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                                                                    Exhibit 10.3


                              NEOWARE SYSTEMS, INC.
                           2004 EQUITY INCENTIVE PLAN

                         ANNUAL DIRECTOR GRANT AGREEMENT
                         -------------------------------

         Neoware Systems, Inc. (the "Company") hereby grants to _____________
(the "Optionee") an option (the "Option") to purchase a total of 7,500 shares of
the Company's Common Stock, at the price and on the terms set forth herein, and
in all respects subject to the terms and provisions of the Neoware Systems, Inc.
2004 Equity Incentive Plan (the "Plan") applicable to Automatic Grants for
Non-Employee Directors as described in Section 7 of the Plan, which terms and
provisions are incorporated by reference herein. Unless otherwise defined
herein, capitalized terms used but not defined herein shall have the meanings
given to them in the Plan.

         1. NATURE OF THE OPTION. The Option is intended to be a Non-Qualified
Stock Option and is NOT intended to be an incentive stock option within the
meaning of Section 422 of the Code.

         2. DATE OF GRANT. The Option is granted as of _________ __, 200_ (the
"Date of Grant").

         3. TERM OF OPTION. The Option shall have a term of ten years from the
Date of Grant and shall terminate at 5:00 p.m. on ____________ __, 200_ unless
it is terminated at an earlier date pursuant to the provisions of this Agreement
or the Plan.

         4. OPTION EXERCISE PRICE. The Option exercise price is $ ____ per
Share.

         5. EXERCISE OF OPTION.

                  5.1 EXERCISABILITY AND VESTING. Subject to Section 12 of the
Plan, the Option shall become vested and will become exercisable during its term
only in accordance with the terms and provisions of the Plan and this Grant
Agreement, over a period of one year, with the Option becoming exercisable with
respect to 50% of the shares subject to the Option on the six-month and one-year
anniversaries, respectively, of the Date of Grant, until the Option is
exercisable with respect to 100% of the shares; provided that vesting shall
cease upon the Optionee's termination of Service, except in the event of the
Optionee's retirement in accordance with Section 7.7.1 of the Plan.

                  5.2 METHOD OF EXERCISE. The Option shall be exercisable by
written notice from the Optionee to the Company setting forth the Optionee's
election to exercise the Option and the number of shares in respect of which the
Option is being exercised. Such notice shall be signed by the Optionee,
delivered to the Company in a manner consistent with Section 13.13 of the Plan,
and accompanied by payment of the exercise price. The Option will be deemed to
be exercised upon the receipt by the Company of such notice and payment of the
exercise price. The Optionee shall have no right to vote or receive dividends
and shall have no other rights as a stockholder with respect to the shares with



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respect to which the Option is exercised, notwithstanding the exercise of the
Option, until the issuance by the Company (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing the shares that are being issued
upon exercise of the Option. The Company will issue (or cause to be issued) such
stock certificates promptly following the exercise of the Option. The
certificate or certificates for the shares as to which the Option shall be
exercised shall be registered in the name of the Optionee and shall contain any
legend as may be required under the Plan and/or applicable law.

                  5.3 RESTRICTIONS ON EXERCISE. The Option may not be exercised
if the issuance of the shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of the Option, the Company may require the Optionee
to make any representations and warranties to the Company as may be required by
the Plan or any applicable law or regulation.

         6. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to the
Optionee any taxes required to be withheld by federal, state or local law as a
result of the grant or exercise of the Option or the sale or other disposition
of the shares issued upon exercise of the Option. If the amount of any
consideration payable to the Optionee is insufficient to pay such taxes or if no
consideration is payable to the Optionee, then upon the request of the Company,
the Optionee (or such other person entitled to exercise the Option) shall pay to
the Company an amount sufficient for the Company to satisfy any federal, state
or local tax withholding requirements the Company may incur as a result of the
grant or exercise of the Option or the sale or other disposition of the shares
issued upon the exercise of the Option. Unless otherwise determined by the
Board, the minimum required withholding obligation arising in connection with
the exercise of the Option may be settled with shares, including shares that
would otherwise be payable to the Optionee in connection with the exercise of
the Option.

         7. THE PLAN. This Grant Agreement is subject to, and the Company and
the Optionee agree to be bound by, all of the terms and conditions of the Plan
as it may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board is authorized to adopt rules and regulations not
inconsistent with the Plan as it shall deem appropriate and proper. A copy of
the Plan in its present form is attached hereto and a copy will be available for
inspection during business hours by the Optionee or the persons entitled to
exercise the Option at the Company's principal office.

         8. ENTIRE AGREEMENT. This Grant Agreement, together with the Plan,
represents the entire agreement between the parties.

         9. GOVERNING LAW. This Grant Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania without regard to any
conflicts of laws.

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         10. AMENDMENT. Subject to the provisions of the Plan, this Grant
Agreement may only be amended by a writing signed by the Company and the
Optionee.

                  IN WITNESS WHEREOF, this Award Agreement has been executed by
the parties on this [date].


                                        NEOWARE SYSTEMS, INC.

                                        By:
                                            -----------------------------------


                                        Name:
                                              ---------------------------------


                                        Title:
                                               --------------------------------






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                        CERTIFICATION AND ACKNOWLEDGMENT
                              OF STOCK OPTION GRANT
                                      UNDER
                     NEOWARE SYSTEMS, INC. 2004 EQUITY PLAN
                     --------------------------------------

The Optionee hereby acknowledges receipt of the Stock Option Grant Agreement
dated __________ __, 200_ ("Agreement"), and the Neoware Systems, Inc. 2004
Equity Plan ("Plan"), a copy of which is attached to the Agreement, and
certifies and represents that he or she has read and is familiar with the terms
and provisions of the Agreement and Plan, and hereby accepts the Option subject
to all of the terms and provisions of the Plan and Agreement. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board or the Committee concerning the Plan.


                                        Signature:
                                                   ----------------------------


                                        Name:
                                              ---------------------------------

Date: ________________

Please return this certification to _______________ within 10 days of receipt.


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