of shares purchasable by him or her under any option
held by him or her shall be limited to the number of shares which were
immediately purchasable by him or her at the date of such Separation from
Service, and such option privileges shall expire unless exercised by him or her
within three months after the date of such Separation from Service; provided,
however, if the Optionee's employment is terminated as a result of the
Optionee's disability (within the meaning of the Code Section 22(e)(3) after he
or she shall continue to have been employed by the Corporation for one year from
the date of grant of this option), he or she

                                      -5-
<PAGE>

terms, or as otherwise provided in the option agreement upon disability, but in
no event later than the expiration date specified in the option agreement.

     6.   Adjustments.

          6.1  Recapitalizations. In the event that the outstanding shares of
common stock are, at any time after the Effective Date increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation or an Affiliate by reason of a recapitalization,
reclassification, stock split-up, combination of shares or dividend or other
distribution payable in capital stock, appropriate adjustment shall be made by
the Board of Directors in the number, price and kind of shares for the purchase
of which options may be granted under this Plan. In addition, the Board of
Directors shall make appropriate adjustment in the number, price and kind of
shares as to which outstanding options, or portions thereof then unexercised,
shall be exercisable, to the end that the proportionate interest of the holder
of the option shall be maintained as before the occurrence of such events. Such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of the option and with a
corresponding adjustment in the option price per share.

          6.2  Dissolution. In the event of the dissolution or liquidation of
the Corporation, any option granted under this Plan shall terminate as of a date
to be fixed by the Board of Directors provided that not less than 30 days'
written notice of the date so fixed shall be given to each Optionee and that
each such Optionee shall have the right during such period to exercise his or
her option as to all or any part of the shares covered thereby, including shares
as to which such option would not otherwise be exercisable by reason of
restrictions in the option agreement with him or her relative to the time at
which the option or any part thereof may be exercised.

          6.3  Other Transactions. In the event any of the following
transactions (a "Corporate Transaction") occurs:

               (a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is the
change of the Company's state of incorporation;

                                      -6-
<PAGE>

               (b) the sale, transfer or other disposition of all, or
substantially all, of the Company's assets, or

               (c) any reverse merger in which the Company is the surviving
entity, but in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to holders different from those who held stock
immediately prior to such merger. Each outstanding option will, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares at the time subject to such option. No such
acceleration will occur, however, if (i) the option is to be assumed by the
successor corporation or parent thereof and replaced by a comparable option to
purchase shares of the publicly traded capital stock of the successor
corporation or parent thereof or (ii) the acceleration of the option is subject
to other limitations imposed by the Board of Directors or its designated
Committee at the time of grant. Upon the consummation of the Corporate
Transaction all outstanding options will terminate and cease to be exercisable,
except to the extent assumed by the successor corporation.

          6.4  Substitute Options. If the Corporation at any time shall succeed
to the business of another corporation through a merger or consolidation, or
through the acquisition of stock or assets of such corporation, options may be
granted under this Plan to those Optionees of such corporation or its
subsidiaries who, in connection with such succession, become employees of the
Corporation or its subsidiaries, in substitution for options to purchase stock
of such corporation held by them at the time of the succession. The Board of
Directors shall, in its sole and absolute discretion, determine the extent to
which such substitute options shall be granted (if at all), the persons to
receive such substitute options (who need not be all optionees of such
corporation), the number of options to be received by each such person, the
option price of such option (which may be determined without regard to Section
4.3.1) and the terms and conditions of such substitute options; provided,
-----
however, that the option price of each such substituted option shall be an
amount such that, in the sole and absolute judgment of the Board of Directors,
the economic benefit provided by such option is not greater than the economic
benefit represented by the option in the acquired corporation as of the date of
the corporation's acquisition of such corporation. Any option substituted for
another option in accordance with this Section 6.4 shall expire upon the earlier
                                               ---
of the expiration date of such other option or ten years

                                      -7-
<PAGE>

from the date such option is granted, and will be exercisable during the period
in which the other option would have been exercisable. However, the substituted
option exercisable period will be subject to the provisions of Section 4.3.7
regarding death or disability of the Optionee and Section 5.3.1 regarding
separation from service of the Optionee.

     7.   Miscellaneous.

          7.1  Restrictions on Issuing Shares. The Corporation's shares shall
not be issued pursuant to the exercise of an option granted under this plan
unless the transferability of the shares so issued and/or the actual issuance of
the shares comply with all relevant provisions of law, including, without
limitation, the (i) limitations, if any, imposed by the Commissioner of
Corporations of the State of California; (ii) restrictions, if any, imposed by
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Securities and
Exchange Commission thereunder; and (iii) requirements of any stock exchange
upon which the shares may then be listed. The Board of Directors shall, in its
sole discretion, determine if such restrictions or such issuance of shares so
complies with all relevant provisions of law.

          7.2  Withholding, Etc. Shares shall not be issued upon the exercise of
any option under this Plan unless and until any federal, state or local income
tax, withholding requirements, if any, or other withholding liabilities, if any,
imposed by any governmental entity have in the opinion of the Board of
Directors, been satisfied or provision for their satisfaction has been made.

          7.3  Other Restrictions. The Board of Directors may, in any option
agreement with an Optionee, or at the time shares are actually issued pursuant
to the exercise of an option, place such further restrictions on the
transferability of any shares of Common Stock to be issued to the Optionee upon
the exercise of the option as the Board of Directors may, in its sole
discretion, determine to be reasonable, appropriate or necessary.

          7.4  Use of Proceeds. The proceeds received by the Corporation from
the sale of common Stock pursuant to the exercise of options granted under this
Plan shall be added to the Corporation's general funds and used for general
corporate purposes.

                                      -8-
<PAGE>

          7.5  Nonstatutory Plan. This Plan is not designed to be in compliance
with any statutory provisions under IRC (S)422, et seq.
                                                ------

                                      -9-
<PAGE>

                                  EXHIBIT "C"

                        DESCRIPTION OF COMMON STOCK OF
                        ------------------------------

                                   LANTRONIX
                                   ---------

     The authorized Common Stock of Lantronix, a California corporation,
consists of 2,500,000 shares of Common Stock of which 250 are being offered by
this grant, and of which 626,269 are outstanding on the date of this grant. All
shares currently outstanding are, and the shares offered hereby when issued and
paid for in accordance With the Agreement to which this Exhibit "C" is attached
will be, fully paid and nonassessable, and are entitled to participate ratably
in any distribution of assets to stockholders in liquidation and in dividends as
may be declared by the Board of Directors out of funds legally available
therefore. Holders of Common Stock do not have redemption rights, conversion
rights or preemptive or other subscription rights. Holders of Common Stock have
cumulative voting rights. Each share of Common Stock has one vote on all matters
on which shareholders are entitled to vote, including the election of directors.
<PAGE>

                      NONSTATUTORY STOCK OPTION AGREEMENT

     THIS NONSTATUTORY STOCK OPTION AGREEMENT (this "Agreement") is entered into
as of_______, 19__, (the "Grant Date") by and between Lantronix, a California
corporation, (the "Company"), and________________________ ("Optionee")

                                    RECITALS
                                    --------

     A.  The Board of Directors of the Company (the "Board") has adopted a plan
to issue nonstatutory stock options of the Company, a copy of which is attached
hereto Exhibit "A" (the "Plan") for the purpose of attracting and retaining the
       -----------
services of selected officers, directors and employees of the Company and its
subsidiaries.

     B.  Optionee is a salaried employee or a director of the Company, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the grant by the Company of a nonstatutory stock
option to Optionee.

                                   AGREEMENT
                                   ---------

     1.  Grant of Option. Subject to and upon the terms and conditions set forth
         ---------------
in this Agreement and the Plan, a copy of which is attached hereto, and subject
to authorizations granted by all appropriate governmental and regulatory
agencies, the Company hereby grants to Optionee, as of the Grant Date, a
nonstatutory stock option to purchase up to_______shares (the "Shares") of the
common stock of the Company ("Common Stock") from time to time during the option
term at the option price of $_______per share.

     2.  Option Term. The specified term of this option shall be the period
         -----------
commencing on the Grant Date and, unless earlier terminated in accordance with
Paragraphs 5 or 7(a), terminating at 5:00 p.m., Pacific Standard time on_______
____,______ (the "Expiration Time"). Upon the expiration of the option term or
upon its earlier termination under paragraphs 5 or 7(a), this option shall cease
to be exercisable and shall have no further force or effect whatsoever.

     3.  Option Nontransferable; Exception. This option shall be neither
         ---------------------------------
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution and may be exercised during Optionee's lifetime only by
Optionee or his or her successor pursuant to Section 5(a) through (c). Optionee
shall use Optionee's best efforts to cause the officers of the Company to refuse
to record on the books of the Company any assignment or transfer made or
attempted to be made except as provided in this Agreement and in the Plan, and
to cause said

                                      -1-
<PAGE>

officers to refuse to cancel old certificates or to issue or to deliver new
certificates or the shares represented thereby, except strictly in accordance
with this Agreement and the Plan.

     4.  Exercisability. Except as otherwise provided by Paragraphs 5 and 7(a)
         --------------
hereof, this option shall be exercisable in accordance with the following
schedule:

         (a)  This option shall be exercisable immediately with respect to_____
Shares; and

         (b)  This option shall become exercisable with respect to an
additional Shares on________________, 19__.

         (c)   _______________________________________________________________
______________________________________________________________________________

         Exercisable installments may be exercised in whole or in part and to
the extent not exercised shall accumulate and be exercisable at any time on or
before the Expiration Time or earlier termination of the option term. In no
event, however, shall the Company be required to issue fractional shares.

     5.  Accelerated Termination of Option Term. The option term specified in
         --------------------------------------
Section 2 above may terminate prior to the Expiration Time should one of the
following provisions become applicable:

         (a) Should Optionee die while serving as a director or in the employ
of the Company, the executors or administrators of Optionee's estate or
Optionee's heirs or legatees (as the case may be) shall have the right to
exercise this option, but only with respect to that number of Shares (if any)
for which the option is exercisable on the date of Optionee's death, unless
otherwise expressly provided pursuant to the terms of such Optionee's employment
with the Company. As to a director of the Company such vested option privileges
shall not terminate nor cease to be exercisable until the expiration of the
option term designated in the terms of the option agreement Section 2 herein,
provided that in no event shall the option be exercisable after such Expiration
Time. As to an employee who is not a director or officer of the Company, such
vested option privileges shall terminate and cease to be exercisable upon the
expiration of one (1) year period commencing with the date the Optionee's death
or the Expiration Time, whichever occurs first.

                                      -2-
<PAGE>

         (b) If Optionee's directorship or employment is terminated due to
"disability" (as defined in Section 22(e)(4) of the Internal Revenue Code), the
successor, trustee or conservator, as the case may be, shall have the right to
exercise this option, but only with respect to that number of Shares (if any)
for which the option is exercisable on the date of Optionee's disability, unless
otherwise expressly provided pursuant to the terms of such Optionee's employment
with the Company. As to a director of the Company such vested option privileges
shall not terminate nor cease to be exercisable until the expiration of the
option term designated in the terms of the option agreement Section 2 herein,
provided that in no event shall the option be exercisable after such Expiration
Time. As to an employee who is not a director or officer of the Company, such
vested option privileges shall terminate and cease to be exercisable upon the
expiration of one (1) year period commencing with the date the Optionee's
disability or the Expiration Time, whichever occurs first.

         (c) Should Optionee cease to be an employee or a director of the
Company [other than for a reason set forth in Sections 5(a) and 5(b)] at any
time during the option term, then this option shall expire immediately and shall
not be exercisable by Optionee or Optionee's estate, heirs or legatees except
that the Board may elect (in its sole and absolute discretion) to allow Optionee
to exercise, within ninety (90) days after termination of Optionee's employment
or director term, all or a portion of the options which are exercisable on the
date Optionee's employment or directors term is terminated.

     6.  Adjustment in Shares. In the event of any change m the Common Stock
         --------------------
(whether by reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, stock split, stock dividend, combination of shares,
or any other change in corporate structure effected without receipt of
consideration), the Board shall make appropriate adjustments in the number and
kind of Shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that any Optionee's proportionate
ownership interest in the Company by reason of Optionee's rights under
unexercised portions of such options shall be maintained as before the
occurrence of such event. Such adjustment in outstanding options shall be made
without change in the total price of the unexercised portion of the option and
with a corresponding adjustment in the option price per share. If any adjustment
results in a fractional share being subject to an option, the Shares subject to
the option shall be rounded up to the nearest whole share. The adjustments
determined by the Board shall be final, binding and conclusive.

     7.  Acceleration and Termination of Option.
         --------------------------------------

         (a) In the event the Company or its shareholders enters into any
agreement to dispose of all or substantially all of the assets of the Company or
outstanding Common Stock by sale, exchange, merger, consolidation,
reorganization, dissolution, liquidation or any reverse merger in which the
Company is the surviving entity, but in which fifty percent (50%) or more

                                      -3-
<PAGE>

of the Company's outstanding voting stock is transferred to holders different
from those who held stock immediately prior to such merger, ("Accelerating
Event"), then the Board of Directors or its designated Committee shall give
notice that each option outstanding under the Plan shall become exercisable
during such period (which shall not be less than thirty (30) days prior to the
scheduled consummation of the Accelerating Event) with respect to the full
number of Shares subject to such option. Except as provided in the succeeding
sentence, the option shall terminate after the consummation of the Accelerating
Event and the expiration of the notice period. The acceleration of the exercise
date of an option shall occur but the termination of the option shall not occur
if such option is assumed by the successor corporation (or parent thereof) or is
replaced with a comparable substitute option to purchase shares of capital stock
of the successor corporation (or parent thereof). Determination of comparability
in the case of the replacement of an outstanding option hereunder with the
substitute option of the successor corporation (or parent thereof) shall be made
by the Board, and such determination shall be final, binding and conclusive. For
purposes of this paragraph 7(a), "substantially all" of the assets shall mean
not less than 90% of such assets then owned.

          (b) Any exercise of an option during the accelerated exercise period
determined under paragraph 7(a) shall be conditioned upon the consummation of
the Accelerating Event and shall be effective only immediately before such
consummation, provided that Optionee may indicate, in writing, that such
exercise is unconditional with respect to all or a part of the option then
exercisable without regard to the acceleration provisions of this paragraph 7.

          (c) In the event: (1) Optionee receives written notice of an offer to
all shareholders of the Company to purchase any and all shares of the Company
(or shares or other securities which shall be substituted for such shares or
into which such shares shall be adjusted as provided in Section 6 above) and for
a period of thirty (30) days thereafter, or (2) there is a sale of shares or
other change in ownership of the Company during any six-month period which
results in the owners of the Company's shares at the beginning of the period
owing less than 50 percent of the Company's shares at the end of the period, the
exercise date of all options outstanding under this Agreement shall accelerate
and Optionee may immediately exercise the option and purchase the Shares subject
thereto to the extent of any unexercised and/or unvested portion of such option.
Nothing in this paragraph 7(c) shall be deemed to accelerate the termination of
this option.

          (d) The grant of this option under this Agreement shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.

                                      -4-
<PAGE>

     8.  Manner of Exercising Option.
         ---------------------------

         (a) In order to exercise this option with respect to all or any part
of the Shares for which this option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death or disability), Optionee's executor,
administrator, heir or legatee, successor, trustee or conservator, as the case
may be, must take the following actions:

             (1) Provide the Secretary of the Company with written notice of
such exercise, specifying the number of Shares with respect to which the option
is being exercised;

             (2) Pay the option price in one or more of the following
alternative forms: (A) full payment, in cash or check payable to the order of
the Company, of the option price for the Shares being purchased; (B) full
payment in shares of Common Stock of the Company having a fair market value on
the Exercise Date (as such terms are defined below) equal to the option price
for the Shares being purchased; or (C) full payment by a combination of such
shares of Common Stock of the Company valued at fair market value (as determined
in paragraph 8(b)) on the Exercise Date and cash or check payable to the order
of the Company, equal in the aggregate to the option price for the Shares being
purchased. In the event the subject shares of Common Stock cannot be valued
under paragraph 9(b), then full payment shall be made only in cash or check
payable to the order of the Company. In lieu of payment by cash or check in this
paragraph 8(a), the Board shall have the authority, but not the obligation, to
authorize or recommend the extension of a loan from the Company, the payment of
the option price in installments or the Company's guarantee of a loan to
Optionee to assist with the payment of the option price in accordance with
section 4.3.5 of the Plan; and

             (3) Furnish to the Company appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the right
to exercise this option on behalf of and for Optionee.

          (b) For purposes of paragraph 8(a) hereof, the fair market value of a
share of Common Stock on the exercise date on the principal exchange on which
the Common Stock is then listed or admitted to trading, as such price is
officially reported by the composite tape of transactions on such exchange. If
there are no reported sales of Common Stock on the principal exchange on such
date, then the closing price on such exchange on the next preceding day for
which there do exist such reported sales shall be determinative of fair market
value. If the Common Stock is not limited or admitted to trading on any such
exchange, the fair market value of a share of Common Stock on any relevant date
shall be the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers, Inc.,
through NASDAQ, or a similar organization if NASDAQ is not longer reporting such
information. In the event the fair market value of said stock cannot be
determined under the foregoing, then said fair market value shall be determined
by the Board under any method

                                      -5-
<PAGE>

deemed by it to be appropriate. The exercise date shall be the date on which the
Company receives written notice of the exercise of this option together with
payment of the option price for the purchased Shares.

         (c) Not less than ten (10) Shares may be purchased at any one time
unless the number purchased is the total number which may be purchased under
this option. No fractional shares shall be issued, but fractional shares
remaining in any option shall be accumulated and carried over until expiration
of the option.

     9.  Successors and Assigns. Except to the extent otherwise provided in
         ----------------------
paragraph 7(a), and subject to paragraph 3 hereof, the provisions of this
Agreement shall inure to the benefit of, and be binding upon, the successors,
administrators, heirs, devisees, legal representatives and assigns of Optionee
and the successors and assigns of the Company.

     10.  Liability of Corporation. The inability of the Company to obtain
          ------------------------
approval from any regulatory body having authority deemed by the Company to be
necessary to the lawful issuance and sale of any Common Stock pursuant to this
option shall relieve the Company of any liability in respect of the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained.

     11.  No Employment Contract. Except to the extent the terms of any
          ----------------------
employment contract, independent contractor's agreement or director's agreement,
between the Company and Optionee may expressly provide otherwise, the Company
shall have the right to terminate or change the terms of employment of Optionee
at any time and for any reason whatsoever and any director may be removed at any
time as provided in the Bylaws of the Company.

     12.  Taxes and Withholding. Optionee hereby agrees to make appropriate
          ---------------------
arrangements with the Company which in the judgment of the Company is required
for satisfaction of any federal, state or local income tax withholding
requirements and federal social security and other employee tax requirements
applicable to the exercise of this option (if any) prior to the delivery of any
certificate for such Shares. To the extent permissible under applicable tax,
securities, and other laws, the Company may, in its sole discretion, permit
Optionee to satisfy tax withholding requirements by directing the Company to
apply Shares to which Optionee is entitled as a result of the exercise of an
option to satisfy such requirement

     13.  Construction. This Agreement and the option evidenced hereby are made
          ------------
and granted pursuant to the Plan and are in all respects limited by and subject
to the express terms and provisions of the Plan.

     14.  Governing Law. The interpretation, performance, and enforcement of
          -------------
this Agreement shall be governed by the laws of the State of California. Any
action or proceeding

                                      -6-
<PAGE>

brought in relation to the Plan, this Agreement or in any way related to the
Options or the Shares shall be resolved in Orange County, California.

     15.  Stockholder Rights. Optionee shall not have any rights of a
          ------------------
stockholder with respect to any Shares covered by this option unless such Shares
have been issued to Optionee by the Company pursuant to the valid exercise of
the option and the full payment by Optionee of the option price therefore.

     16.  Notices. All notices to the Company provided for in the Plan and this
          -------
Agreement shall be addressed to the President or Chief Financial Officer of the
Company at the principal office of the Company and all notices to Optionee shall
be addressed to Optionee at the address of Optionee on file with the Company, or
to such other address as either may designate to the other in writing. A notice
shall be deemed to be duly given three (3) days after such notice is enclosed in
a properly addressed sealed envelope deposited, postage prepaid, with the United
States Postal Service. In lieu of giving notice by mail as aforesaid, written
notices under this Agreement may be given by personal delivery to Optionee or to
the President or Chief Financial Officer of the Company.

     17.  Mandatory Notice of Disposition. If Optionee at any time contemplates
          -------------------------------
the disposition (whether by sale, gift, exchange, or other form of transfer) of
any Shares, Optionee shall first notify the Company in writing of such proposed
disposition and cooperate with the Company in complying with all applicable
requirements of law which, in the judgment of the Company, must be satisfied
prior to such disposition. In addition to the foregoing, Optionee hereby agrees
that if Optionee disposes (whether by sale, exchange, gift or otherwise) of any
of the Shares within two (2) years of the Grant Date or within one (1) year
after the issuance of such Shares to Optionee, then Optionee shall notify the
Company of such disposition in writing prior to the date of such disposition.
Said written notice shall state the date of such disposition, and the type and
amount of the consideration to be received for such Share or Shares by Optionee
in connection therewith.

     18.  Attorneys' Fees. If any arbitration, litigation, action, suit or other
          ---------------
proceeding is instituted to remedy, prevent or obtain relief from a breach of
this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, the prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual
costs of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.

                                      -7-
<PAGE>

by attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.

     19.  Warranties and Obligations of Optionee.
          --------------------------------------

          (a) Optionee represents, warrants and agrees that Optionee will
acquire and hold the Shares purchased on exercise of the option for Optionee's
own account and not with the view to the resale or distribution thereof, except
for resales or distributions in accordance with federal and state securities
laws, and that Optionee will not, at any time or times, directly or indirectly,
offer, sell, distribute, pledge, or otherwise grant a security interest in or
otherwise dispose of or transfer all, any portion of or any interest in, any
Shares purchased on exercise of the option (or solicit an offer to buy, take in
pledge or otherwise acquire or receive, all or any portion thereof), except
pursuant to either: (1) a Registration Statement on an appropriate form under
the Securities Act of 1933, as amended (the "Act"), which Registration Statement
has become effective and is current with respect to the Shares being offered or
sold, or (2) a specific exemption from the registration requirements of the Act,
the availability of which exemption shall be the subject matter of an opinion of
counsel for the Company that no registration under the Act is required with
respect to such offer, sale, distribution, pledge, grant or other disposition or
transfer.

          (b) Optionee acknowledges that Optionee understands that: (1) options
may not be exercised unless the Shares are the subject of an effective
registration statement under the Securities Act of 1933, as amended, or the
issue of such Shares is exempt from registration under the Act; (2) such Shares
must be held indefinitely unless they are so registered or an exemption from
registration becomes available under the Act and the securities laws of any
state; (3) the Company is under no obligation to register such Shares or to
comply with any exemption from such registration, including those portions of
Rule 144 under the Act to be complied with by the issuer; (4) if Rule 144 is
available for sales of such Shares, there is no assurance that Optionee will
ever be able to sell under Rule 144, and such sales in reliance upon Rule 144
may be made only after the Shares have been held for the requisite holding
period and then only in limited amounts in accordance with the conditions or
that Rule; and (5) Optionee must, therefore, continue to bear the economic risks
of the investment in such Shares for an indefinite period of time after the
exercise of the option.

          (c) Optionee acknowledges that Optionee has received and reviewed the
brief description of the Common Stock of the Company provided in Exhibit A
attached hereto. Optionee further acknowledges that Optionee has had the
opportunity to ask questions of, and receive answers from, the officers and
representatives of the Company concerning all material information concerning
the Company and the terms and conditions of the transactions in which Optionee
is acquiring the option and may subsequently acquire shares of the Common Stock.

                                      -8-
<PAGE>

Optionee further acknowledges that Optionee understands that the Company may use
the proceeds from the exercise of the option for general corporate purposes.

          (d) Optionee acknowledges that: (1) Optionee has a preexisting
personal or business relationship with the Company or with one or more of its
directors, officers or controlling persons, or (2) Optionee has the capacity to
protect Optionee's own interests in connection with the exercise of the option
by reason of Optionee's business or financial experience or the business or
financial experience of Optionee's professional advisors who are unaffiliated
with and who are not compensated by the Company or any affiliate or selling
agent of the Company, directly or indirectly. Optionee further acknowledges
that Optionee's financial circumstances permit Optionee to bear the economic
risks of Optionee's investment in such shares and to make such investment
without have a present intention or need to liquidate it.

          (e) Immediately prior to the exercise of all or any portion of the
option, Optionee shall deliver to the Company a signed statement, in a form
satisfactory to the Company, confirming that each of the representations,
warranties, acknowledgments and agreements contained in this Section 18 is true
as to Optionee as of the date of such exercise. Such statement will be
satisfactory to the Company if made in the form of Exhibit B attached hereto.

          (f) Optionee understands that all certificates representing Shares
transferred pursuant to this Agreement, unless made pursuant to an appropriate
Registration Statement under the Act, will bear the following restrictive
legend:

          "The shares represented by this certificate have not been
          registered under the Securities Act of 1933 and may not be
          transferred or hypothecated without prior registration under
          said Act or any exemption therefrom established to the
          satisfaction of the issuer."

          (g) If the legal counsel of the Company, at the request of the
Company, advises it that registration under the Act of the Shares deliverable
upon exercise of the option is required prior to delivery thereof, or that
listing of such Shares on any exchange is required prior to delivery thereof,
the Company shall not be required to issue or deliver such Shares unless and
until such legal counsel shall advise that such registration and/or listing has
been completed and is then effective, or is not required.

     20.  Modification, Extension and Renewal of Option. Subject to the terms
          ---------------------------------------------
and conditions and within the limitations of the Plan, the Board may modify,
extend or renew outstanding options granted under this Agreement, or accept the
surrender of outstanding options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefore (to the extent
not theretofore exercised). The Board may modify any outstanding options so as
to specify a lower price or accept the surrender of outstanding options and
authorize

                                      -9-
<PAGE>

the granting of new options in substitution therefore specifying a lower price.
Notwithstanding the foregoing, however, no modification, extension, renewal or
substitution of an option shall be allowed without the written consent of
Optionee.

     21.  Exclusion from Pension and Profit Sharing Computation. Optionee agrees
          -----------------------------------------------------
that the grant of any option and the exercise thereof are special incentive
compensation and that the options will not be taken into account as "salary" or
"compensation" or "bonus" in determining the amount of any payment under any
pension, retirement or other qualified employee benefit plan of the Company or
in determining the amount of coverage or amount payable under any life insurance
plan of the Company covering Optionee's life.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer and Optionee has also executed this
Agreement, all as of the day and year first above written.

                                    "CORPORATION"

                                    a California corporation

                                    By:
                                       _____________________________
                                         W. Brad Freeburg, President

                                    "OPTIONEE"

                                    --------------------------------

                                     -10-
<PAGE>

                                  EXHIBIT "A"

                        DESCRIPTION OF COMMON STOCK OF
                        ------------------------------

                                   LANTRONIX
                                   ---------

     The authorized Common Stock of Lantronix, a California corporation,
consists of____________shares of Common Stock of which________are being offered
by this grant, and of which______are outstanding on the date of this grant. All
shares currently outstanding are, and the shares offered hereby, when issued and
paid for in accordance with the Agreement to which this Exhibit "A" is attached
will be, fully paid and nonassessable, and are entitled to participate ratably
in any distribution of assets to stockholders in liquidation and in dividends as
may be declared by the Board of Directors out of funds legally available
therefore. Holders of Common Stock do not have redemption rights, conversion
rights or preemptive or other subscription rights. Holders of Common Stock have
cumulative voting rights. Each share of Common Stock has one vote on all matters
on which shareholders are entitled to vote, including the election of directors.

                                     -11-
<PAGE>

                                  EXHIBIT "B"

Gentlemen:

     I am the holder of an option ("Option") granted by Lantronix, a California
corporation (the "Corporation"), on___________, to purchase up to an aggregate
of______shares (subject to anti-dilution adjustments) of the Company's Common
Stock, pursuant to the terms of an Nonstatutory Stock Option Agreement dated
September 20, I hereby exercise my Option with respect to_____shares of Common
Stock subject to the Option at the price of $_________ per share as provided for
in the Agreement, and I present herewith funds payable to the order of the
Company in the amount of $____, or such other property of equivalent value as
permitted by said Agreement, which represents the full purchase price for the
number of shares purchased upon this exercise.

     I hereby represent and warrant that I am purchasing the foregoing share for
my own account and not with a view to the resale or distribution thereof except
for resales or distributions in accordance with federal and state securities
laws, and that I shall neither offer nor sell any or all of such shares except
pursuant to either: (1) a Registration Statement on an appropriate form under
the Securities Act of 1933 (the "Act"), which Registration Statement has become
effective and is current with respect to the shares being offered or sold, or
(2) a specific exemption from the registration requirements of the Act, the
availability of which exemption shall be the subject matter of an opinion of
counsel for the Company. I understand and agree that such shares must be held
indefinitely unless they are registered or an exemption for registration become
available under the Act and the securities laws of any state. I further
represent and warrant that I have received and reviewed a brief description of
the Common Stock of the Company. I acknowledge receipt from the Company of a
copy of its most recent annual report to stockholders, the definitive proxy
statement filed in connection with that report, its most recent annual report
filed with the Securities and Exchange Commission on Form 10-K (if any), if
requested and insofar as it is not included in such annual report to
stockholders, together with copies of all reports (if any) required to be filed
by the Company under Sections 13(a), 14(a), 14(c) and 15(d) of the Securities
Exchange Act of 1934 since the filing of such annual report referred to above. I
further represent and warrant that I have had the opportunity to ask questions
of, and to receive answers from, the officers and representatives of the Company
concerning all material information concerning the Company and the terms and
conditions of the transaction in which I am acquiring the shares of Common
Stock. I understand that the Company may use the proceeds from the exercise of
this Option for general corporate purposes.

                                     -11-
<PAGE>

     The certificates evidencing the shares purchased upon this exercise should
be registered in my name and delivered to me. I understand that such
certificates will bear a legend to the effect that the shares have not been
registered under the Act and may be offered for sate and sold or hypothecated
only upon the terms and conditions set forth in the preceding paragraph.

     I hereby represent and warrant that I have a pre-existing personal or
business relationship with the Company or with one or more of its officers,
directors or controlling persons, and that I am fully familiar with the
financial condition and business prospects of the Company; that I am fully
familiar with, and have had experience in, the industry in economic risks
involved in such industry and my investment therein; and that because of my
familiarity with the industry in general, and the Company in particular, I am
fully able to evaluate the merits on the investment I am making today. I further
represent and warrant that my financial circumstances permit me to bear the
economic risks of my investment in such shares and to make such investment
without having a present intention or need to liquidate it.

                                                       Very truly yours,

                                                       -------------------------
                                                                       OPTIONEE

                                  EXHIBIT "C"

                        DESCRIPTION OF COMMON STOCK OF
                        ------------------------------

                                   LANTRONIX
                                   ---------

     The authorized Common Stock of Lantronix, a California corporation,
consists of 2,500,000 shares of Common Stock of which 250 are being offered by
this grant, and of which 626,269 are outstanding on the date of this grant. All
shares currently outstanding are, and the shares offered hereby when issued and
paid for in accordance With the Agreement to which this Exhibit "C" is attached
will be, fully paid and nonassessable, and are entitled to participate ratably
in any distribution of assets to stockholders in liquidation and in dividends as
may be declared by the Board of Directors out of funds legally available
therefore. Holders of Common Stock do not have redemption rights, conversion
rights or preemptive or other subscription rights. Holders of Common Stock have
cumulative voting rights. Each share of Common Stock has one vote on all matters
on which shareholders are entitled to vote, including the election of directors.

                                     -12-

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