Digital River (DRIV)

COMPENSATION OF DIRECTORS

In 2004, non-employee directors received cash compensation of $2,500 for each regular board meeting they attended, and an annual option to purchase 10,000 shares of the Company’s Common Stock vesting quarterly over a three-year period. In addition, each non-employee director received a second option to purchase an additional 10,000 shares of the Company’s Common Stock, which becomes 100% exercisable if and only if the non-employee director continues to hold the shares underlying the first option for the full three-year vesting period. This structure is designed to further align the directors’ interests with the interests of the Company’s stockholders and to provide incentives for the directors to make a long-term investment in and retain their equity holdings in the Company.

In addition to the aforementioned option grants, which were made to all non-employee directors, in 2004, the chairmen of the Audit, Compensation and Finance Committees received additional option grants of 7,500, 5,000 and 5,000 shares, respectively, vesting quarterly over a three-year period beginning on the date of grant. Each member of the Audit Committee (other than the chairman) received an annual option to purchase another 2,500 shares of Common Stock, vesting quarterly over a three-year period beginning on the date of grant. No options were granted in 2004 to the members of the Nominating Committee for services on that committee.

In February 2005, the Board of Directors of the Company approved modifications to the compensation program for the Company’s non-employee directors. Under the program, non-employee directors will continue to receive cash compensation in the amount of $2,500 for each regular meeting of the Board they attend in person, which compensation decreases to $1,000 if the meeting is attended telephonically. In addition, each non-employee director will continue to receive an annual option to purchase 10,000 shares of the Company’s Common Stock, which vests quarterly over a three-year period, and a second option to purchase an additional 10,000 shares of the Company’s Common Stock, which becomes 100% exercisable if and only if the non-employee director continues to hold the shares underlying the first option for the full three-year vesting period.

In addition to the aforementioned option grants, which are made to all non-employee directors, the chairmen of the Compensation and Finance Committees and the Board’s Lead Director, each receives additional annual options to purchase 5,000 shares; the chairman of the Audit Committee receives an additional annual option to purchase 12,500 shares; and each member of the Audit Committee (other than the chairman) receives an annual option to purchase another 5,000 shares of Common Stock. All of these options vest quarterly over a three-year period beginning on the date of grant.

The Board of Directors annually evaluates and considers whether to modify or maintain the compensation program of the non-employee directors.

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