Prepared by MERRILL CORPORATION




Exhibit 10.4  




  


 INTRAWARE, INC.  


1998 DIRECTOR OPTION PLAN

(as amended September 25, 2000)  


    1.  Purposes of the Plan.  The purposes of this 1998 Director Option Plan are to attract and retain the
best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board. 


    All
options granted hereunder shall be nonstatutory stock options. 


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



    (a) "Board" means the Board of Directors of the Company. 


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


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


    (d) "Company" means Intraware, Inc., a Delaware corporation. 


    (e) "Director" means a member of the Board. 


    (f)  "Disability" means total and permanent disability as defined in section 22(e)(3) of the Code. 


    (g) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary
of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. 


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


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



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


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


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




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






 


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


    (l)  "Optioned Stock" means the Common Stock subject to an Option. 


    (m) "Optionee" means a Director who holds an Option. 


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


    (o) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the
Code. 


    (p) "Plan" means this 1998 Director Option Plan. 


    (q) "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. 



    (r) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in
Section 424(f) of the Internal Revenue Code of 1986. 




    3.  Stock Subject to the Plan.  Subject to the provisions of Section 10 of the Plan, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is 350,000 Shares (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. 


    If
an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the
Plan. 


    4.  Administration and Grants of Options under the Plan.  



    (a)  Procedure for Grants.  All grants of Options to Outside Directors under this Plan shall be automatic
and nondiscretionary and shall be made strictly in accordance with the following provisions: 



     (i) No
person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. 


    (ii) Each
Outside Director shall be automatically granted an Option to purchase 15,000 Shares (the "First Option") on the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option. 


    (iii) Each
Outside Director shall be automatically granted an Option to purchase 7,500 Shares (a "Subsequent Option") on the date of the annual meeting of the
stockholders of each year provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. 


    (iv) Notwithstanding
the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained shareholder
approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof. 


    (v) The
terms of a First Option granted hereunder shall be as follows: 



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


    (B) the
First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. 





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


    (D) subject
to Section 10 hereof, the First Option shall become exercisable as to 12.5% of the Shares subject to the First Option on the six-month
anniversary of its date of grant, and as to 1/48 of the Shares subject to the First Option each month thereafter, provided that the Optionee continues to serve as a Director on such dates. 




    (vi) The
terms of a Subsequent Option granted hereunder shall be as follows: 



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


    (B) the
Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. 


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


    (D) subject
to Section 10 hereof, the Subsequent Option shall become exercisable as to 25% of the Shares subject to the Subsequent Option on the
six-month anniversary of its date of grant, and as to 1/24 of the Shares subject to the Subsequent Option each month thereafter, provided that the Optionee continues to serve as a Director
on such dates. 




   (vii) In
the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased
under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the
Plan or through cancellation or expiration of Options previously granted hereunder. 





    5.  Eligibility.  Options may be granted only to Outside Directors. All Options shall be automatically
granted in accordance with the terms set forth in Section 4 hereof. 


    The
Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way
with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 



    6.  Term of Plan.  The Plan shall become effective upon the earlier to occur of its adoption by the Board
or its approval by the shareholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan. 


    7.  Form of Consideration.  The consideration to be paid for the Shares to be issued upon exercise of an
Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have
been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or
(v) any combination of the foregoing methods of payment. 


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    8.  Exercise of Option.  



    (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option granted hereunder shall be exercisable
at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained. 


    An
Option may not be exercised for a fraction of a Share. 


    An
Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to
exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (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 such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. 



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


    (b)  Termination of Continuous Status as a Director.  Subject to Section 10 hereof, in the event
an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the
date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall terminate. 


    (c)  Disability of Optionee.  In the event Optionee's status as a Director terminates as a result of
Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the
date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 


    (d)  Death of Optionee.  In the event of an Optionee's death, the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate. 




    9.  Non-Transferability of Options.  The Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 


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    10.  Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.  



    (a)  Changes in Capitalization.  Subject to any required action by the shareholders of the Company, the
number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the
automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company after the
closing of the Company's first firmly underwritten public offering of its Common Stock; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. 


    (b)  Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company,
to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. 


    (c)  Merger or Asset Sale.  In the event of a merger of the Company with or into another corporation or
the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof
(the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the
Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above. 




    If
the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to
Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall terminate. 


    For
the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the
merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the
Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of
assets. 


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    11.  Amendment and Termination of the Plan.  



    (a)  Amendment and Termination.  The Board may at any time amend, alter, suspend, or discontinue the
Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required. 


    (b)  Effect of Amendment or Termination.  Any such amendment or termination of the Plan shall not affect
Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 




    12.  Time of Granting Options.  The date of grant of an Option shall, for all purposes, be the date
determined in accordance with Section 4 hereof. 


    13.  Conditions Upon Issuance of Shares.  Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with respect to such compliance. 



    As
a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law. 


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



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


    15.  Option Agreement.  Options shall be evidenced by written option agreements in such form as the Board
shall approve. 


    16.  Shareholder Approval.  The Plan shall be subject to approval by the shareholders of the Company
within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock
exchange rules. 


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INTRAWARE, INC.  


DIRECTOR OPTION AGREEMENT  


    Intraware, Inc., (the "Company"), has granted to              (the "Optionee"), an option to purchase a total of
[             (        )] shares of the Company's Common Stock (the "Optioned Stock"), at the price
determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 


    1.  Nature of the Option.  This Option is a nonstatutory option and is not intended to qualify for any
special tax benefits to the Optionee. 


    2.  Exercise Price.  The exercise price is $     for each share
of Common Stock. 


    3.  Exercise of Option.  This Option shall be exercisable during its term in accordance with the
provisions of Section 8 of the Plan as follows: 



    (a)  Right to Exercise.  



     (i) This
Option shall become exercisable in installments cumulatively with respect to              percent
(    %) of the Optioned Stock one year after the date of grant, and as to an additional              percent
(  %) of the Optioned Stock on each anniversary of the date of grant, so that one hundred percent (100%) of the Optioned Stock shall be exercisable
[  ] years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the
stockholders of the Company approve the Plan. 


    (ii) This
Option may not be exercised for a fraction of a share. 


    (iii) In
the event of Optionee's death, disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of
the Plan. 




    (b)  Method of Exercise.  This Option shall be exercisable by written notice which shall state the
election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 




    4.  Method of Payment.  Payment of the exercise price shall be by any of the following, or a combination
thereof, at the election of the Optionee: 



    (a) cash;



    (b) check;
or 


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


    (d) delivery
of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price. 




    5.  Restrictions on Exercise.  This Option may not be exercised if the issuance of such Shares upon such
exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not
comply with the requirements of any stock exchange upon which the Shares may then be listed. As a 


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condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 


    6.  Non-Transferability of Option.  This Option may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee. 


    7.  Term of Option.  This Option may not be exercised more than ten (10) years from the date of
grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option. 


    8.  Taxation Upon Exercise of Option.  Optionee understands that, upon exercise of this Option, he or she
will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital
gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the
date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss. 



	DATE OF GRANT:                         	 	 	 	 
	

 	
 	

INTRAWARE, INC.,

a Delaware corporation
	

 	
 	

By:	
 	

  






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



	Dated:
                                    	 	 
	

 	
 	

  
 Optionee




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EXHIBIT A

DIRECTOR OPTION EXERCISE NOTICE  


INTRAWARE, INC.

25 Orinda Way

Orinda, CA 94563 


Attention:
Corporate Secretary 


    1.  Exercise of Option.  The undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase              shares of the Common Stock (the "Shares") of Intraware, Inc. (the "Company") under and pursuant to the Company's 1998 Director Option
Plan and the Director Option Agreement dated              (the "Agreement"). 


    2.  Representations of Optionee.  Optionee acknowledges that Optionee has received, read and understood
the Agreement. 


    3.  Federal Restrictions on Transfer.  Optionee understands that the Shares must be held indefinitely
unless they are registered under the Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption from such registration is available, and that the certificate(s) representing the
Shares may bear a legend to that effect. Optionee understands that the Company is under no obligation to register the Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee. 


    4.  Tax Consequences.  Optionee understands that Optionee may suffer adverse tax consequences as a result
of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition
of the Shares and that Optionee is not relying on the Company for any tax advice. 


    5.  Delivery of Payment.  Optionee herewith delivers to the Company the aggregate purchase price for the
Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 


    6.  Entire Agreement.  The Agreement is incorporated herein by reference. This Exercise Notice and the
Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof.
This Exercise Notice and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. 



	Submitted by:	 	Accepted by:
	

OPTIONEE:	
 	

INTRAWARE, INC.
	

 	
 	

By:	
 	

  

	

 	
 	

Its:	
 	

  






	Address:	 	 	 	 
	

Dated:	
 	

  
	
 	

Dated:	
 	

  





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