<PAGE>

                                                                   EXHIBIT 10.4

                              AMENDED AND RESTATED
                             DIGITAL ON-DEMAND, INC.
                       1998 EXECUTIVE STOCK INCENTIVE PLAN

                     (AS ADOPTED AND EFFECTIVE JULY 1, 1998,
            AND AS AMENDED AND RESTATED EFFECTIVE OCTOBER ___, 1998)

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                                TABLE OF CONTENTS

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SECTION 1.  PURPOSE..................................................................................     1

SECTION 2.  DEFINITIONS..............................................................................     1
      (a)   "Award"..................................................................................     1
      (b)   "Board of Directors".....................................................................     1
      (c)   "Change in Control"......................................................................     1
      (d)   "Code"...................................................................................     1
      (e)   "Committee"..............................................................................     1
      (f)   "Common-Law Employee"....................................................................     1
      (g)   "Company"................................................................................     1
      (h)   "Employee"...............................................................................     2
      (i)   "Exchange Act"...........................................................................     2
      (j)   "Exercise Price".........................................................................     2
      (k)   "Fair Market Value"......................................................................     2
      (l)   "Incentive Stock Option" or "ISO"........................................................     2
      (m)   "Nonstatutory Option" or "NSO"...........................................................     2
      (n)   "Offeree"................................................................................     2
      (o)   "Option".................................................................................     3
      (p)   "Optionee"...............................................................................     3
      (q)   "Outside Director".......................................................................     3
      (r)   "Participant"............................................................................     3
      (s)   "Plan"...................................................................................     3
      (t)   "Purchase Price".........................................................................     3
      (u)   "Restricted Share".......................................................................     3
      (v)   "Service"................................................................................     3
      (w)   "Share"..................................................................................     3
      (x)   "Stock"..................................................................................     3
      (y)   "Stock Award Agreement"..................................................................     3
      (z)   "Stock Option Agreement".................................................................     3
      (aa)  "Stock Purchase Agreement"...............................................................     3
      (bb)  "Subsidiary".............................................................................     3
      (cc)  "Total and Permanent Disability".........................................................     3
      (dd)  "W-2 Payroll"............................................................................     4

SECTION 3.  ADMINISTRATION...........................................................................     4
      (a)   Committee Membership.....................................................................     4
      (b)   Committee Procedures.....................................................................     4
      (c)   Committee Responsibilities...............................................................     4
      (d)   Committee Liability......................................................................     4
      (e)   Financial Reports........................................................................     4

SECTION 4.  ELIGIBILITY..............................................................................     5
      (a)   General Rule.............................................................................     5
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      (b)   Ten-Percent Shareholders.................................................................     5
      (c)   Attribution Rules........................................................................     5
      (d)   Outstanding Stock........................................................................     5

SECTION 5.  STOCK SUBJECT TO PLAN....................................................................     5
      (a)   Basic Limitation.........................................................................     5
      (b)   Additional Shares........................................................................     5

SECTION 6.  TERMS AND CONDITIONS OF AWARDS OR SALES..................................................     6
      (a)   Stock Purchase Agreement.................................................................     6
      (b)   Duration of Offers.......................................................................     6
      (c)   Purchase Price...........................................................................     6
      (d)   Payment for Shares.......................................................................     6
            (i)   Surrender of Stock.................................................................     6
            (ii)  Promissory Notes...................................................................     6
            (iii) Cashless Exercise..................................................................     6
            (iv)  Other Forms of Payment.............................................................     7
      (e)   Exercise of Awards on Termination of Service.............................................     7

SECTION 7.  ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.....................................     7
      (a)   Form and Amount of Award.................................................................     7
      (b)   Exercisability...........................................................................     7
      (c)   Effect of Change in Control..............................................................     7
      (d)   Voting Rights............................................................................     7

SECTION 8.  TERMS AND CONDITIONS OF OPTIONS..........................................................     7
      (a)   Stock Option Agreement...................................................................     7
      (b)   Number of Shares.........................................................................     7
      (c)   Exercise Price...........................................................................     8
      (d)   Exercisability...........................................................................     8
      (e)   Effect of Change in Control..............................................................     8
      (f)   Term.....................................................................................     8
      (g)   Exercise of Options on Termination of Service............................................     8
      (h)   Payment of Option Shares.................................................................     8
            (i)   Surrender of Stock.................................................................     8
            (ii)  Promissory Notes...................................................................     8
            (iii) Cashless Exercise..................................................................     9
            (iv)  Other Forms of Payment.............................................................     9
      (i)   No Rights as a Shareholder...............................................................     9
      (j)   Modification, Extension and Assumption of Options........................................     9

SECTION 9.  ADJUSTMENT OF SHARES.....................................................................     9
      (a)   General..................................................................................     9
      (b)   Reorganizations..........................................................................     9
      (c)   Reservation of Rights....................................................................     9
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SECTION 10. WITHHOLDING TAXES........................................................................    10
         (a)   General...............................................................................    10
         (b)   Share Withholding.....................................................................    10
         (c)   Cashless Exercise/Pledge..............................................................    10
         (d)   Other Forms of Payment................................................................    10

SECTION 11. ASSIGNMENT OR TRANSFER OF AWARDS.........................................................    10
         (a)   General...............................................................................    10
         (b)   Trusts................................................................................    10

SECTION 12. LEGAL REQUIREMENTS.......................................................................    10

SECTION 13. NO EMPLOYMENT RIGHTS.....................................................................    11

SECTION 14. DURATION AND AMENDMENTS..................................................................    11
         (a)   Term of the Plan......................................................................    11
         (b)   Right to Amend or Terminate the Plan..................................................    11
         (c)   Effect of Amendment or Termination....................................................    11

SECTION 15. EXECUTION................................................................................    11
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                                     -iii-
<PAGE>

                              AMENDED AND RESTATED
                             DIGITAL ON-DEMAND, INC.
                       1998 EXECUTIVE STOCK INCENTIVE PLAN

                     (AS ADOPTED AND EFFECTIVE JULY 1, 1998
            AND AS AMENDED AND RESTATED EFFECTIVE OCTOBER ___, 1998)

SECTION 1. PURPOSE.

      The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such selected persons to
remain in the employ of the Company and to attract new employees with
outstanding qualifications. The Plan seeks to achieve this purpose by providing
for Awards in the form of Restricted Shares and Options (which may constitute
Incentive Stock Options or Nonstatutory Stock Options) as well as the direct
award or sale of Shares of the Company's Common Stock. This Plan amends and
restates in its entirety the Digital On-Demand, Inc. 1998 Executive Stock
Incentive Plan (as Adopted and Effective July 1, 1998).

SECTION 2. DEFINITIONS.

      (a) "Award" shall mean any award of an Option, Restricted Share or other
right under the Plan.

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

      (c) "Change in Control" shall be defined by, the Committee and provided
for in the Stock Purchase Agreements, Stock Option Agreements and Stock Award
Agreements. The term "Change in Control" shall not include a transaction the
sole purpose of which is to change the state of the Company's incorporation.

      (d) "Code" shall mean the Internal Revenue Code of 1986, as amended.

      (e) "Committee" shall mean a committee of the Board of Directors which is
authorized to administer the Plan under Section 3.

      (f) "Common-Law Employee" means an individual paid from W-2 Payroll of the
Company or a Subsidiary. If, during any period, the Company (or Subsidiary, as
applicable) has not treated an individual as a Common-Law Employee and, for that
reason, has not paid such individual in a manner which results in the issuance
of a Form W-2 and withheld taxes with respect to him or her, then such
individual shall not be an eligible Employee for that period, even if any
person, court of law or government agency determines, retroactively, that such
individual is or was a Common-Law Employee during all or any portion of that
period.

      (g) "Company" shall mean Digital On-Demand, Inc., a California
corporation.

                                       -1-
<PAGE>

      (h) "Employee" shall mean (i) any individual who is a Common-Law Employee
of the Company or of a Subsidiary, (ii) a member of the Board of Directors,
including (without limitation) an Outside Director, (iii) a member of the board
of directors of a Subsidiary or (iv) an independent contractor who performs
services for the Company or a Subsidiary. Service as a member of the Board of
Directors, a member of the board of directors of a Subsidiary or an independent
contractor shall be considered employment for all purposes of the Plan except
the second sentence of Section 4(a).

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

      (j) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.

      (k) "Fair Market Value" means the market price of Shares, determined by
the Committee as follows:

                  (i) If the Shares were traded over-the-counter on the date in
      question but were not traded on the Nasdaq Stock Market or the Nasdaq
      National Market System, then the Fair Market Value shall be equal to the
      mean between the last reported representative bid and asked prices quoted
      for such date by the principal automated inter-dealer quotation system on
      which the Shares are quoted or, if the Shares are not quoted on any such
      system, by the "Pink Sheets" published by the National Quotation Bureau,
      Inc.;

                  (ii) If the Shares were traded over-the-counter on the date in
      question and were traded on the Nasdaq Stock Market or the Nasdaq National
      Market System, then the Fair Market Value shall be equal to the
      last-transaction price quoted for such date by the Nasdaq Stock Market or
      the Nasdaq National Market;

                  (iii) If the Shares were traded on a stock exchange on the
      date in question, then the Fair Market Value shall be equal to the closing
      price reported by the applicable composite transactions report for such
      date; and

                  (iv) If none of the foregoing provisions is applicable, then
      the Fair Market Value shall be determined by the Committee in good faith
      on such basis as it deems appropriate.

      In all cases, the determination of Fair Market Value by the Committee
shall be conclusive and binding on all persons.

      (l) "Incentive Stock Option" or "ISO" shall mean an employee incentive
stock option described in Code section 422(b).

      (m) "Nonstatutory Option" or "NSO" shall mean an employee stock option
that is not an ISO.

      (n) "Offeree" shall mean an individual to whom the Committee has offered
the right

                                      -2-
<PAGE>

to acquire Shares under the Plan (other than upon exercise of an Option).

      (o) "Option" shall mean an Incentive Stock Option or Nonstatutory Option
granted under the Plan and entitling the holder to purchase Shares.

      (p) "Optionee" shall mean an individual or estate who holds an Option.

      (q) "Outside Director" shall mean a member of the Board who is "a
Non-Employee Director" as defined in Rule 16b-3 under the Exchange Act.

      (r) "Participant" shall mean an individual or estate who holds an Award.

      (s) "Plan" shall mean this Amended and Restated Digital On-Demand, Inc.
1998 Executive Stock Incentive Plan.

      (t) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.

      (u) "Restricted Share" shall mean a Share sold or granted to an eligible
Employee which is nontransferable and subject to substantial risk of forfeiture
until restrictions lapse.

      (v) "Service" shall mean service as an Employee.

      (w) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 9 (if applicable).

      (x) "Stock" shall mean the common stock of the Company.

      (y) "Stock Award Agreement" shall mean the agreement between the Company
and the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.

      (z) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.

      (aa) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

      (bb) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

      (cc) "Total and Permanent Disability" means that the Optionee is unable to
engage in

                                      -3-
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any substantial gainful activity by reason of any medically determinable
physical or mental impairment.

      (dd) "W-2 Payroll" means whatever mechanism or procedure that the Company
or a Subsidiary utilizes to pay any individual which results in the issuance of
Form W-2 to the individual. "W-2 Payroll" does not include any mechanism or
procedure which results in the issuance of any form other than a Form W-2 to an
individual, including, but not limited to, any Form 1099 which may be issued to
an independent contractor, an agency employee or a consultant. Whether a
mechanism or procedure qualifies as a "W-2 Payroll" shall be determined in the
absolute discretion of the Company (or Subsidiary, as applicable), and the
Company or Subsidiary determination shall be conclusive and binding on all
persons.

SECTION 3. ADMINISTRATION.

      (a) Committee Membership. The Plan shall be administered by the Committee
appointed by the Board of Directors. In the event the Company's Shares become
publicly traded, the Committee shall be comprised solely of two or more Outside
Directors (although Committee functions may be delegated to officers to the
extent the awards relate to persons who are not subject to the reporting
requirements of Section 16 of the Exchange Act). If no Committee has been
appointed, the entire Board shall constitute the Committee.

      (b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.

      (c) Committee Responsibilities. The Committee has and may exercise such
power and authority as may be necessary or appropriate for the Committee to
carry out its functions as described in the Plan. The Committee has authority in
its discretion to determine eligible Employees to whom, and the time or times at
which, Awards may be granted and the number of Shares subject to each Award.
Subject to the express provisions of the respective Award agreements (which need
not be identical), the Committee has authority to prescribe the terms and
conditions of each Award and to make all other determinations necessary or
advisable for Plan administration. The Committee has authority to prescribe,
amend and rescind rules and regulations relating to the Plan. All
interpretations, determinations, and actions by the Committee will be final,
conclusive and binding upon all persons.

      (d) Committee Liability. No member of the Board or the Committee will be
liable for any action or determination made in good faith by the Committee with
respect to the Plan or any Award made under the Plan.

      (e) Financial Reports. To the extent required by applicable law, and not
less often than annually, the Company shall furnish to Offerees, Optionees and
shareholders who have received Stock under the Plan its financial statements
(including a balance sheet regarding the Company's financial condition and a
statement of its results of operations), unless such Offerees, Optionees or
shareholders have duties with the Company that assure them access to equivalent

                                      -4-
<PAGE>

information. Such financial statements need not be audited.

SECTION 4. ELIGIBILITY.

      (a) General Rule. Only Employees shall be eligible for designation as
Participants by the Committee. In addition, only individuals who are employed as
Common-Law Employees by the Company or a Subsidiary shall be eligible for the
grant of ISOs.

      (b) Ten-Percent Shareholders. An Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for designation as
an Offeree or Optionee unless (i) the Exercise Price for an ISO (and a NSO to
the extent required by applicable law) is at least one hundred ten percent
(110%) of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price of Shares is at least one hundred percent (100%) of the Fair
Market Value of a Share on the date of grant and (iii) in the case of an ISO,
such ISO by its terms is not exercisable after the expiration of five years from
the date of grant.

      (c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Employee holds an Option shall not be counted.

      (d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding Stock" shall not include shares authorized for issuance
under outstanding Options held by the Employee or by any other person.

SECTION 5. STOCK SUBJECT TO PLAN.

      (a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares. Subject to Sections 5(b) and 9 of the Plan, the aggregate
number of Shares which may be issued or transferred pursuant to an Award under
the Plan shall not exceed 3,260,000 Shares.

      The number of shares that may be issued or transferred during any 12-month
period to any eligible Employee pursuant to an Award shall not exceed 1,200,000
Shares.

      In any event, the number of Shares which are subject to Awards or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.

      (b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall not be
available for the purposes of the Plan. If a Restricted Share is forfeited for
any reason or is canceled or otherwise terminated, then such

                                      -5-
<PAGE>

Restricted Share shall not become available for award under the Plan.

SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.

      (a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Offeree and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.

      (b) Duration of Offers. Any right to acquire Shares under the Plan (other
than an Option) shall automatically expire if not exercised by the Offeree
within 30 days after the grant of such right was communicated to the Offeree by
the Committee.

      (c) Purchase Price. The Purchase Price of Shares to be offered under the
Plan shall not be less than eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant, except as otherwise provided in Section 4(b)
(i.e., 100% for 10% shareholders). Subject to the preceding sentence, the
Purchase Price shall be determined by the Committee in its sole discretion. The
Purchase Price shall be payable in a form described in Subsection (d) below.

      (d) Payment for Shares. The entire Purchase Price of Shares issued under
the Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided below. Notwithstanding
any other provision of the Plan, Shares may, in the discretion of the Committee,
be awarded under the Plan in consideration of Services rendered to the Company
or a Subsidiary prior to the Award. Permissible forms of payment, in addition to
cash, are:

                  (i) Surrender of Stock. To the extent that a Purchase Option
      Agreement so provides, payment may be made all or in part with Shares
      which have already been owned by the Offeree or the Offeree's
      representative for any time period specified by the Committee and which
      are surrendered to the Company in good form for transfer. Such Shares
      shall be valued at their Fair Market Value on the date when the new Shares
      are purchased under the Plan.

                  (ii) Promissory Notes. To the extent that a Stock Purchase
      Agreement so provides, payment may be made all or in part with a full
      recourse promissory note executed by the Offeree. The interest rate and
      other terms and conditions of such note shall be determined by the
      Committee. The Committee may require that the Offeree pledge his or her
      Shares to the Company for the purpose of securing the payment of such
      note. In no event shall the stock certificate(s) representing such Shares
      be released to the Offeree until such note is paid in full.

                  (iii) Cashless Exercise. To the extent that a Stock Purchase
      Agreement so provides and a public market for the Shares exists, payment
      may be made all or in part by delivery (on a form prescribed by the
      Committee) of an irrevocable direction to a

                                      -6-
<PAGE>

      securities broker to sell Shares and to deliver all or part of the sale
      proceeds to the Company in payment of the aggregate Exercise Price.

                  (iv) Other Forms of Payment. To the extent provided in the
      Stock Purchase Agreement, payment may be made in any other form that is
      consistent with applicable laws, regulations and rules, including payment
      for past services.

      (e) Exercise of Awards on Termination of Service. Each Stock Award
Agreement shall set forth the extent to which the recipient shall have the right
to exercise the Award following termination of the recipient's Service with the
Company and its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all the Awards issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of employment.

SECTION 7. ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.

      (a) Form and Amount of Award. Each Stock Award Agreement shall specify the
number of Shares that are subject to the Award. Restricted Shares may be awarded
in combination with NSOs and such an Award may provide that the Restricted
Shares will be forfeited in the event that the related NSOs are exercised.

      (b) Exercisability. Each Stock Award Agreement shall specify the
conditions upon which Restricted Shares shall become vested, in full or in
installments.

      (c) Effect of Change in Control. The Committee may determine at the time
of making an Award or thereafter, that such Award shall become fully vested in
the event that a Change in Control occurs with respect to the Company.

      (d) Voting Rights. Holders of Restricted Shares awarded under the Plan
shall have the same voting, dividend and other rights a the Company's other
stockholders. A Stock Award Agreement, however, may require that the holders
invest any cash dividends received in additional Restricted Shares. Such
additional Restricted Shares shall be subject to the same conditions and
restrictions as the Award with respect to which the dividends were paid. Such
additional Restricted Shares shall not reduce the number of Shares available
under Section 5.

SECTION 8. TERMS AND CONDITIONS OF OPTIONS.

      (a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Options shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.

      (b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in

                                      -7-
<PAGE>

accordance with Section 9. The Stock Option Agreement shall also specify whether
the Option is an ISO or a Nonstatutory Option.

      (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than one hundred percent
(100%) of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(b). To the extent required by applicable law and
except as otherwise provided in Section 4(b), the Exercise Price of a
Nonstatutory Option shall not be less than eighty-five percent (85%) of the Fair
Market Value of a Share on the date of grant. Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the
Committee in its sole discretion. The Exercise Price shall be payable in a form
described in Subsection (h) below.

      (d) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. To the
extent required by applicable law, an Option shall become exercisable no less
rapidly than the rate of 20% per year for each of the first five years from the
date of grant. Subject to the preceding sentence, the exercisability of any
Option shall be determined by the Committee in its sole discretion.

      (e) Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully vested
in the event that a Change in Control occurs with respect to the Company.

      (f) Term. The Stock Option Agreement shall specify the term of the Option.
The term shall not exceed ten years from the date of grant (or five (5) years,
in the instance of an ISO, for ten percent (10%) shareholders as provided in
Section 4(b)). Subject to the preceding sentence, the Committee at its sole
discretion shall determine when an Option is to expire.

      (g) Exercise of Options on Termination of Service. Each Option shall set
forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's Service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.

      (h) Payment of Option Shares. The entire Exercise Price of Shares issued
under the Plan shall be payable in lawful money of the United States of America
at the time when such Shares are purchased, except as provided below:

                  (i) Surrender of Stock. To the extent that a Stock Option
      Agreement so provides, payment may be made all or in part with Shares
      which have already been owned by the Optionee or the Optionee's
      representative for any time period specified by the Committee and which
      are surrendered to the Company in good form for transfer. Such Shares
      shall be valued at their Fair Market Value on the date when the new Shares
      are purchased under the Plan.

                  (ii) Promissory Notes. To the extent that a Stock Option
      Agreement or Stock Purchase Agreement so provides, payment may be made all
      or in part with a full

                                      -8-
<PAGE>

      recourse promissory note executed by the Optionee or Offeree. The interest
      rate and other terms and conditions of such note shall be determined by
      the Committee. The Committee may require that the Optionee or Offeree
      pledge his or her Shares to the Company for the purpose of securing the
      payment of such note. In no event shall the stock certificate(s)
      representing such Shares be released to the Optionee or Offeree until such
      note is paid in full.

                  (iii) Cashless Exercise. To the extent that a Stock Option
      Agreement so provides and a public market for the Shares exists, payment
      may be made all or in part by delivery (on a form prescribed by the
      Committee) of an irrevocable direction to a securities broker to sell
      Shares and to deliver all or part of the sale proceeds to the Company in
      payment of the aggregate Exercise Price.

                  (iv) Other Forms of Payment. To the extent provided in the
      Stock Option Agreement, payment may be made in any other form that is
      consistent with applicable laws, regulations and rules.

      (i) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.

      (j) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price or for other consideration.

SECTION 9. ADJUSTMENT OF SHARES.

      (a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
reclassification or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
Awards under Section 5, (ii) the number of Shares covered by each outstanding
Option or Purchase Agreement or (iii) the Exercise Price or Purchase Price under
each outstanding Option or Stock Purchase Agreement.

      (b) Reorganizations. In the event that the Company is a party to a merger
or reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization.

      (c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or an Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number, Exercise
Price or

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Purchase Agreement of Shares subject to an Option or Stock Purchase Agreement.
The grant of an Award pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.

SECTION 10. WITHHOLDING TAXES.

      (a) General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Committee for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.

      (b) Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued at their Fair Market Value on
the date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Shares to the Company may be subject to restrictions, including any
restrictions required by rules of any federal or state regulatory body or other
authority.

      (c) Cashless Exercise/Pledge. The Committee may provide that if Company
Shares are publicly traded at the time of exercise, arrangements may be made to
meet the Optionee's withholding obligation by cashless exercise or pledge.

      (d) Other Forms of Payment. The Committee may permit such other means of
tax withholding as it deems appropriate.

SECTION 11. ASSIGNMENT OR TRANSFER OF AWARDS.

      (a) General. An Award granted under the Plan shall not be anticipated,
assigned, attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
except as approved by the Committee. Notwithstanding the foregoing, ISOs may not
be transferable.

      (b) Trusts. Neither this Section 11 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted Shares to
(i) the trustee of a trust that is revocable by such Participant alone, both at
the time of the transfer or assignment and at all times thereafter prior to such
Participant's death, or (ii) the trustee of any other trust to the extent
approved by the Committee in writing. A transfer or assignment of Restricted
Shares from such trustee to any other person than such Participant shall be
permitted only to the extent approved in advance by the Committee in writing,
and Restricted Shares held by such trustee shall be subject to all the
conditions and restrictions set forth in the Plan and in the applicable Stock
Award Agreement, as if such trustee were a party to such Agreement.

SECTION 12. LEGAL REQUIREMENTS.

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      Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.

SECTION 13. NO EMPLOYMENT RIGHTS.

      No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.

SECTION 14. DURATION AND AMENDMENTS.

      (a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any grants already made shall be null and void, and no additional
grants shall be made after such date. The Plan shall terminate automatically ten
(10) years after its adoption by the Board of Directors and may be terminated on
any earlier date pursuant to Subsection (b) below.

      (b) Right to Amend or Terminate the Plan. The Board of Directors may amend
the Plan at any time and from time to time. Rights and obligations under any
right or Option granted before amendment of the Plan shall not be materially
altered, or impaired adversely, by such amendment, except with consent of the
person to whom the right or Option was granted. An amendment of the Plan shall
be subject to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules including the rules of any
applicable exchange.

      (c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Shares previously issued or any Option previously
granted under the Plan.

SECTION 15. EXECUTION.

      To record the adoption of the Plan by the Company, the Board of Directors
has caused its authorized officer to execute the same, to be effective as of
October_, 1998.

                                                  DIGITAL ON-DEMAND, INC.

                                                  By: __________________________

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                                                  Name:
                                                  Its:

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