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                                                                    EXHIBIT 10.4

                             COMMTOUCH SOFTWARE LTD.
                  1999 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

         1.       PURPOSE.

                  The purpose of this Plan is to offer Nonemployee Directors of
CommTouch Software Ltd. an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, by purchasing Ordinary
Shares of the Company. This Plan provides for the grant of Options to purchase
Shares. Options granted hereunder shall be "Nonstatutory Options," and shall not
include "incentive stock options" intended to qualify for treatment under
Sections 421 and 422 of the Internal Revenue Code of 1986, as amended.

         2.       DEFINITIONS.

                  As used herein, the following definitions shall apply:

                  (a) "ADMINISTRATOR" shall mean the entity, either the Board or
the committee of the Board, responsible for administering this Plan, as provided
in Section 3.

                  (b)  "AFFILIATE"  means a parent or subsidiary  corporation as
defined in Sections 424(e) and (f) of the Code.

                  (c) "ANNUAL OPTION" shall have the meaning set forth in
Section 6(b).

                  (d) "BOARD"  shall mean the Board of Directors of the Company,
as constituted from time to time.

                  (e) "CHANGE IN CONTROL" shall mean the occurrence of any one
of the following:

                           (i) any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company, an Affiliate, or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;

                           (ii) the election of any director of the Company who
was not a candidate proposed by a majority of the Board in office prior to the
time of such election; or

                           (iii) the dissolution or liquidation (partial or
total) of the Company or a sale of assets involving 50% or more of the assets of
the Company, or any merger or reorganization of the Company, whether or not
another entity is the survivor, or other transaction



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pursuant to which the holders, as a group, of all of the shares of the Company
outstanding prior to the transaction hold, as a group, less than 50% of the
shares of the Company outstanding after the transaction.

                  (f) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.

                  (g) "COMPANY" shall mean CommTouch Software Ltd., an Israeli
corporation.

                  (h) "DISABILITY" means permanent and total disability as
determined by the Administrator in accordance with the standards set forth in
Section 22(e)(3) of the Code.

                  (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute.

                  (j) "EXPIRATION DATE" shall mean the last day of the term of
an Option established under Section 6(e).

                  (k) "FAIR MARKET VALUE" means as of any given date (a) the
closing price of the Ordinary Shares as reported by the Nasdaq National Market;
(b) if the Ordinary Shares are no longer quoted on the Nasdaq National Market
but are listed on an established stock exchange or quoted on any other
established interdealer quotation system, the closing price for the Ordinary
Shares on such exchange or system, as reported in the Wall Street Journal; or
(c) if the Ordinary Shares are not traded on an exchange or quoted on the Nasdaq
National Market or a successor quotation system, the fair market value of an
Ordinary Share as determined by the Board in good faith. Such determination
shall be conclusive and binding on all persons.

                  (l) "INITIAL OPTION" shall have the meaning set forth in
Section 6(a).

                  (m) "NONEMPLOYEE DIRECTOR" shall mean any person who is a
member of the Board but is not an employee of the Company or any Affiliate of
the Company and has not been an employee of the Company or any Affiliate of the
Company at any time during the preceding 12 months. Service as a director does
not in itself constitute employment for purposes of this definition.

                  (n) "OPTION" shall mean a stock option granted pursuant to
this Plan. Each Option shall be a nonstatutory option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

                  (o) "OPTION AGREEMENT" shall mean the written agreement
described in Section 6 evidencing the grant of an Option to a Nonemployee
Director and containing the terms, conditions and restrictions pertaining to
such Option.

                  (p) "OPTIONEE" shall mean a Nonemployee Director who holds an
Option.



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                  (q) "ORDINARY SHARES" shall mean the Ordinary Shares of the
Company.

                  (r) "PLAN" shall mean this CommTouch Software Ltd. 1999
Nonemployee Directors Stock Option Plan, as it may be amended from time to time.

                  (s) "SECTION" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.

                  (t) "SHARES" shall mean the Ordinary Shares subject to an
Option granted under this Plan.

                  (u) "TAX DATE" means the date defined in Section 7(c).

                  (v) "TERMINATION" means, for purposes of the Plan, with
respect to an Optionee, that the Optionee has ceased to be, for any reason, a
director of the Company.

         3.       ADMINISTRATION.

                  (a) ADMINISTRATOR. The Plan shall be administered by the Board
or, upon delegation by the Board, by a committee consisting of not fewer than
two non-employee directors (as such term is defined in Rule 16b-3(b)(3)(i) of
the Exchange Act) (in either case, the "Administrator"). The Administrator shall
have no authority, discretion or power to select the Nonemployee Directors who
will receive Options hereunder or to set the number of shares to be covered by
each Option granted hereunder, the exercise price of such Option, the timing of
the grant of such Option or the period within which such Option may be
exercised; provided, however, that the Administrator shall have the discretion
to change the exercise price of an outstanding option granted under the Plan or
to issue new options under the Plan with a lower exercise price in exchange for
outstanding options granted under the Plan in connection with a general
repricing by the Company of outstanding options. In connection with the
administration of the Plan, the Administrator shall have the powers possessed by
the Board. The Administrator may act only by a majority of its members. The
Administrator may delegate administrative duties to such employees of the
Company as it deems proper, so long as such delegation is not otherwise
prohibited by Rule 16b-3 under the Exchange Act. The Board at any time may
terminate the authority delegated to any committee of the Board pursuant to this
Section 3(a) and revest in the Board the administration of the Plan.

                  (b) ADMINISTRATOR DETERMINATIONS BINDING. Subject to the
limitations set forth in Section 3(a), the Administrator may adopt, alter and
repeal administrative rules, guidelines and practices governing the Plan as it
from time to time shall deem advisable, may interpret the terms and provisions
of the Plan, any Option and any Option Agreement and may otherwise supervise the
administration of the Plan. All decisions made by the Administrator under the
Plan shall be binding on all persons, including the Company and Optionees. No
member of the Administrator shall be liable for any action that he or she has in
good faith taken or failed to take with respect to this Plan or any Option.



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         4.       ELIGIBILITY.

                  Only Nonemployee Directors may receive Options under this
Plan.

         5.       SHARES SUBJECT TO PLAN.

                  (a) AGGREGATE NUMBER. Subject to Section 9, the total number
of Ordinary Shares reserved and available for issuance pursuant to Options under
this Plan shall be 250,000 shares. Such shares may consist, in whole or in part,
of authorized and unissued shares or shares reacquired in private transactions
or open market purchases, but all shares issued under the Plan regardless of
source shall be counted against the 250,000 share limitation. If any Option
terminates or expires without being exercised in full, the shares issuable under
such Option shall again be available for issuance in connection with other
Options. If Ordinary Shares issued pursuant to an Option are repurchased by the
Company, such Ordinary Shares shall not again be available for issuance in
connection with Options. To the extent the number of Ordinary Shares issued
pursuant to an Option is reduced to satisfy withholding tax obligations, the
number of shares withheld to satisfy the withholding tax obligations shall not
be available for later grant under the Plan.

                  (b) NO RIGHTS AS A SHAREHOLDER. An Optionee shall have no
rights as a shareholder with respect to any Shares covered by his or her Option
until an electronic transfer (as evidenced by the appropriate entry on the books
of the Company or its duly authorized transfer agent) of such Shares is
effected. Subject to Section 9, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to the date
the certificate is issued.

         6.       GRANT OF OPTIONS.

                  (a) MANDATORY INITIAL OPTION GRANTS. Subject to the terms and
conditions of this Plan, if any person who is not, and has not been in the
preceding 12 months, an officer or employee of the Company and who has not
previously been a member of the Board is elected or appointed a member of the
Board, then on the effective date of such appointment or election the Company
shall grant to such new Nonemployee Director an Option to purchase 10,000 shares
at an exercise price equal to the Fair Market Value of such Shares on the date
of such option grant. Any Option granted pursuant to this Section 6(a) shall be
referred to as an "Initial Option."

                  (b) MANDATORY ANNUAL OPTION GRANTS. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following the annual meeting of shareholders of the Company (even if
held on the same day as the meeting of shareholders) commencing in 1999, the
Company shall grant to each Nonemployee Director then in office (other than a
Nonemployee Director who received a grant under Section 6(a) on or after the
record date for such annual meeting) an Option to purchase 10,000 shares at an
exercise price equal to the Fair Market Value of such shares on the date of such
option grant; provided, however, the grant date for grants made in connection
with the annual shareholders meeting in



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1999 shall be deemed to be the first business day on which price quotations for
the Company's Ordinary Shares are available on the Nasdaq National Market and
the Fair Market Value of the Ordinary Shares on such date shall be deemed to be
the price at which Ordinary Shares were offered to the public on that day. Any
Option granted pursuant to this Section 6(b) shall be referred to as an "Annual
Option."

                  (c) VESTING OF INITIAL OPTION AND ANNUAL OPTION. Each Option
granted under Section 6(a) or 6(b) shall become exercisable with respect to one
fourth of the number of Shares covered by such Option three months after the
date of grant and with respect to one third of the remaining shares subject to
the Option every three months thereafter, so that the Option shall be fully
exercisable on the first anniversary of the date such Option was granted.

                  (d) TERM. Subject to the other provisions of this Plan, each
Option granted pursuant to this Plan shall have a term of ten years.

                  (e) LIMITATION ON OTHER GRANTS. The Administrator shall have
no discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).

                  (f) OPTION AGREEMENT. As soon as practicable after the grant
of an Option, the Optionee and the Company shall enter into a written Option
Agreement which specifies the date of grant, the number of Shares, the option
price, and the other terms and conditions applicable to the Option.

                  (g) TRANSFERABILITY. No Option shall be transferable except
that (I) an Option may be distributed by will or the laws of descent and
distribution; or (ii) Optionee may transfer or assign an Option to (a) any
family member or trust for the benefit of Optionee or a family member of
Optionee, or (b) any entity which is an investor in the Company and of which
Optionee is a general or limited partner or a member of senior management. The
terms of this Plan shall be binding upon the executors, administrators, heirs,
successors, assigns and transferees of the Optionee.

                  (h) LIMITS ON EXERCISE. Subject to the other provisions of
this Plan, an Option shall be exercisable in such amounts as are specified in
the Option Agreement.

                  (i) EXERCISE PROCEDURES. To the extent the right to purchase
Shares has accrued, Options may be exercised, in whole or in part, from time to
time, by written notice from the Optionee to the Company stating the number of
Shares being purchased, accompanied by payment of the exercise price for the
Shares, and other applicable amounts, as provided in Section 7.

                  (j) TERMINATION. In the event of Termination, Options held at
the date of Termination, to the extent then exercisable, may be exercised in
whole or in part at any time within three months after the date of Termination,
(but in no event after the Expiration Date), but not thereafter. Notwithstanding
the foregoing, if Termination is due to death or Disability, Options held at the
date of Termination, to the extent then exercisable, may be exercised in



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whole or in part at any time within two years from the date of Termination (but
in no event after the Expiration Date) by the Optionee or by the Optionee's
guardian or legal representative in the case of Disability or in the case of
death, by the person to whom the Option is transferred by will or the laws of
descent and distribution.

         7.       PAYMENT AND TAXES UPON EXERCISE OF OPTIONS.

                  (a) PURCHASE PRICE. The purchase price of Shares issued under
this Plan shall be paid in full at the time an Option is exercised.

                  (b) DELIVERY OF PURCHASE PRICE. Optionees may make all or any
portion of any payment due to the Company upon exercise of an Option or with
respect to federal, state, local or foreign tax payable in connection with the
exercise of an Option, by delivery of cash or check. Exercise of an Option may
be made pursuant to a "cashless exercise/sale" procedure pursuant to which funds
to pay for exercise of the Option are delivered to the Company by a broker upon
receipt of stock from the Company, or pursuant to which Optionees obtain margin
loans from brokers to fund the exercise of the Option.

                  (c) TAX WITHHOLDING. The Optionee shall pay to the Company in
cash, promptly upon exercise of an Option or, if later, the date that the amount
of such obligations becomes determinable (in either case, the "Tax Date"), all
applicable federal, state, local and foreign withholding taxes that the
Administrator, in its discretion, determines will result upon exercise of an
Option or from a transfer or other disposition of the Ordinary Shares acquired
upon exercise of an Option or otherwise related to an Option or the Ordinary
Shares acquired in connection with an Option.

                  A person who has exercised an Option may make an election to
have the Ordinary Shares to be obtained upon exercise of the Option withheld by
the Company on behalf of the Optionee, to pay the amount of tax that the
Administrator, in its discretion, determines to be required to be withheld by
the Company.

         Any Ordinary Shares tendered to or withheld by the Company will be
valued at Fair Market Value on such date. The value of the Ordinary Shares
tendered or withheld may not exceed the required federal, state, local and
foreign withholding tax obligations as computed by the Company.

         8.       USE OF PROCEEDS.

                  Proceeds from the exercise of Options pursuant to this Plan
shall be used for general corporate purposes.

         9.       ADJUSTMENT OF SHARES.

                  In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Ordinary Shares,



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appropriate adjustments shall be made by the Administrator in the aggregate
number and kind of shares of stock reserved for issuance under the Plan and in
the number, kind and exercise price of shares subject to outstanding Options;
provided, however, that the number of shares subject to any Option shall always
be a whole number.

         10.      EFFECT OF CHANGE IN CONTROL.

                  In the event of a "Change in Control," any Options outstanding
as of the date such Change in Control is determined to have occurred and not
then exercisable and vested shall become fully exercisable and vested.

         11.      NO RIGHT TO DIRECTORSHIP.

                  Neither this Plan nor any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of the
Optionee's membership on the Board or shall interfere in any way with provisions
in the Company's Memorandum of Association and Articles of Association relating
to the election, appointment, terms of office, and removal of members of the
Board.

         12.      LEGAL REQUIREMENTS.

                  The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and the
offer and sale of the Shares are otherwise in compliance with all applicable
securities laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to register
the securities covered by this Plan under the federal securities laws or take
any other steps as may be necessary to enable the securities covered by this
Plan to be offered and sold under federal or other securities laws. Upon
exercising all or any portion of an Option, an Optionee may be required to
furnish representations or undertakings deemed appropriate by the Company to
enable the offer and sale of the Shares or subsequent transfers of any interest
in the Shares to comply with applicable securities laws. Certificates or records
of electronic transfers evidencing Shares acquired upon exercise of Options
shall bear any legend required by, or useful for purposes of compliance with,
applicable securities laws, this Plan or the Option Agreements.

         13.      DURATION AND AMENDMENTS.

                  (a) DURATION. This Plan shall become effective upon the
closing of the Company's initial public offering, provided that it has been
adopted by the Board and approved by the shareholders of the Company, either by
written consent or by approval of shareholders voting at a validly called
shareholders' meeting. The Plan shall terminate automatically on the tenth
anniversary of its effective date.

                  (b) AMENDMENT AND TERMINATION. The Board may amend, alter or
discontinue the Plan or any Option, but no amendment, alteration or
discontinuance shall be



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made which would impair the rights of an Optionee under an outstanding Option
without the Optionee's consent. No amendment shall require shareholder approval
except (i) an increase in the total number of shares reserved for issuance under
the Plan, (ii) to the extent required by applicable laws, rules or regulations
or (iii) to the extent that the Board otherwise concludes that shareholder
approval is advisable.

                  (c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be
issued or sold under this Plan after the termination hereof, except upon
exercise of an Option granted before termination. Termination or amendment of
this Plan shall not affect any Shares previously issued and sold or any Option
previously granted under this Plan.

         14.      RULE 16b-3.

                  With respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with the applicable
conditions of Rule 16b-3 under the Exchange Act. To the extent any provision of
this Plan or action by the Administrator fails to so comply, it shall be
adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed
advisable by the Administrator. It shall be the responsibility of persons
subject to Section 16 of the Exchange Act, not of the Company or the
Administrator, to comply with the requirements of Section 16 of the Exchange
Act; and neither the Company nor the Administrator shall be liable if this Plan
or any transaction under this Plan fails to comply with the applicable
conditions of Rule 16b-3, or if any such person incurs any liability under
Section 16 of the Exchange Act.


Approved by the Board of Directors on April 18, 1999.

Approved by the Shareholders of the Company on June 8, 1999, to be effective on
         the date of the closing of the Company's initial public offering of its
         ordinary shares.

Amended by the Board of Directors on August 9, 1999.


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