Document:

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                                                                   EXHIBIT 10.11

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                          LOAN AND SECURITY AGREEMENT

                                   LANTRONIX
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                               TABLE OF CONTENTS
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1    ACCOUNTING AND OTHER TERMS...............................................   4

2    LOAN AND TERMS OF PAYMENT................................................   4

     2.1   Credit Extensions..................................................   4
     2.2   Interest Rate, Payments............................................   5
     2.3   Fees...............................................................   5

3    CONDITIONS OF LOANS......................................................   5

     3.1   Conditions Precedent to Initial Credit Extension...................   5
     3.2   Conditions Precedent to All Credit Extensions......................   5

4    CREATION OF SECURITY INTEREST............................................   6

     4.1   Grant of Security Interest.........................................   8

5    REPRESENTATIONS AND WARRANTIES...........................................   8

     5.1   Due Organization and Authorization.................................   8
     5.2   Collateral.........................................................   8
     5.3   Litigation.........................................................   8
     5.4   No Material Adverse Change in Financial Statements.................   9
     5.5   Solvency...........................................................   10
     5.6   Regulatory Compliance..............................................   10
     5.7   Subsidiaries.......................................................   10
     5.8   Full Disclosure....................................................   10

6    AFFIRMATIVE COVENANTS....................................................   10

     6.1   Government Compliance..............................................   11
     6.2   Financial Statements, Reports, Certificates........................   12
     6.3   Inventory; Returns.................................................   12
     6.4   Taxes..............................................................   12
     6.5   Insurance..........................................................   12
     6.6   Primary Accounts...................................................   13
     6.7   Financial Covenants................................................   14
     6.8   Registration of Intellectual Property Rights.......................   14
     6.9   Further Assurances.................................................   14

7    NEGATIVE COVENANTS.......................................................   14

     7.1   Dispositions.......................................................   14
     7.2   Changes in Business, Ownership, Management or Business Locations...   15
     7.3   Mergers or Acquisitions............................................   16
     7.4   Indebtedness.......................................................   16
     7.5   Encumbrance........................................................   16
     7.6   Distributions; Investments.........................................   16
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                                     - 2 -
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                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<S>                                                                              <C>
      7.7   Transactions with Affiliates.......................................   16
      7.8   Subordinated Debt..................................................   16
      7.9   Compliance.........................................................   16

8     EVENTS OF DEFAULT........................................................   17

      8.1   Payment Default....................................................   18
      8.2   Covenant Default...................................................   18
      8.3   Material Adverse Change............................................   18
      8.4   Attachment.........................................................   18
      8.5   Insolvency.........................................................   18
      8.6   Other Agreements...................................................   19
      8.7   Judgments..........................................................   19
      8.8   Misrepresentations.................................................   20
      8.9   Guaranty...........................................................   20

9     BANK'S RIGHTS AND REMEDIES...............................................   20

      9.1   Rights and Remedies................................................   20
      9.2   Power of Attorney..................................................   21
      9.3   Accounts Collection................................................   22
      9.4   Bank Expenses......................................................   22
      9.5   Bank's Liability for Collateral....................................   22
      9.6   Remedies Cumulative................................................   22
      9.7   Demand Waiver......................................................   23

10    NOTICES..................................................................   23

11    CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER...............................   24

12    GENERAL PROVISIONS.......................................................   24

      12.1   Successors and Assigns............................................   24
      12.2   Indemnification...................................................   24
      12.3   Time of Essence...................................................   24
      12.4   Severability of Provision.........................................   24
      12.5   Amendments in Writing, Integration................................   25
      12.6   Counterparts......................................................   26
      12.7   Survival..........................................................   26
      12.8   Confidentiality...................................................   26
      12.9   Attorneys' Fees, Costs and Expenses...............................   26

13    DEFINITIONS..............................................................   26

      13.1   Definitions.......................................................   26
</TABLE>

                                      -3-
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     This LOAN AND SECURITY AGREEMENT dated December 3, 1999, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054, with a loan production office located at 38 Technology Drive,
Suite 150, Irvine, California 92618, and LANTRONIX ("Borrower"), whose address
is 15353 Barranca Parkway, lrvine, California 92612, provides the terms on which
Bank will lend to Borrower and Borrower will repay Bank.  The parties agree as
follows:

1    ACCOUNTING AND OTHER TERMS
     --------------------------

     Accounting terms not defined in this Agreement will be construed following
GAAP.  Calculations and determinations must be made following GAAP.  The term
"financial statements" includes the notes and schedules.  The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document.

2    LOAN AND TERMS OF PAYMENT
     -------------------------

2.1  Credit Extensions.

     Borrower will pay Bank the unpaid principal amount of all Credit Extensions
and interest on the unpaid principal amount of the Credit Extensions.

2.1.1  Revolving Advances.

       (a)  Bank will make Advances not exceeding (i) the Committed Revolving
Line, minus (ii) the Cash Management Services Sublimit, minus (iii) the amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit). Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement.

       (b)  To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.

       (c)  The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.

2.1.2  Letters of Credit Sublimit.

       Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the Committed Revolving Line minus (ii) the outstanding
principal balance of the Advances minus the

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Cash Management Sublimit; however, the face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) may not exceed
$1,000,000. Each Letter of Credit will have an expiry date of no later than 180
days after the Revolving Maturity Date, but Borrower's reimbursement obligation
will be secured by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is not extended by Bank.
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request.

2.1.3  Cash Management Services Sublimit.

     Borrower may use up to $1,000,000 for Bank's Cash Management Services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing services

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identified in various cash management services agreements related to such
services (the "Cash Management Services").  Such aggregate credit limit shall
reduce the amount otherwise available to be borrowed under the Committed
Revolving Line, by a factor of 1.25.  All amounts Bank pays for any Cash
Management Services will be treated as Advances under the Committed Revolving
Line.

2.2  Interest Rate, Payments.

     (a)  Interest Rate.  At Borrower's option, Advances accrue interest on the
outstanding principal balance at a per annum rate equal to the Prime Rate or the
LIBOR Rate plus 200 basis points per annum. Any prepayment of Advances that are
requested at the LIBOR Rate must include a Prepayment Fee. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360-day year
for the actual number of days elapsed.

     (b)  Payments.  Interest due on the Committed Revolving Line is payable on
the 2nd of each month. Bank may debit any of Borrower's deposit accounts
including Account Number __________________________ for principal and interest
payments owing or any amounts Borrower owes Bank. Bank will promptly notify
Borrower when it debits Borrower's accounts. These debits are not a set-off.
Payments received after 12:00 noon Pacific time are considered received at the
opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.

2.3  Fees.

     Borrower will pay:

(a)  Facility Fee.  A fully earned, non-refundable Facility Fee of $12,500 due
     on the Closing Date; and

(b)  Bank Expenses.  All Bank Expenses (including reasonable attorneys' fees and
     reasonable expenses) incurred through and after the date of this Agreement
     are payable when due.

3    CONDITIONS OF LOANS
     -------------------

3.1  Conditions Precedent to Initial Credit Extension.

     Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.

3.2  Conditions Precedent to All Credit Extensions.

     Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

     (a)  timely receipt of any Payment/Advance Form; and

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     (b)  the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

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4    CREATION OF SECURITY INTEREST
     -----------------------------

4.1  Grant of Security Interest.

     Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents.  Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral.  Bank may place a "hold" an any deposit account pledged as
Collateral.  If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.

5    REPRESENTATIONS AND WARRANTIES
     ------------------------------

     Borrower represents and warrants as follows:

5.1  Due Organization and Authorization.

     Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.

     The execution, delivery and performance of the Loan Documents have been
duty authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause reasonably be expected to cause a
Material Adverse Change.

5.2  Collateral.

     Borrower has good title to the Collateral, free of Liens except Permitted
Liens.  All inventory is in all material respects of good and marketable
quality, free from material defects.  Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business.  Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.

5.3  Litigation.

     Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers and legal
counsel, threatened by or against Borrower or any Subsidiary in which a likely
adverse decision could reasonably be expected to cause a Material Adverse
Change.

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5.4  No Material Adverse Change in Financial Statements.

     All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations.  There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

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5.5  Solvency.

     The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6  Regulatory Compliance.

     Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act.  Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors).  Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change.  None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally.  Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.

5.7  Subsidiaries.

     Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8  Full Disclosure.

     No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading.  It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.

6    AFFIRMATIVE COVENANTS
     ---------------------

     Borrower will do all of the following:

                                       10
<PAGE>

6.1  Government Compliance.

     Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower's business or operations.  Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.

                                       11
<PAGE>

6.2  Financial Statements, Reports, Certificates.

     (a)  Borrower will deliver to Bank:  (i) as soon as available, but no later
than 30 days after the last day of each quarter, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
reasonably acceptable to Bank; (iii) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or more; (iv)
budgets, sales projections, operating plans or other financial information Bank
reasonably requests; and (v) prompt notice of any material change in the
composition of the Intellectual Property, including any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not shown in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely affects the value of the Intellectual
Property.

     (b)  Within 30 days after the last day of each quarter, Borrower will
deliver to Bank with the quarterly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.
                                               ---------
     (c)  Bank has the right to audit Borrower's Collateral at Borrower's
expense only if an Event of Default has occurred and is continuing.

6.3  Inventory; Returns.

     Borrower will keep all inventory in good and marketable condition, free
from material defects.  Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement.  Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $50,000.

6.4  Taxes.

     Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

6.5  Insurance.

     Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank may reasonably request.  Insurance policies will be in a form,
with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion.  All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days'

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notice before canceling its policy. At Bank's request, Borrower will deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy will, at Bank's option, be payable to Bank on account
of the Obligations.

6.6  Primary Accounts.

     Borrower will maintain its primary depository and operating accounts with
Bank.

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6.7  Financial Covenants.

     Borrower will maintain as of the last day of each quarter:

           (i)    Quick Ratio. A ratio of Quick Assets to Current Liabilities of
at least 1.25 to 1.00.

           (ii)   Debt/Tangible Net Worth Ratio. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 1.00 to 1.00.

           (iii)  Profitability. Borrower will have a minimum net profit of $1
for each quarter.

           (iv)   Out of Debt Provision. Borrower agrees to maintain a zero
balance on the Committed Revolving Line for a period of at least thirty (30)
consecutive days during the term of this credit facility.

6.8  Registration of Intellectual Property Rights.

     Borrower will register with the United States Patent and Trademark Office
or the United States Copyright Office its Intellectual Property within 30 days
of the date of this Agreement, and additional Intellectual Property rights
developed or acquired including revisions or additions with any product before
the sale or licensing of the product to any third party.

     Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.

6.9  Further Assurances.

     Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.

7    NEGATIVE COVENANTS
     ------------------

     Borrower will not do any of the following without Bank's prior written
consent which will not be unreasonably withheld:

7.1  Dispositions.

     Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements

                                       14
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for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business; or (iii) of worn-out or obsolete Equipment.

7.2  Changes in Business, Ownership, Management or Business Locations.

     Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material chance in its ownership or management (other than the
sale of Borrower's equity securities in a public offering or to venture capital
investors approved by Bank) of greater than 25%.  Borrower will not, without at
least 30 days' prior written notice, relocate its chief executive office or add
any new offices or business locations.

                                       15
<PAGE>

7.3  Mergers or Acquisitions.

     Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) result in a decrease of more than 25% of Tangible Net Worth.
A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4  Indebtedness.

     Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5  Encumbrance.

     Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.

7.6  Distributions; Investments.

     Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so.  Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.

7.7  Transactions with Affiliates.

     Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.

7.8  Subordinated Debt.

     Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.

7.9  Compliance.

     Become an "investment company" or a company controlled by an "investment
company" under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or

                                       16
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Prohibited Transaction, as defined in ERISA, to occur, fall to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

8    EVENTS OF DEFAULT
     -----------------

     Any one of the following is an Event of Default:

                                       17
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8.1  Payment Default.

     If Borrower fails to pay any of the Obligations within 3 days after their
due date.  During the additional period the failure to cure the default is not
an Event of Default (but no Credit Extension will be made during the cure
period);

8.2  Covenant Default.

     If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default.  During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);

8.3  Material Adverse Change.

     (i)  If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral (other than normal depreciation) which is not covered by adequate
insurance or (ii) if the Bank determines, based upon information available to it
and in its reasonable judgment, that there is a reasonable likelihood that
Borrower will fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period.;

8.4  Attachment.

     If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice.  These are not Events of Default if stayed of if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5  Insolvency.

     If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

                                       18
<PAGE>

8.6  Other Agreements.

     If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any indebtedness exceeding
$100,000 or that could cause a Material Adverse Effect Change;

8.7  Judgments.

     If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgement is stayed or satisfied);

                                       19
<PAGE>

8.8  Misrepresentations.

     If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or

8.9  Guaranty.

     Any guaranty of any Obligations ceases for any reason to be in full force
or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.

9    BANK'S RIGHTS AND REMEDIES
     --------------------------

9.1  Rights and Remedies.

     When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

     (a)  Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);

     (b)  Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;

     (c)  Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;

     (d)  Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;

     (e)  Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;

     (f)  Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a non-
exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,

                                       20
<PAGE>

trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and

     (g)  Dispose of the Collateral according to the Code.

9.2  Power of Attorney.

     Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of

                                       21
<PAGE>

payment or security; (ii) sign Borrower's name an any invoice or bill of lading
for any Account or drafts against account debtors; (iii) make, settle, and
adjust all claims under Borrower's insurance policies; (iv) settle and adjust
disputes and claims about the Accounts directly with account debtors, for
amounts and on terms Bank determines reasonable; and (v) transfer the Collateral
into the name of Bank or a third party as the Code permits.  Bank may exercise
the power of attorney to sign Borrower's name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred.  Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.

9.3  Accounts Collection.

     When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account.  Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4  Bank Expenses.

     If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent.  Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral.  No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5  Bank's Liability for Collateral.

     If Bank complies with reasonable banking practices and Section 9-207 of the
Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss
or damage to the Collateral; (c) any diminution in the value of the Collateral;
or (d) any act of default of any carrier, warehouseman, bailee, or other person.
Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6  Remedies Cumulative.

     Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative.  Bank has all rights and remedies provided
under the Code, by law, or in equity.  Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver.  Bank's delay is not a waiver, election, or acquiescence.  No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

                                       22
<PAGE>

9.7  Demand Waiver.

     Borrower waives demand notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees held by Bank on which Borrower is liable.

10   NOTICES
     -------

     All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified

                                       23
<PAGE>

mail, postage prepaid, return receipt requested, or by telefacsimile to the
addresses set forth at the beginning of this Agreement.  A party may change its
notice address by giving the other party written notice.

11   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
     ------------------------------------------

     California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Orange County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12  GENERAL PROVISIONS
    ------------------
12.1 Successors and Assigns.

     This Agreement binds and is for the benefit of the successors and permitted
assigns of each party.  Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion.  Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.

12.2  Indemnification.

     Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys' fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3  Time of Essence.

     Time is of the essence for the performance of all obligations in this
Agreement.

12.4  Severability of Provision.

     Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.

                                       24
<PAGE>

12.5  Amendments in Writing, Integration.

     All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.

                                       25
<PAGE>

12.6 Counterparts.

     This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7  Survival.

     All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding.  The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.

12.8  Confidentiality.

     In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement.  Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.

12.9  Attorneys' Fees, Costs and Expenses.

     In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.

13  DEFINITIONS
    -----------

13.1  Definitions.

     In this Agreement:

     "Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

     "Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.

                                       26
<PAGE>

     "Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

     "Bank Expenses" are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

                                       27
<PAGE>

     "Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.

     "Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.

     "Cash Management Services" are defined in Section 2.1.3.

     "Closings Date" is the date of this Agreement.

     "Code" is the California Uniform Commercial Code.

     "Collateral" is the property described on Exhibit A.
                                               ---------

     "Committed Revolving Line" is an Advance of up to $6,000,000.

     "Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

     "Copyrights" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.

     "Credit Extension" is each Advance, Letter of Credit, or any other
extension of credit by Bank for Borrower's benefit.

     "Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.

     "Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by
---

                                       28
<PAGE>

giving Borrower notice.  Unless Bank agrees otherwise in writing, Eligible
Accounts will not include:

     (a)  Accounts that the account debtor has not paid within 90 days of
invoice date;

     (b)  Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of Invoice date;

     (c)  Credit balances over 90 days from invoice date;

     (d)  Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless the Bank approves in writing;

                                       29
<PAGE>

     (e)  Accounts for which the account debtor does not have its principal
place of business in the United States;

     (f)  Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;

     (g)  Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);

     (h)  Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, bill and
hold, or other terms if account debtor's payment may be conditional;

     (i)  Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;

     (j)  Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;

     (k)  Accounts for which Bank reasonably determines collection to be
doubtful.

     "Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

     "ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.

     "GAAP" is generally accepted accounting principles.

     "Guarantor" is any present or future guarantor of the Obligations,
including LANTRONIX INTERNATIONAL, INC. and LANTRONIX GMBH.

     "Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or service, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and (d)
Contingent Obligations.

     "Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

                                       30
<PAGE>

     "Intellectual Property" is:

     (a) Copyrights, Trademarks, Patents, and Mask Works, including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;

     (b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;

     (c) All design rights which may be available to Borrower now or later
created, acquired or held;

                                       31
<PAGE>

     (d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above:

     All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.

     "Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

     "Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

     "Letter of Credit" is defined in Section 2.1.2.

     "LIBOR Rate" is defined in Exhibit A-1 entitled "LIBOR Supplement to Loan
                                -----------
and Security Agreement".

     "Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest, or other encumbrance.

     "Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

     "Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.

     "Material Adverse Change" is defined in Section 8.3.

     "Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.

     "Patents" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

                                       32
<PAGE>

     "Permitted Indebtedness" is:

     (a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;

     (b) Indebtedness existing on the Closing Date and shown on the Schedule;

     (c)  Subordinated Debt;

     (d) Indebtedness to trade creditors incurred in the ordinary course of
business; and

     (e) Indebtedness secured by Permitted Liens.

                                       33
<PAGE>

     "Permitted Investments" are:

     (a) Investments shown on the Schedule and existing on the Closing Date; and

     (b) (i)  marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.

     "Permitted Liens" are:

     (a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;

     (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
                                                   --
any of Bank's security interests;

     (c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
                                          --
property and Improvements and the proceeds of the equipment;

     (d) Licenses or sublicenses granted in the ordinary course of Borrower's
business and any interest or title of a licensor or under any license or
sublicense, if the license and sublicenses permit granting Bank a security
            --
interest;

     (e) Leases or sublicenses granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;

     (f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
                                                            ---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

     "Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

     "Prepayment Fee" is a fee on any portion of the Obligations with a fixed
interest rate (the "Fixed Obligations") paid before the payment due date.  "Base
Interest Rate" means Bank's initial cost of funding the Fixed Obligations.  The
Prepayment Fee is calculated as follows:  First, Bank

                                       34
<PAGE>

determines a "Current Market Rate" based on what the Bank would receive if it
loaned the remaining amount on the prepayment date in a wholesale funding market
matching maturity, remaining principal and interest amounts and principal and
interest dates (the aggregate payments received are the "Current Market Rate
Amount"). Bank may select any wholesale funding market rate as the Current
Market Rate. Second, Bank will take the prepayment amount and calculate the
present value of each remaining principal and interest payment which, without
prepayment, the Bank would have received during the term of the Fixed
Obligations using the Base Interest Rate. The sum of the present value
calculations is the "Mark to Market Amount." Third, the Bank will subtract the
Mark to Market Amount from the Current Market Rate Amount. Any amount greater
than zero is the Prepayment Fee.

                                       35
<PAGE>

     "Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.

     "Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.

     "Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

     "Revolving Maturity Date" is December 2, 2000.

     "Schedule" is an attached schedule of exceptions.

     "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).

     "Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.

     "Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus (i) any amounts attributable to (a)
                              -----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
                      ---

     "Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

     "Trademarks" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.

BORROWER:

LANTRONIX

By: /s/ Fred Thiel
   ---------------

Title: President and CEO
      ------------------

                                       36
<PAGE>

BANK:

SILICON VALLEY BANK

By: /s/ Marla Johnson
   ------------------

Title: Vice President
      ---------------

                                       37
<PAGE>

                                   EXHIBIT A
                                   ---------

     The Collateral consists of all of Borrower's right, title and interest in
and to the following:

     All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

     All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents or title representing any of the above;

     All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, applications, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind;

     All now existing and hereafter arising accounts, contracts rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;

     All documents, cash, deposit accounts, securities entitlements, securities
accounts, investment property, financial assets, letters of credit, certificates
of deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's Books relating to the foregoing;

     All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and

     All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.

                                      -4-
<PAGE>

                                   EXHIBIT C
                            COMPLIANCE CERTIFICATE

     TO:   SILICON VALLEY BANK
           38 Technology Drive, Suite 150
           Irvine, CA 92618

     FROM: LANTRONIX

          The undersigned authorized officer of LANTRONIX ("Borrower") certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _________________ with all required covenants except as noted
below and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date.  Attached are the required
documents supporting the certification.  The Officer certifies that these are
prepared in accordance with Generally Accepted Accounting Principals (GAAP)
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The Officer acknowledges that no borrowing
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.

 Please indicate compliance status by circling Yes/No under "Complies" column.

<TABLE>
<CAPTION>

     Reporting Covenant                       Required                   Complies
     ------------------                       --------                   --------
<S>                                           <C>                        <C>  <C>

     Quarterly financial statements + CC      Quarterly within 30 days   Yes   No
     Annual (Audited)                         FYE within 120 days        Yes   No

     Financial Covenant                       Required     Actual        Complies
     ------------------                       --------     --------      --------

     Maintain on a Quarterly Basis:
     ------------------------------
     Minimum Quick Ratio                      1.25:1.00    ____:1.00     Yes   No
     Maximum Debt/Tangible Net Worth          1.00:1.00    ____:1.00     Yes   No
     Out of Debt Provision*                                              Yes   No

     Profitability:                           Quarterly    _________     Yes   No
</TABLE>

     *Borrower agrees to maintain a zero balance on the Committed Revolving Line
for a period of at least thirty (30) consecutive days during the term of this
credit facility.

     Comments Regarding Exceptions:  See Attached

                                       2
<PAGE>

     Sincerely,

     LANTRONIX

     ______________________________________

     Signature

     ______________________________________

     Title

     ______________________________________

     Date

                                       3<PAGE>
                                                                   EXHIBIT 10.12

--------------------------------------------------------------------------------
* Terms denoted with an asterisk have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
--------------------------------------------------------------------------------

                                                CONFIDENTIAL TREATMENT REQUESTED

                      RESEARCH AND DEVELOPMENT AGREEMENT

     This Agreement is entered into on 27-Feb-89 by and between LANTRONIX
("Client"), having its office at 26072 Merit Circle, Suite 113, Laguna Hills,
California 92653 and Gordian, a California Corporation ("Contractor"), having
its office at 3187 Redhill, Suite 150, Costa Mesa, California 92626.

                                   RECITALS

     The time period covered by this agreement is divided and defined in the
following manner:

     1.  Product Development:  Commences from the beginning of development of
         -------------------
the product and ends with sale of the first unit.

     2.  Support and Consultation:  Commences from sale of the first unit of the
         ------------------------
product being developed and ends with sale of the last piece (also called "sales
life of the product or product life").

     3.  Warranty:  Commences from the delivery to the Client of the first unit
         --------
of the product being developed and which is described in this agreement, and
ends ninety (90) days from that date.

     4.  Royalty:  Commences from receipt of payment from sale of the first unit
         -------
of the product being developed and ends with sale of the last piece (also called
"sales life of the product or product life").

                                   AGREEMENT

     In consideration of the mutual promises given, the parties agree as
follows:

Term of the Agreement

     This agreement shall be in effect from 27-Feb-89, which is the beginning
date of product development, and will terminate at the end of the sales life of
the product as defined in the recitals unless terminated sooner as specified
below.

Work and Services by Contractor

     Contractor will assist Client by providing work and services in developing
the product as set forth in Exhibit "A."

Responsibility of Client

     Client agrees to be responsible for providing the following elements as set
forth in Exhibit "B."
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED
Compensation

     As full compensation for the work and services provided by Contractor as
indicated on Exhibit "A," Client agrees to pay to Contractor as follows:

     Time and Materials.  Client agrees to pay for the time required on a "Man
day" basis at the billing rates on the schedule attached as Exhibit "C."  Client
also agrees to pay for costs of materials, parts, and outside expenses to
produce the product which may include prototype units.  Contractor will submit
an accounting on a monthly basis and Client agrees to pay the amount due to
Contractor for those services on or before the tenth (10th) day of the following
month.  These compensation terms apply to the product and development and
support and consultation periods as defined in the recitals.

                                      -2-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

Royalty Payments

     Royalty shall be paid as follows:

     * percent (*%) of net invoice price of each unit sold during the royalty
period or sales life of the product as defined in the recitals.

     Client agrees to make royalty payments on the first of each month until the
term of the royalty period ends as defined in the recitals.

Market Area Exclusivity and Retained Ownership

     In return for the royalty payments set forth above, Contractor agrees to
provide Client with ("Market Area Exclusive Use") whereby Contractor will not
develop a product for another party which will directly compete with a product
Contractor has developed for the Client unless Client gives written
authorization to Contractor to do so.  However, Contractor makes the distinction
between the product and the technology involved in the creation of the product,
and it is agreed between Client and Contractor that Contractor will retain
ownership of the technology involved.

Consulting Services

     Contractor will supply support and consultation services during the support
and consultation period as defined in the recitals at Contractor's normal
billing rate from schedules provided to Client.

Limited Warranty

     Contractor warrants that the product unit delivered to Client under this
agreement shall be free from defects in design, workmanship and materials under
normal use for a period of ninety (90) days after delivery of the product unit
to Client.  No other express warranty is given.

Warranty Disclaimer

     THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY.

Termination of the Agreement

     1.  This agreement shall terminate at the end of the Royalty period or
sales life of the product as defined in the recitals, unless otherwise specified
in this agreement.

     2.  This agreement may be terminated with thirty (30) days prior written
notice of termination by either Party with or without cause. However, if the
agreement is terminated by Client

                                      -3-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

after the sale of the first unit by the Client, then the royalty payment
agreement will not be terminated. In the event that Client sells no units after
terminating this contract with timely written notice, then the royalty payment
agreement is terminated.

     3.  This agreement shall terminate upon default or breach of the contract.

     4.  This agreement shall terminate in the event of failure to pay on due
date if the failure to pay is not remedied within thirty (30) days.

Restrictions on Use of Trade Secrets and Records

     During the term of this agreement, Client and Contractor may have access to
and become acquainted with various trade secrets, consisting of formulas,
patterns, devices, secret inventions,

                                      -4-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

     processing, and compilations of information, records, and specifications
owned by either Contractor or Client and regularly used in the operation of each
party's business.

     Contractor and Client agree that neither party shall misuse,
misappropriate, or disclose any of the trade secrets described in the above
paragraph, directly or indirectly, or use them in any way, either during the
term of this agreement or at any time thereafter, except as required in the
course of the agreement.

Entire Agreement, Modification, and Partial Invalidity

     This represents the entire agreement between the parties and any
modification shall be in writing and signed by both parties.  If any provision
in this agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, that part may be omitted but the rest of the contract
shall be given full force and effect.

Attorneys' Fees and Costs and Arbitration

     In the event of litigation over the agreement, the prevailing party will be
reimbursed its attorneys' fees and costs.

     Any controversy between the parties involving the construction or
application of any of the terms, covenants, or conditions of this agreement,
will by written request of one party served upon the other party be submitted to
arbitration utilizing the rules of the American Arbitration Association or the
services of an arbitrator mutually chosen by the parties.

Governing Law

     This agreement is to be governed by and interpreted in accordance with the
laws of California.

Assignments

     Neither this Agreement nor any duties or obligations under this agreement
may be assigned by either party without the prior written consent of the other
party.

LANTRONIX

By: /s/ Brad Freeburg               Dated:  August 13, 1989
    -----------------------                 -----------------------
    President

Gordian

                                      -5-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

By: /s/  Gregg Bone                 Dated:  13-Aug-89
    -----------------------                 -----------------------
    President

                                      -6-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

                                  EXHIBIT "A"

                        Work and Services by Contractor
                        -------------------------------

Design 8 channel RS-423 to IEEE 802.3/Ethernet terminal server for use in the
DEC LAT and Unix Telnet markets.

Produce schematics, assembly drawings, fab drawings, PCB artwork, film, drilling
information, and specifications.

Build 10 prototypes.

Manage Case design and tooling.

Write manuals for unpacking, installation, uses, and troubleshooting.
Deliverable in source form (MacIntosh files) and as camera ready art.

Choose and interface to assembly house.  Technology transfer.  Manage first
production run.

                                      -7-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

                                  EXHIBIT "B"

                           Responsibility of Client
                           ------------------------

Translate manuals into other languages.

Set up distribution and inventory.  Place orders with assembler.

                                      -8-
<PAGE>

                                                CONFIDENTIAL TREATMENT REQUESTED

                                  EXHIBIT "C"

                            Gordian Rates Schedule
                            ----------------------
                                 May 20, 1988
<TABLE>
<CAPTION>
                        PROJECTS WITH ROYALTY CONTRACTS
<S>                                                <C>
Contract:  One Year or Longer...................   $* per person, per day.
Contract:  Six Months to One Year...............   $* per person, per day.
Purchase Order:  Short Term.....................   $* per person, per day.
                       (fewer than six months' duration)

                      PROJECTS WITHOUT ROYALTY CONTRACTS
Regardless of Duration..........................   $* per person, per day.

                        Rates Effective June 1st, 1988
                       Subject to change without notice.
</TABLE>

                                      -9-

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