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                                                                    EXHIBIT 10.3

                                 CELERITEK, INC.

                      OUTSIDE DIRECTORS' STOCK OPTION PLAN

                      (as amended through October 21, 2004)

      1. Purposes of the Plan. The purposes of this Outside Directors' Stock
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 "non-statutory 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 Celeritek, Inc., a California corporation.

            (e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.

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

            (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 National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sale price for such stock (or the mean of the closing bid
and asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination (or, in the event such date is not a trading day, the
trading day immediately prior to the date of such determination), as reported in
The Wall Street Journal or such other source as the Board deems reliable; or

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                  (ii) If the Common Stock is quoted on the NASDAQ system (but
not on the National Market System thereof) or 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 of the closing bid and
asked prices for such stock on the date of such determination (or, in the event
such date is not a trading day, the trading day immediately prior to the date of
such 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) "Option" means a stock option granted pursuant to the Plan.

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

            (l) "Optionee" means an Outside Director who receives an Option.

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

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

            (o) "Plan" means this Outside Directors' Stock Option Plan.

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

            (q) "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 Two Hundred Twenty-five Thousand (225,000) Shares (the "Pool")
of Common Stock. The Shares may be authorized but unissued, or reacquired Common
Stock.

      If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.

      4. Administration of and Grants of Options under the Plan.

            (a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and non-discretionary and shall be made
strictly in accordance with the following provisions:

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                  (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 granted to Outside Directors.

                  (ii) Each Outside Director elected or appointed to the Board
after the 2003 annual meeting of shareholders shall be automatically granted an
Option to purchase 10,000 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, by ceasing to be an Employee Director, or by
appointment by the Board to fill a vacancy.

                  (iii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the date of each
Company annual shareholder meeting commencing in 2003 provided he or she is then
an Outside Director, provided that commencing with the Company's annual
shareholder meeting in 2004, (x) he or she is then an Outside Director and (y)
as of such date meeting 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 made 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 and a Subsequent Option
granted hereunder shall be as follows:

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

                        (B) the Options shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.

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

                        (D) subject to Section 10 hereof, the Option shall
become exercisable as to 100% of the Shares subject to the Option one year
following the date of grant, subject to the Optionee's continued tenure as a
Director on such date.

                  (vi) 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 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. An Outside

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Director who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options in accordance with such provisions.

      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 his or her directorship 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 until June
30, 2013 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) 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, or (v) any combination of the foregoing methods of payment.

      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 will
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.

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      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) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.

            (c) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's Continuous Status as a Director
terminates (other than upon the Optionee's death or total and permanent
disability (as defined in Section 22(e)(3) of the Code)), the Optionee may
exercise his or her Option, but only within twelve (12) months from the date of
such termination, and only to the extent that the Optionee was entitled to
exercise it at 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 at 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.

            (d) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it at 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 at 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.

            (e) 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 at 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 at 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.

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

            (a) Changes in Capitalization. In the event of any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split,

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reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, or any other change in the corporate structure of the Company affecting
the Common Stock, the number of shares of Common Stock as well as the price per
share of Common Stock covered by each outstanding Option, the numerical Share
limits in Section 4 of the Plan, and the number of shares of Common Stock 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, shall be proportionately adjusted in order to prevent
dimunition or enlargement of the benefits or potential benefits intended to be
made available under the Plan. Subject to any required action by the
shareholders of the Company, such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class or issuance of securities convertible into shares of stock of any class,
and no conversion of any convertible securities of the Company, shall affect,
and no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option, or the number and class of
shares of Common Stock that may be delivered under the Plan.

            (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 will 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, each outstanding Option shall become fully vested and
exercisable, including as to Shares as to which it would not otherwise be
exercisable. If an Option becomes fully vested and exercisable in the event of a
merger or sale of assets, the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.

      11. Amendment and Termination of the Plan.

            (a) Amendment and Termination. Except as set forth in Section 4, 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 Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), 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. Notice
of the determination shall be given

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to each Outside Director to whom an Option is so granted within a reasonable
time after the date of such grant.

      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. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.

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                                 CELERITEK, INC.
                            DIRECTOR OPTION AGREEMENT

      Celeritek, Inc., a California corporation (the "Company"), has granted to
______________________________________ (the "Optionee"), an option to purchase a
total of ten thousand (10,000) 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
Outside Directors' Stock 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:

            (i) Right to Exercise.

                  (a) This Option shall become exercisable with respect to one
hundred percent (100%) of the Optioned Stock on the first anniversary of the
date of grant, subject to Optionee's continued tenure as a Director on such
date; provided, however, that in no event shall any Option be exercisable prior
to the date the shareholders of the Company approve the Plan.

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

                  (c) 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.

            (ii) 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:

            (i) cash;

            (ii) check; or

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            (iii) 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

            (iv) 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 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 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. 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: ___________________________

                                              CELERITEK, INC.,

                                              a California corporation

                                              By: ______________________________

         Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he 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.

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Dated: __________________________

                                               _________________________________
                                               Optionee

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                                    EXHIBIT A

                      DIRECTOR STOCK OPTION EXERCISE NOTICE

Celeritek, Inc.
3236 Scott Boulevard
Santa Clara, California 95054-3090

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 Celeritek, Inc. (the "Company") under and pursuant to the Company's
Outside Directors' Stock Option Plan and the Director Stock 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 Agreement 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 Agreement
and the Agreement are governed by California law except for that body of law
pertaining to conflict of laws.

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CELERITEK, INC.                                OPTIONEE:

                                               By: _____________________________
                                                   (Print name)

Address: __________________________            Title: __________________________
       ____________________________
       ____________________________
Dated: ____________________________            Dated: __________________________

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