Document:

Exhibit 10.3

                              EMPLOYMENT AGREEMENT

      EMPLOYMENT AGREEMENT, dated as of the 25th day of October, 1999 between
Aladdin Systems Holdings, Inc., a Nevada corporation with its principal offices
at 165 Westridge, Watsonville, California (the "Company") and Darryl Lovato, an
individual residing at c/o Aladdin Systems 165 Westridge, Watsonville,
California (the "Employee").

      In consideration of their mutual promises and covenants set forth herein,
and intending to be legally bound hereby, Company and Employee agree as follows:

      1. Employment. The Company hereby employs the Employee and the Employee
accepts such employment on the terms and conditions hereinafter set forth.

      2. Term. The term of this Agreement shall begin on October 25, 1999 and
shall terminate on October 24, 2002, unless sooner terminated in accordance with
Paragraph 7 below.

      3. Duties. The Employee is engaged herein as President and agrees to
perform the duties and services incident to that position and such other or
further duties and services of a similar nature as may be reasonably required of
him by the Board of Directors of the Company or the Board's designee. Employee
shall at all times be subject to the supervision of the Board of Directors of
the Company and of such other person as the Board may designate.

      The Employee shall devote his full business time, attention, energies and
best efforts to the performance of his duties hereunder and to the promotion of
the business and interests of the Company and of any corporate subsidiaries or
affiliated companies. The foregoing shall not be construed, however, as
preventing the Employee from (a) investing his assets in the operations of the
business in which such investment is made and provided such business (i) is not
in competition with the Company or, (ii) if in competition, such business has a
class of securities registered under the Securities Exchange Act of 1934 and the
interest of Employee therein is solely that of an investor owning not more than
10% of any class of the outstanding equity securities of such business or (b)
from serving on the Board of Directors of any company which does not compete
with the Company or (c) providing consulting services to any company which does
not compete with the Company provided that the providing of such services does
not materially interefere with the performance of Employee duties hereunder.

      4. Compensation; Expenses.

            (a) Base Salary. The Employee shall be paid a salary at the rate of
not less than $150,000.00 per year (the "Base Salary"). The Base Salary shall be
paid in installments in arrears in accordance with the Company's regular payroll
practices. The Company may, at its discretion,

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increase the Employee's Base Salary and his other compensation provided for
herein. Employee shall be entitled to annual increases in Base Salary as
determined by the Board of Directors.

            (b) Fringe Benefits.

                  (i) The Employee shall be entitled to participate in all
insurance, vacation and other fringe benefit programs of the Company to the
extent and on the same terms and conditions as are accorded to other management
employees of the Company, provided, however, that nothing herein shall be deemed
to require grants or awards to Employee under any benefit plans which provide
for awards or grants at the discretion of the Board of Directors or of any
committee or administrator, and that entitlement to vacations shall be governed
solely by clause (ii) of this subparagraph (b).

                  (ii) The Employee shall be entitled in each calendar year
commencing with 1999 to a vacation in accordance with Aladdin's standard
vacation policy of not less than three (3) weeks (pro rated during 1999),
without loss of or reduction in his compensation. Each vacation shall be taken
by the Employee at such time or times as agreed upon by the Company and
Employee. Any portion of Employee's vacation not used during any calendar year
shall be carried forward, provided that Employee may not take more than six (6)
weeks paid vacation during any calendar year.

                  (c) Business Expenses. The Company will pay, or reimburse the
Employee, for all ordinary and reasonable out-of-pocket business expenses
incurred by Employee in connection with his performance of services hereunder
during the Employment Term in accordance with the Company's expense
authorization and approval procedures then in effect upon presentation to the
Company of an itemized account and written proof of such expenses.

                  (d) Options. Employee shall be entitled to receive options and
other equity based incentives, pursuant to the Company's 1999 Long Term
Incentive Program, as and if determined by the Board of Directors.

                  (e) Entire Compensation. The compensation provided for in this
Agreement is in full payment of the services to be rendered by the Employee to
the Company hereunder.

      5. Death or Total Disability of the Employee.

      (a) Death. In the event of the death of the Employee during the term of
this Agreement, this Agreement shall terminate effective as of the date of the
Employee's death, and the Company shall not have any further obligation or
liability hereunder except that the Company shall pay to Employee's designated
beneficiary or, if none, his estate, the portion, if any, of the Employee's Base
Salary for the period up to the Employee's date of death which remains unpaid.

      (b) Total Disability. In the event of the Total Disability (as that term
is hereinafter defined) of the Employee, the Company shall have the right to
terminate the Employee's employment hereunder by giving the Employee 10 days'
written notice thereof and, upon expiration of such 10-day period, the Company
shall not have any further obligation or liability under this Agreement except
that the Company shall pay to the Employee the portion, if any, of the
Employee's Base Salary for the period up to the date of termination which
remains unpaid, provided that if the Employee,

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during any period of disability, receives any periodic payments representing
lost compensation under any health and accident policy or under any salary
continuation insurance policy, the premiums for which have been paid by the
Company, the amount of Base Salary that the Employee would be entitled to
receive from the Company during such period of disability shall be decreased by
the amounts of such payments.

      The term "Total Disability," when used herein, shall mean a mental,
emotional or physical condition which either (i) has rendered the Employee for a
period of 120 consecutive days, or for a total of 180 days during any period of
24 consecutive months, during the term of this Agreement, or (ii) in the
reasonable opinion of the Company is expected to render the Employee, for a
period of 4 months, unable or incompetent to carry out, on a substantially
full-time basis, the job responsibilities he held or tasks that he was assigned
at the time the disability was incurred. The Employee agrees, in the event of
any dispute as to the determination made pursuant to this paragraph, to submit
to a physical or other examination by a licensed physician selected by the
Company, the cost of which examination shall be paid by the Company.

      Any question as to the existence of the Disability of the Employee as to
which the Company and the Employee cannot agree shall be determined in writing
by a qualified independent physician mutually acceptable to the Employee and the
Company. If the Employee and the Company cannot agree as to a qualified
independent physician, each shall appoint a physician and those two physicians
shall select a third who shall make such termination.

      6. Termination of Employment. In addition to termination pursuant to
paragraph 5, the Company may discharge the Employee and thereby terminate his
employment hereunder for the following reasons ("For Cause"): (i) habitual
intoxication which materially affects the Employee's performance; (ii) drug
addiction; (iii) conviction of a felony adversely affecting the Company or the
Employee's ability to perform his duties hereunder; (iv) adjudication as an
incompetent; (v) misappropriation of corporate funds or other acts of
dishonesty; or (vi) the Employee's breach of this Agreement in any other
material respect.

      In the event that the Company shall discharge the Employee pursuant to
this paragraph 6, the Company shall not have any further obligations or
liability under this Agreement.

      In the event of either a breach of this Agreement by the Company or a
change in control of the Company, as defined below, at Employee's option,
Employee shall have the right to terminate this Agreement. Upon such election to
terminate by Employee: (a) the provisions of Section 8 herein shall be deemed
terminated and (b) Employee shall receive a lump sum payment from the Company
which shall equal to (i) the total of Employee's salary plus all incentive
compensation for the remaining portion of the term of this Agreement, plus (ii)
the cash value of all benefits which would have been received by Employee for
the remaining portion of the term of this Agreement, plus (ii) the cash value of
all unexercised stock options (whether or not vested) or the cashless exercise
value thereof. For the purposes of this Section, a "change in control of the
Company" shall be deemed to occur upon the transfer of ownership of 35% or more
of the voting control of the Company.

      7. Non-Disclosure.

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            (a) Non-Disclosure. The Employee recognizes and acknowledges that he
will have access to certain confidential information of the Company and that
such information constitutes valuable, special and unique property of the
Company. The Employee agrees that he will not, for any reason or purpose
whatsoever, during or after the term of his employment, use any of such
confidential information or disclose any of such confidential information to any
party without express authorization of the Company, except as necessary in the
ordinary course of performing his duties hereunder. The obligation of
confidentiality imposed by this subparagraph shall not apply to information
which appears in issued patents or printed publications or which otherwise
becomes generally known in the industry through no act of the Employee in breach
of this Agreement.

            (b) Inventions, Designs and Product Developments. All inventions,
discoveries, concepts, improvements, formulas, processes, devices, methods,
innovations, designs, ideas and product developments (collectively, the
"Developments"), developed or conceived by Employee, solely or jointly with
others, whether or not patentable or copyrightable, at any time during the
Employment Term or within one year after the termination hereof and which relate
to the actual or planned business activities of the Company and all of the
Employee's right, title and interest therein, shall be the exclusive property of
the Company. The Employee hereby assigns, transfers and conveys to the Company
all of his right, title and interest in and to any and all such Developments.
Employee shall disclose fully, as soon as practicable and in writing, all
Developments to the Board of Directors of the Company. At any time and from time
to time, upon the request of the Company, the Employee shall execute and deliver
to the Company any and all instruments, documents and papers, give evidence and
do any and all other acts which, in the opinion of counsel for the Company, are
or may be necessary or desirable to document such transfer or to enable the
Company to file and prosecute applications for and to acquire, maintain and
enforce any and all patents, trademark registrations or copyrights under United
States or foreign law with respect to any such Developments or to obtain any
extension, validation, reissue, continuance or renewal of any such patent,
trademark or copyright. The Company will be responsible for the preparation of
any such instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses the
Employee incurs upon authorization of the Board of Directors of the Company.

      8. Non-competition. The Employee agrees that during the term of this
agreement and for a period of one (1) year thereafter, the Employee shall not,
unless acting pursuant hereto or with the prior written consent of the Board of
Directors of the Company, directly or indirectly own, manage, operate, finance,
join, control or participate in the ownership, management, operation, financing
or control of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with any business or
enterprise engaged in the business of publishing computer software which
competes with the products of the Company;

      provided, however, that this provision shall not be-construed to prohibit
the ownership by the Employee of not more than 10% of any class of the
outstanding equity securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Exchange Act of 1934. In the event that the provisions of this
Section should ever be adjudicated to exceed the time, geographic, service or
product limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, service or product limitations permitted by applicable law.

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      9. Equitable Relief; Survival.

            (a) The Employee acknowledges that the restrictions contained in
paragraphs 7(a), 7(b) and 8 hereof are, in view of the nature of the business of
the Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those Sections will result
in irreparable injury to the Company. The Employee also acknowledges that the
Company shall be entitled to temporary and permanent injunctive relief, without
the necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company may be entitled. In the event of any such violation, the
Company shall be entitled to commence an action for temporary and permanent
injunctive relief and other equitable relief in any court of competent
jurisdiction and Employee further irrevocably submits to the jurisdiction of any
California State court or Federal court sitting in the Northern District of
California over any suit, action or proceeding arising out of or relating to
paragraph 7 or 8. The Employee hereby waives, to the fullest extent permitted by
law, any objection that he may now or hereafter have to such jurisdiction or to
the venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding has been brought in any inconvenient
forum. Effective service of process may be made upon the Employee by mail under
the notice provisions contained in paragraph 12 hereof.

            (b) Survival of Covenants. The provisions of paragraphs 7 and 8
shall survive the termination of this Agreement.

      10. Remedies Cumulative; No Waiver. No remedy conferred upon the Company
by this Employment Agreement is intended to be exclusive of any other remedy,
and each and every such remedy shall be cumulative and shall be in addition to
any other remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission by the Company in exercising any right, remedy or
power hereunder or existing at law or in equity shall be construed as a waiver
thereof;, and any such right, remedy or power may be exercised by the Company
from time to time and as often as may be deemed expedient or necessary by the
Company in its sole discretion.

      11. Enforceability. If any provision of this Agreement shall be invalid or
unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.

      12. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:

      If to Company:                        Copy to:

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      Aladdin Holdings, Inc.             Elias Goodman Shanks & Zizmor, LLP
      165 Westridge                      370 Lexington Avenue
      Watsonville, CA95076-4159          19th Floor
      Attention: Jonathan Kahn           New York, NY 10017
                                         Attention: Paul Goodman, Esq.

      If to Employee:

      Darryl Lovato
      c/o Aladdin Systems
      165 Westridge
      Watsonville, CA95076-4159

      Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.

      13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
California.

      14. Contents of Agreement; Amendment and Assignment. This Agreement sets
forth the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes and is instead of all other employment
arrangement between the Employee and the Company. This agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee hereunder are of a personal
nature and shall not be assignable in whole or in part by the Employee.

      IN WITNESS WHEREOF, this Agreement has been executed by the parties on the
date first above written.

                                          ALADDIN SYSTEMS HOLDINGS, INC.

                                          By: /s/ Jonathan Kahn
                                          -------------------------------------
                                          Its   Chief Executive Officer

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                                          EMPLOYEE:

                                          /s/ Darryl Lovato
                                          -------------------------------------Exhibit 10.4

                         ALADDIN SYSTEMS HOLDINGS, INC.
                             1999 STOCK OPTION PLAN

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
Aladdin Systems Holdings, Inc.(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 by purchasing Shares of
the Company's Common Stock. The Plan provides for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as Incentive Stock Options intended to qualify under section 422 of the
Internal Revenue Code.

SECTION 2. DEFINITIONS

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

      (b) "Change of Control" shall mean the occurrence of any of the following
events:

            (i) the consummation of the acquisition of fifty-one percent (51%)
      or more of the outstanding stock of the Company by one person or by two or
      more persons acting as a partnership, limited partnership, syndicate or
      other group pursuant to a tender offer validly made under any federal or
      state law (other than a tender offer by the Company);

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            (ii) the consummation of a merger, consolidation or other
      reorganization of the Company (other than a reincorporation of the
      Company), if after giving effect to such merger, consolidation or other
      reorganization of the Company, the stockholders of the Company immediately
      prior to such merger, consolidation or other reorganization do not
      represent a majority in interest of the holders of voting securities (on a
      fully diluted basis) with the ordinary voting power to elect directors of
      the surviving or resulting entity after such merger, consolidation or
      other reorganization:

            (iii) the sale of all or substantially all of the assets of the
      Company to a third party who is not an affiliate (including a Parent or
      Subsidiary) of the Company; or

            (iv) the dissolution of the Company pursuant to action validly taken
      by the stockholders of the company in accordance with applicable state
      law.

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

      (d) "Committee" shall mean a committee of the Board of Directors which is
authorized to administer the Plan under Section 3. After the initial public
offering of the Company's common stock, the Committee shall have membership
composition which enables the Plan to qualify under Rule 16b-3 with regard to
the grant of options to persons who are subject to Section 16 of the Securities
Exchange Act of 1934.

      (e) "Company" shall mean Aladdin Systems Holdings, Inc., a Delaware
corporation.

      (f) "Disability" shall mean that an Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.

      (g) "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, or
(iii) a consultant who performs services for the Company or a Subsidiary.
Service as a member of the Board of Directors or as a consultant shall be
considered employment for all purposes of the Plan except the second sentence of
Section 4(a).

      (h) "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.

      (i) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.

      (j) "ISO" shall mean an employee incentive stock option described in Code
section 411(b).

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

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

      (m) "Optionee" shall mean an individual who holds an Option.

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      (n) "Plan" shall mean this Aladdin Systems Holdings 1999 Stock Option
Plan.

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

      (p) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).

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

      (r) "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.

      (s) "Subsidiary" shall mean any corporation, of which the Company and/or
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation. 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.

SECTION 3. ADMINISTRATION.

      (a) Committee Membership. The Plan shall be administered by the Committee,
which shall consist of members of the Board of Directors. The members of the
Committee shall be appointed by the Board of Directors. If no Committee has been
appointed, the entire Board of Directors 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. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take the following
actions:

            (i) To interpret the Plan and to apply its provisions;

            (ii) To adopt, amend or rescind rules, procedures and forms relating
      to the Plan;

            (iii) To authorize any person to execute, on behalf of the Company,
      any instrument required to carry out the purposes of the Plan;

            (iv) To determine when Options are to be granted under the Plan;

            (v) To select the Optionees;

            (vi) To determine the number of Shares to be made subject to each
      Option;

            (vii) To prescribe the terms and conditions of each option,
      including (without limitation) the Exercise Price, the vesting schedule,
      to determine whether such Option is to be classified as

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      an ISO or as a Nonstatutory Option, and to specify the provisions of the
      Stock Option Agreement relating to such Option;

            (viii) To amend or terminate any outstanding Stock Option Agreement;

            (ix) To determine the disposition of an Option in the event of an
      Optionee's divorce or dissolution of marriage;

            (x) To correct any defect, supply any omission, or reconcile any
      inconsistency in the Plan and any Option;

            (xi) To prescribe the consideration for the grant of each Option
      under the Plan and to determine the sufficiency of such consideration; and

            (xii) To take any other actions deemed necessary or advisable for
      the administration of the Plan.

      All decisions, interpretations and other actions of the Committee shall be
final and binding on all Optionees, and all persons deriving their rights from
an Optionee. No member of the Committee shall be liable for any action that he
or she has taken or has failed to take in good faith with respect to the Plan or
any Option.

      (d) Financial Reports. To the extent required by applicable law, and not
less often than annually, the Company shall furnish to Optionees, Company
financial statements including a balance sheet regarding the Company's financial
condition and results of operations, unless such Optionees have duties with the
Company that assure them access to equivalent information. Such financial
statements need not be audited.

SECTION 4. ELIGIBILITY.

      (a) General Rule. Only Employees, as defined in Section 2(g), shall be
eligible for designation as Optionees 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 10 percent 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
Optionee unless (i) the Exercise Price for an ISO (and an NSO to the extent
required by applicable law) is at least 110 percent of the Fair Market Value of
a Share on the date of grant, and (ii) 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

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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. The aggregate number of Shares which may be issued under
the Plan (upon exercise of Options) shall not exceed two million (2,000,000)
Shares, subject to adjustment pursuant to Section 8. The number of Shares which
are subject to Options 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 for any
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.

SECTION 6. 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 Option 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 accordance with section 8. 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. To the extent
required by applicable law, the Exercise Price of a

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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 Section 7.

      (d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.

      (e) 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.

      (f) Term. The Stock Option Agreement shall specify the term of the Option.
The term shall not exceed ten (10) years from the date of grant and may be
required to be shorter 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) Nontransferability. No Option shall be transferable by the Optionee
other than by will or by the laws of descent and distribution. An Option may be
exercised during the lifetime of the optionee only by him or by his guardian or
legal representative. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.

      (h) 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.
Notwithstanding the foregoing, and to the extent required by applicable law,
each Option shall provide that the Optionee shall have the right to exercise the
vested portion of any Option held at termination for at least 30 days following
termination of service with the Company for any reason, and that the Optionee
shall have the right to exercise the Option for at least six months if the
Optionee's service terminates due to death or Disability.

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      (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.

      (k) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
an Option shall be subject to such rights of repurchase, rights of first refusal
and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any restrictions that may apply to holders of Shares
generally.

SECTION 7. PAYMENT FOR SHARES

      (a) General Rule. 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 in Subsections (b), (c)
and (d) below.

      (b) 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.

      (c) Promissory Notes. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and conditions
of such note shall be determined by the Committee. The Committee may require
that the Optionee 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 until such note is paid in
full.

      (d) 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.

                                                                              30
<PAGE>

SECTION 8. ADJUSTMENT OF SHARES.

      (a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of 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 grants under Section 5, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise Price
under each outstanding Option.

      (b) Reorganizations In the event of: (1) a dissolution or liquidation of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, or (4) any
other capital reorganization in which more than fifty percent (50%) of the
shares of the Company entitled to vote are exchanged, then at the sole
discretion of the Board and to the extent permitted by applicable law: (i) any
surviving corporation shall assume any options outstanding under the Plan or
shall substitute similar options for those outstanding under the Plan, or (ii)
such options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such options, or to substitute similar
options for those outstanding under the Plan, then, with respect to options held
by persons then performing services as employees, consultants or directors for
the Company, the time during which such options may be exercised shall be
accelerated and the options terminated if not exercised within three (3) months
of such event. Notwithstanding the foregoing, at the discretion of the
Committee, individual Stock Option Agreements may permit acceleration of vesting
under specified circumstances.

      (c) Reservation of Rights. Except as provided in this Section 8, an
Optionee 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 or Exercise Price of Shares
subject to an Option. The grant of an Option 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.

                                                                              31
<PAGE>

SECTION 9. LEGAL REQUIREMENTS.

      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 10. NO EMPLOYMENT RIGHTS.

      No provision of the Plan, nor any 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 11. 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 Option grants already made shall be null and void, and no
additional Option grants shall be made after such date. The Plan shall terminate
automatically October 24, 2009, 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
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 Option was granted. An amendment of the Plan shall be subject to the
approval of the Company's stockholders only to the extent required by applicable
laws, regulations or rules.

      (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 Option previously granted under the Plan.

SECTION 12. EXECUTION.

      To record the adoption of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same as of October 25, 1999.

                                                                              32
<PAGE>

                              ALADDIN SYSTEMS HOLDINGS, INC.

                              By /s/ Jonathan Kahn
                              ---------------------------------------------
                                 Jonathan Kahn
                                 Chief Executive Officer

                                                                              33

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