Document:

Waiver, Consent and Amendment Agreement dated May 7, 2002

 Exhibit 10.5a 
  
 WAIVER, CONSENT AND AMENDMENT AGREEMENT 
  
 This Waiver, Consent and Amendment Agreement (“Agreement”) is executed, effective as of May 7, 2002, among (i) Multi-Color Corporation,
an Ohio corporation (the “Company”); (ii) John C. Court (“Court”); (iii) Burton D. Morgan (“Morgan”); (iv) John D. Littlehale (“Littlehale”); (v) John R. Voelker (“Voelker”); (vi) Thomas F. Costello
(“Costello”); and (vii) Philip E. Courtier (“Courtier”). Court, Morgan, Littlehale, Voelker, Costello and Courtier shall each be referred to as a “Shareholder” and collectively, as the “Shareholders.”

  
 RECITALS: 
  
 A.    Each of the Shareholders is a holder of shares of the Company’s common stock
(“Common Stock”) and, together with the Company, is a party to a First Refusal Agreement, dated July 1, 1987, a copy of which is attached hereto as Exhibit A (the “First Refusal Agreement”). 
  
 B.    For estate planning purposes, Court wishes
to make one or more transfers of shares of Common Stock held in his individual name (the “Court Shares”) to a revocable trust for the benefit of Court or his wife, Georgia M. Court, or their lineal descendent, Andrew G. B. Court, and/or to
other potential beneficiaries of Court’s estate, including, without limitation, a private foundation or other charitable trust or entity established by Court, whether such transfers occur during his lifetime or after his death (the
“Proposed Transfers”). 
  
 C.    Paragraph (3) of the First Refusal Agreement requires that, before completing the Proposed Transfers, Court provide first to the Company and then to the other Shareholders the right to purchase the Court
Shares on the terms and conditions set forth in the First Refusal Agreement. 
  
 D.    The Company is willing to consent to the Proposed Transfers and to waive its right to purchase the Court Shares in connection therewith, provided that the Court Shares remain subject
to the terms of the First Refusal Agreement. 
  
 E.    In addition to their willingness to consent to the Proposed Transfers and to waive their rights to purchase the Court Shares in connection therewith, in order to facilitate all future transfers of Common
Stock that are subject to the First Refusal Agreement, and in consideration of the reciprocal waivers of each other Shareholder, each of the Shareholders desires to waive and relinquish all rights that he may have under the First Refusal Agreement
with respect to all future transfers of Common Stock, including but not limited to the Proposed Transfers. 
  
 NOW, THEREFORE, in consideration of the recitals, the Company and the Shareholders hereby agree as follows: 
  
 1.    COMPANY’S
WAIVER AND CONSENT.    The Company hereby consents to the Proposed Transfers and waives its right under Paragraph (3) of the First Refusal Agreement to 

 
purchase the Court Shares in connection therewith; provided, however the following conditions shall apply: (i) that the Court Shares transferred in
accordance with the Proposed Transfers shall remain subject to the First Refusal Agreement in the hands of the transferee(s); (ii) that the transferee(s) shall take the Court Shares subject to the terms and restrictions imposed by the First Refusal
Agreement; (iii) that, upon the Company’s request, the transferee(s) to whom the Court Shares are transferred shall execute and deliver to the Company a Right of First Refusal Agreement in a form similar to the First Refusal Agreement, as
amended; and (iv) that certificates representing the Court Shares transferred in accordance with the Proposed Transfers shall, in the hands of the transferee(s), continue to bear the legend required by and set forth in Paragraph (4) of the First
Refusal Agreement. The Company and each of the Shareholders hereby acknowledge and agree that (a) the Company’s waiver and consent contained in this Section 1 is limited to the Proposed Transfers and shall not be deemed to constitute a waiver
by the Company with respect to any other transfer or any other term, provision or condition of the First Refusal Agreement; (b) the Company’s waiver and consent contained in this Section 1 is applicable to the Proposed Transfers, whenever
completed and whether or not made within the ten-business-day-period set forth in Paragraph (3) of the First Refusal Agreement, as amended; and (c) the terms and conditions of the First Refusal Agreement shall remain in full force and effect except
as specifically amended by the terms of this Agreement. 
  
 2.    WAIVER AND CONSENT OF SHAREHOLDERS.    Each Shareholder, and each of their respective successors
and permitted assigns, hereby waives and relinquishes all of his rights under the First Refusal Agreement to purchase Common Stock and to receive notice of any future proposed transfers of Common Stock by a Shareholder. This waiver and consent of
the Shareholders relates to and constitutes a waiver on each of their parts with respect to all future transfers of Common Stock, including but not limited to the Proposed Transfers of the Court Shares. 
  
 3.    AMENDMENTS TO
THE FIRST REFUSAL AGREEMENT.    The Company and each of the Shareholders hereby agrees that Paragraph (3) of the First Refusal Agreement shall be amended to read as
follows: 
  
 “(3) Purchase Rights.
Prior to the sale or transfer of Common Stock not described in Paragraph (2) hereof by a Shareholder to any person other than the Company, the Shareholder proposing to make such sale or transfer hereby grants to the Company the right to purchase the
Common Stock proposed to be sold or transferred. For such purposes, the proposing Shareholder shall submit to the Company a notice of proposed sale of Common Stock identifying the proposed buyer and setting forth the price and other terms and
conditions of such sale on the form of notice attached as Exhibit A. Thereafter, the Company shall have the right for a period of seven business days to purchase all, but not less than all, of such Common Stock. The purchase price for the Common
Stock shall be the average of the bid and asked prices during the five trading days commencing on the third trading day preceding the date of notice by the Shareholder. In the event the Common Stock of the Company is traded on an exchange or

 
otherwise quoted with last sales prices, the last sale prices for such period shall be utilized for the purpose of setting the price. 
  
 If the Company does not exercise its right to purchase
within the time period set forth above, the Shareholder submitting the notice shall thereafter have the right to sell such securities upon the terms and conditions set forth in the notice for a period of ten business days thereafter. If the sale is
not completed as to all or any part of the shares covered by the notice, those shares shall continue to be governed by this Agreement. The Shareholder giving the notice shall have the right to withdraw such notice at any time prior to acceptance of
the right of purchase by any of the parties set forth above.” 
  
 4.    RATIFICATION OF THE FIRST REFUSAL AGREEMENT.    Except as expressly modified by
the terms and provisions of this Agreement, the terms and provisions of the First Refusal Agreement are hereby ratified and shall remain in full force and effect. Capitalized terms not expressly defined in this Agreement shall have the meaning
ascribed in the First Refusal Agreement. 
  
 5.    BENEFIT.    This Agreement shall be binding upon and shall operate for the benefit of the parties hereto and their respective successors, assigns,
heirs and personal representatives. 
  
 6.    COUNTERPARTS; FACSIMILE SIGNATURES.    This Agreement may be executed in one or more counterparts, and using original or
facsimile signatures, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, notwithstanding that all parties have not physically executed the same counterpart. 
  
 7.    EXHIBITS.    The Exhibits to this Agreement shall constitute part of this Agreement and shall be deemed to be incorporated in this Agreement by
reference and made a part of this Agreement as if set out in full at the point where first mentioned. 
  
 8.    SEVERABILITY.    If any clause or provision of this Agreement is
or should ever be held to be illegal, invalid or unenforceable under any present or future law applicable to the terms hereof, then and in that event, it is the intention of the parties hereto that the remainder of this Agreement shall not be
affected thereby, and that in lieu of each such clause or provision shall be judicially construed and interpreted to be as similar in substance and content to such illegal, invalid or unenforceable clause or provision, as the context thereof would
reasonably suggest, so as to thereafter be legal, valid and enforceable. 
  
 9.    ENTIRE AGREEMENT.    This Agreement constitutes the entire understanding and agreement now existing between the
parties with respect to the subject matter hereof and supersedes any prior agreement with respect thereto. 
  
 The parties hereto have executed this Waiver, Consent and Amendment Agreement, as of the date first written above. 

	MULTI-COLOR CORPORATION
		
	 By:
	 	 /s/  FRANCIS D. GERACE        

	 Title:
	 	 President and Chief Executive Officer

 (“Company”)

  

	 
	
	 /s/    JOHN C. COURT

	 JOHN C. COURT
 (“Court”)

  

	 
	
	 /s/    BURTON D.
MORGAN

	 BURTON D. MORGAN
 (“Morgan”)

  

	 
	
	 /s/    JOHN D.
LITTLEHALE

	 JOHN D. LITTLEHALE
 (“Littlehale”)

  

	 
	
	 /s/    JOHN R.
VOELKER

	 JOHN R. VOELKER
 (“Voelker”)

  

	 
	
	 /s/    THOMAS F.
COSTELLO

	 THOMAS F. COSTELLO
 (“Costello”)

  

	 
	
	 /s/    PHILIP E.
COURTIER

	 PHILIP E. COURTIER
 (“Courtier”)

  
 The following
parties join this Agreement for the sole purpose of acknowledging the obligations of a transferee pursuant to the Proposed Transfers as set forth in Section 1 of this Agreement.Exhibit 4.1

Exhibit 4.1

ARS NETWORKS, INCORPORATED

EMPLOYEE STOCK INCENTIVE PLAN FOR THE YEAR 2003

        1.                   
General Provisions.

        1.1                
Purpose.  This Stock Incentive Plan (the "Plan") is intended to
allow designated officers and employees (all of whom are sometimes collectively
referred to herein as the "Employees," or individually as the "Employee") of
ARS Networks, Incorporated, a New Hampshire corporation (the "Company") and its
Subsidiaries (as that term is defined below) which they may have from time to
time (the Company and such Subsidiaries are referred to herein as the
"Company") to receive certain options (the "Stock Options") to purchase common
stock of the Company, par value $0.0001 per share (the "Common Stock"), and to
receive grants of the Common Stock subject to certain restrictions (the
"Awards").  As used in this Plan, the term "Subsidiary" shall mean each
corporation which is a "subsidiary corporation" of the Company within the
meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code").  The purpose of this Plan is to provide the Employees with equity-based
compensation incentives who make significant and extraordinary contributions to
the long-term growth and performance of the Company, and to attract and retain
the Employees.

        1.2                
Administration.

        1.2.1           
The Plan shall be administered by the Compensation Committee (the
"Committee") of, or appointed by, the Board of Directors of the Company (the
"Board").  The Committee shall select one of its members as Chairman and shall
act by vote of a majority of a quorum, or by unanimous written consent.  A
majority of its members shall constitute a quorum.  The Committee shall be
governed by the provisions of the Company's Bylaws and of New Hampshire law
applicable to the Board, except as otherwise provided herein or determined by
the Board.

        1.2.2           
The Committee shall have full and complete authority, in its discretion,
but subject to the express provisions of this Plan (a) to approve the Employees
nominated by the management of the Company to be granted Awards or Stock
Options; (b) to determine the number of Awards or Stock Options to be granted
to an Employee; (c) to determine the time or times at which Awards or Stock
Options shall be granted; to establish the terms and conditions upon which
Awards or Stock Options may be exercised; (d) to remove or adjust any
restrictions and conditions upon Awards or Stock Options; (e) to specify, at
the time of grant, provisions relating to exercisability of Stock Options and
to accelerate or otherwise modify the exercisability of any Stock Options; and
(f) to adopt such rules and regulations and to make all other determinations
deemed necessary or desirable for the administration of this Plan.  All
interpretations and constructions of this Plan by the Committee, and all of its
actions hereunder, shall be binding and conclusive on all persons for all
purposes.

        1.2.3           
The Company hereby agrees to indemnify and hold harmless each Committee
member and each Employee, and the estate and heirs of such Committee member or
Employee, against all claims, liabilities, expenses, penalties, damages or
other pecuniary losses, including legal fees, which such Committee member or
Employee, his estate or heirs may suffer as a result of his responsibilities,
obligations or duties in connection with this Plan, to the extent that
insurance, if any, does not cover the payment of such items.  No member of the
Committee or the Board shall be liable for any action or determination made in
good faith with respect to this Plan or any Award or Stock Option granted
pursuant to this Plan.

        1.3                
Eligibility and Participation.  The Employees eligible under this
Plan shall be approved by the Committee from those Employees who, in the
opinion of the management of the Company, are in positions which enable them to
make significant contributions to the long-term performance and growth of the Company. 
In selecting the Employees to whom Award or Stock Options may be granted,
consideration shall be given to factors such as employment position, duties and
responsibilities, ability, productivity, length of service, morale, interest in
the Company and recommendations of supervisors.

 

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1.4                
Shares Subject to this Plan.  The maximum number of shares of the
Common Stock that may be issued pursuant to this Plan shall be 18,000,000
subject to adjustment pursuant to the provisions of Paragraph 4.1.  If shares
of the Common Stock awarded or issued under this Plan are reacquired by the
Company due to a forfeiture or for any other reason, such shares shall be
cancelled and thereafter shall again be available for purposes of this Plan. 
If a Stock Option expires, terminates or is cancelled for any reason without
having been exercised in full, the shares of the Common Stock not purchased
thereunder shall again be available for purposes of this Plan.

        2.                   
Provisions Relating to Stock Options.

        2.1                
Grants of Stock Options.  The Committee may grant Stock Options
in such amounts, at such times, and to the Employees nominated by the
management of the Company as the Committee, in its discretion, may determine. 
Stock Options granted under this Plan shall constitute "incentive stock options"
within the meaning of Section 422 of the Code, if so designated by the
Committee on the date of grant.  The Committee shall also have the discretion
to grant Stock Options which do not constitute incentive stock options, and any
such Stock Options shall be designated non-statutory stock options by the
Committee on the date of grant.  The aggregate Fair Market Value (determined as
of the time an incentive stock option is granted) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any Employee during any one calendar year (under all plans of the Company and
any parent or subsidiary of the Company) may not exceed the maximum amount
permitted under Section 422 of the Code (currently, $100,000.00).  Non-statutory
stock options shall not be subject to the limitations relating to incentive
stock options contained in the preceding sentence.  Each Stock Option shall be
evidenced by a written agreement (the "Option Agreement") in a form approved by
the Committee, which shall be executed on behalf of the Company and by the
Employee to whom the Stock Option is granted, and which shall be subject to the
terms and conditions of this Plan.  In the discretion of the Committee, Stock
Options may include provisions (which need not be uniform), authorized by the
Committee in its discretion, that accelerate an Employee's rights to exercise
Stock Options following a "Change in Control," upon termination of the
Employee's employment by the Company without "Cause" or by the Employee for
"Good Reason," as such terms are defined in Paragraph 3.1 hereof.  The holder
of a Stock Option shall not be entitled to the privileges of stock ownership as
to any shares of the Common Stock not actually issued to such holder.

        2.2                
Purchase Price.  The purchase price (the "Exercise Price") of
shares of the Common Stock subject to each Stock Option (the "Option Shares")
shall not be less than 85 percent of the Fair Market Value of the Common Stock
on the date of exercise.  For an Employee holding greater than 10 percent of
the total voting power of all stock of the Company, either Common or Preferred,
the Exercise Price of an incentive stock option shall be at least 110 percent
of the Fair Market Value of the Common Stock on the date of the grant of the
option.  As used herein, "Fair Market Value" means the mean between the highest
and lowest reported sales prices of the Common Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on The Nasdaq
Stock Market, or, if not so listed on any other national securities exchange or
The Nasdaq Stock Market, then the average
of the bid price of the Common Stock during the last five trading days on the
OTC Bulletin Board immediately
preceding the last trading day prior to the date with respect to which
the Fair Market Value is to be determined.  If the Common Stock is not then
publicly traded, then the Fair Market Value of the Common Stock shall be the book
value of the Company per share as determined on the last day of March, June,
September, or December in any year closest to the date when the determination
is to be made.  For the purpose of determining book value hereunder, book value
shall be determined by adding as of the applicable date called for herein the
capital, surplus, and undivided profits of the Company, and after having
deducted any reserves theretofore established; the sum of these items shall be
divided by the number of shares of the Common Stock outstanding as of said
date, and the quotient thus obtained shall represent the book value of each
share of the Common Stock of the Company.

        2.3                
Option Period.  The Stock Option period (the "Term") shall
commence on the date of grant of the Stock Option and shall be 10 years or such
shorter period as is determined by the Committee.  Each Stock Option shall
provide that it is exercisable over its term in such periodic installments as
the Committee in its sole discretion may determine.  Such provisions need not
be uniform.  Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") exempts persons normally subject to the reporting
requirements of Section 16(a) of the Exchange Act (the "Section 16 Reporting
Persons") pursuant to a qualified employee stock option plan from the normal
requirement of not selling until at least six months and one day from the date
the Stock Option is granted.

 

2

        2.4                
Exercise of Options.

        2.4.1           
Each Stock Option may be exercised in whole or in part (but not as to fractional
shares) by delivering it for surrender or endorsement to the Company, attention
of the Corporate Secretary, at the principal office of the Company, together
with payment of the Exercise Price and an executed Notice and Agreement of
Exercise in the form prescribed by Paragraph 2.4.2.  Payment may be made (a) in
cash, (b) by cashier's or certified check, (c) by surrender of previously owned
shares of the Common Stock valued pursuant to Paragraph 2.2 (if the Committee
authorizes payment in stock in its discretion), (d) by withholding from the
Option Shares which would otherwise be issuable upon the exercise of the Stock
Option that number of Option Shares equal to the exercise price of the Stock
Option, if such withholding is authorized by the Committee in its discretion,
or (e) in the discretion of the Committee, by the delivery to the Company of
the optionee's promissory note secured by the Option Shares, bearing interest
at a rate sufficient to prevent the imputation of interest under Sections 483 or
1274 of the Code, and having such other terms and conditions as may be
satisfactory to the Committee.

        2.4.2           
Exercise of each Stock Option is conditioned upon the agreement of the
Employee to the terms and conditions of this Plan and of such Stock Option as
evidenced by the Employee's execution and delivery of a Notice and Agreement of
Exercise in a form to be determined by the Committee in its discretion.  Such
Notice and Agreement of Exercise shall set forth the agreement of the Employee
that (a) no Option Shares will be sold or otherwise distributed in violation of
the Securities Act of 1933, as amended (the "Securities Act") or any other
applicable federal or state securities laws, (b) each Option Share certificate
may be imprinted with legends reflecting any applicable federal and state
securities law restrictions and conditions, (c) the Company may comply with
said securities law restrictions and issue "stop transfer" instructions to its
Transfer Agent and Registrar without liability, (d) if the Employee is a
Section 16 Reporting Person, the Employee will furnish to the Company a copy of
each Form 4 or Form 5 filed by said Employee and will timely file all reports
required under federal securities laws, and (e) the Employee will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company. 

        2.4.3           
No Stock Option shall be exercisable unless and until any applicable
registration or qualification requirements of federal and state securities
laws, and all other legal requirements, have been fully complied with.  The
Company will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no such Registration
Statement will be currently effective.  The exercise of Stock Options may be
temporarily suspended without liability to the Company during times when no
such Registration Statement is currently effective, or during times when, in
the reasonable opinion of the Committee, such suspension is necessary to
preclude violation of any requirements of applicable law or regulatory bodies
having jurisdiction over the Company.  If any Stock Option would expire for any
reason except the end of its term during such a suspension, then if exercise of
such Stock Option is duly tendered before its expiration, such Stock Option
shall be exercisable and exercised (unless the attempted exercise is withdrawn)
as of the first day after the end of such suspension.  The Company shall have
no obligation to file any Registration Statement covering resales of Option
Shares.  

        2.5                
Continuous Employment.  Except as provided in Paragraph 2.7
below, an Employee may not exercise a Stock Option unless from the date of
grant to the date of exercise the Employee remains continuously in the employ
of the Company.  For purposes of this Paragraph 2.5, the period of continuous
employment of an Employee with the Company shall be deemed to include (without
extending the term of the Stock Option) any period during which the Employee is
on leave of absence with the consent of the Company, provided that such leave
of absence shall not exceed three months and that the Employee returns to the
employ of the Company at the expiration of such leave of absence.  If the
Employee fails to return to the employ of the Company at the expiration of such
leave of absence, the Employee's employment with the Company shall be deemed
terminated as of the date such leave of absence commenced.  The continuous
employment of an Employee with the Company shall also be deemed to include any
period during which the Employee is a member of the Armed Forces of the United
States, provided that the Employee returns to the employ of the Company within
90 days (or such longer period as may be prescribed by law) from the date the
Employee first becomes entitled to a discharge from military service.  If an
Employee does not return to the employ of the Company within 90 days (or such
longer period as may be prescribed by law) from the date the Employee first
becomes entitled to a discharge from military service, the Employee's
employment with the Company shall be deemed to have terminated as of the date
the Employee's military service ended.

 

3

        2.6                
 Restrictions on Transfer.  Each Stock Option granted under this
Plan shall be transferable only by will or the laws of descent and
distribution.  No interest of any Employee under this Plan shall be subject to
attachment, execution, garnishment, sequestration, the laws of bankruptcy or
any other legal or equitable process.  Each Stock Option granted under this
Plan shall be exercisable during an Employee's lifetime only by the Employee or
by the Employee's legal representative.

        2.7                
Termination of Employment.

      2.7.1           
Upon an Employee's Retirement, Disability (both terms being defined
below) or death, (a) all Stock Options to the extent then presently exercisable
shall remain in full force and effect and may be exercised pursuant to the
provisions thereof, including expiration at the end of the fixed term thereof,
and (b) unless otherwise provided by the Committee, all Stock Options to the
extent not then presently exercisable by the Employee shall terminate as of the
date of such termination of employment and shall not be exercisable thereafter.

        2.7.2           
Upon the termination of the employment of an Employee with the Company
for any reason other than the reasons set forth in Paragraph 2.7.1 hereof, (a)
all Stock Options to the extent then presently exercisable by the Employee
shall remain exercisable only for a period of 90 days after the date of such
termination of employment (except that the 90 day period shall be extended to
12 months if the Employee shall die during such 90 day period), and may be
exercised pursuant to the provisions thereof, including expiration at the end
of the fixed term thereof, and (b) unless otherwise provided by the Committee,
all Stock Options to the extent not then presently exercisable by the Employee
shall terminate as of the date of such termination of employment and shall not
be exercisable thereafter. 

        2.7.3           
For purposes of this Plan:

                (a)           "Retirement"
shall mean an Employee's retirement from the employ of the Company on or after
the date on which the Employee attains the age of 65 years; and

                (b)           "Disability"
shall mean total and permanent incapacity of an Employee, due to physical
impairment or legally established mental incompetence, to perform the usual
duties of the Employee's employment with the Company, which disability shall be
determined (i) on medical evidence by a licensed physician designated by the
Committee, or (ii) on evidence that the Employee has become entitled to receive
primary benefits as a disabled employee under the Social Security Act in effect
on the date of such disability.

        3.                   
Provisions Relating to Awards.

       3.1                
Grant of Awards.  Subject to the provisions of this Plan, the
Committee shall have full and complete authority, in its discretion, but
subject to the express provisions of this Plan, to (1) grant Awards pursuant to
this Plan, (2) determine the number of shares of the Common Stock subject to
each Award (the "Award Shares"), (3) determine the terms and conditions (which
need not be identical) of each Award, including the consideration (if any) to
be paid by the Employee for such the Common Stock, which may, in the
Committee's discretion, consist of the delivery of the Employee's promissory
note meeting the requirements of Paragraph 2.4.1, (4) establish and modify
performance criteria for Awards, and (5) make all of the determinations
necessary or advisable with respect to Awards under this Plan.  Each Award
under this Plan shall consist of a grant of shares of the Common Stock subject
to a restriction period (after which the restrictions shall lapse), which shall
be a period commencing on the date the Award is granted and ending on such date
as the Committee shall determine (the "Restriction Period").  The Committee may
provide for the lapse of restrictions in installments, for acceleration of the
lapse of restrictions upon the satisfaction of such performance or other
criteria or upon the occurrence of such events as the Committee shall
determine, and for the early expiration of the Restriction Period upon an
Employee's death, Disability or Retirement as defined in Paragraph 2.7.3, or,
following a Change of Control, upon termination of an Employee's employment by
the Company without "Cause" or by the Employee for "Good Reason," as those
terms are defined herein.  For purposes of this Plan: 

 

4

        "Change of Control" shall be deemed to occur
(a) on the date the Company first has actual knowledge that any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) has become the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 40 percent or more of
the combined voting power of the Company's then outstanding securities, or (b)
on the date the stockholders of the Company approve (i) a merger of the Company
with or into any other corporation in which the Company is not the surviving
corporation or in which the Company survives as a subsidiary of another
corporation, (ii) a consolidation of the Company with any other corporation, or
(iii) the sale or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation.

        "Cause," when used with reference to
termination of the employment of an Employee by the Company for "Cause," shall
mean:

                               (a)           The Employee's continuing willful and material breach of his duties to the Company
after he receives a demand from the Chief Executive of the Company specifying
the manner in which he has willfully and materially breached such duties, other
than any such failure resulting from Disability of the Employee or his resignation
for "Good Reason," as defined herein; or

                               (b)           The conviction of the Employee of a felony; or

                               (c)           The Employee's commission of fraud in the course of his employment with the
Company, such as embezzlement or other material and intentional violation of
law against the Company; or

                                (d)           The Employee's gross misconduct causing material harm to the Company.

        "Good Reason" shall mean any one or more of the
following, occurring following or in connection with a Change of Control and
within 90 days prior to the Employee's resignation, unless the Employee shall
have consented thereto in writing

                                (a)           The
assignment to the Employee of duties inconsistent with his executive status
prior to the Change of Control or a substantive change in the officer or
officers to whom he reports from the officer or officers to whom he reported
immediately prior to the Change of Control; or

                                (b)           The elimination or reassignment of a majority of the duties and responsibilities
that were assigned to the Employee immediately prior to the Change of Control;
or

                                (c)           A
reduction by the Company in the Employee's annual base salary as in effect
immediately prior to the Change of Control; or

                                (d)           The
Company requiring the Employee to be based anywhere outside a 35-mile radius
from his place of employment immediately prior to the Change of Control, except
for required travel on the Company's business to an extent substantially
consistent with the Employee's business travel obligations immediately prior to
the Change of Control; or

                                (e)           The
failure of the Company to grant the Employee a performance bonus reasonably
equivalent to the same percentage of salary the Employee normally received
prior to the Change of Control, given comparable performance by the Company and
the Employee; or

                                (f)            The
failure of the Company to obtain a satisfactory Assumption Agreement (as
defined in Paragraph 4.12 of this Plan) from a successor, or the failure of
such successor to perform such Assumption Agreement. 

 

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        3.2                
Incentive Agreements.  Each Award granted under this Plan shall
be evidenced by a written agreement (an "Incentive Agreement") in a form
approved by the Committee and executed by the Company and the Employee to whom
the Award is granted.  Each Incentive Agreement shall be subject to the terms
and conditions of this Plan and other such terms and conditions as the
Committee may specify.

        3.3                
Waiver of Restrictions.  The Committee may modify or amend any
Award under this Plan or waive any restrictions or conditions applicable to the
Award; provided, however, that the Committee may not undertake any such
modifications, amendments or waivers if the effect thereof materially increases
the benefits to any Employee, or adversely affects the rights of any Employee
without his consent.

        3.4                
Terms and Conditions of Awards.  Upon receipt of an Award of
shares of the Common Stock under this Plan, even during the Restriction Period,
an Employee shall be the holder of record of the shares and shall have all the
rights of a stockholder with respect to such shares, subject to the terms and
conditions of this Plan and the Award.

        3.4.1           
Except as otherwise provided in this Paragraph 3.4, no shares of the
Common Stock received pursuant to this Plan shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period applicable to such shares.  Any purported disposition of
such the Common Stock in violation of this Paragraph 3.4.2 shall be null and
void.

        3.4.2           
If an Employee's employment with the Company terminates prior to the
expiration of the Restriction Period for an Award, subject to any provisions of
the Award with respect to the Employee's death, Disability or Retirement, or
Change of Control, all shares of the Common Stock subject to the Award shall be
immediately forfeited by the Employee and reacquired by the Company, and the Employee
shall have no further rights with respect to the Award.  In the discretion of
the Committee, an Incentive Agreement may provide that, upon the forfeiture by
an Employee of Award Shares, the Company shall repay to the Employee the
consideration (if any) which the Employee paid for the Award Shares on the
grant of the Award.  In the discretion of the Committee, an Incentive Agreement
may also provide that such repayment shall include an interest factor on such
consideration from the date of the grant of the Award to the date of such
repayment.

        3.4.3           
The Committee may require under such terms and conditions as it deems
appropriate or desirable that (a) the certificates for the Common Stock
delivered under this Plan are to be held in custody by the Company or a person
or institution designated by the Company until the Restriction Period expires,
(b) such certificates shall bear a legend referring to the restrictions on the
Common Stock pursuant to this Plan, and (c) the Employee shall have delivered
to the Company a stock power endorsed in blank relating to the Common Stock.

        4.                   
Miscellaneous Provisions.

        4.1                
Adjustments Upon Change in Capitalization.

        4.1.1           
The number and class of shares subject to each outstanding Stock Option,
the Exercise Price thereof (but not the total price), the maximum number of
Stock Options that may be granted under this Plan, the minimum number of shares
as to which a Stock Option may be exercised at any one time, and the number and
class of shares subject to each outstanding Award, shall be proportionately
adjusted in the event of any increase or decrease in the number of the issued
shares of the Common Stock which results from a split-up or consolidation of
shares, payment of a stock dividend or dividends exceeding a total of five
percent for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that (a) upon exercise of the Stock Option, the Employee shall receive the
number and class of shares the Employee would have received had the Employee
been the holder of the number of shares of the Common Stock for which the Stock
Option is being exercised upon the date of such change or increase or decrease
in the number of issued shares of the Company, and (b) upon the lapse of
restrictions of the Award Shares, the Employee shall receive the number and
class of shares the Employee would have received if the restrictions on the
Award Shares had lapsed on the date of such change or increase or decrease in
the number of issued shares of the Company.

        4.1.2           
Upon a reorganization, merger or consolidation of the Company with one
or more corporations as a result of which the Company is not the surviving
corporation or in which the Company survives as a wholly-owned subsidiary of
another corporation, or upon a sale of all or substantially all of the property
of the Company to another corporation, or any dividend or distribution to
stockholders of more than 10 percent of the Company's assets, adequate
adjustment or other provisions shall be made by the Company or other party to
such transaction so that there shall remain and/or be substituted for the
Option Shares and Award Shares provided for herein, the shares, securities or
assets which would have been issuable or payable in respect of or in exchange
for such Option Shares and Award Shares then remaining, as if the Employee had
been the owner of such shares as of the applicable date.  Any securities so
substituted shall be subject to similar successive adjustments.

 

6

        4.2                
Withholding Taxes.  The Company shall have the right at the time
of exercise of any Stock Option, the grant of an Award, or the lapse of
restrictions on Award Shares, to make adequate provision for any federal,
state, local or foreign taxes which it believes are or may be required by law
to be withheld with respect to such exercise (the "Tax Liability"), to ensure
the payment of any such Tax Liability.  The Company may provide for the payment
of any Tax Liability by any of the following means or a combination of such
means, as determined by the Committee in its sole and absolute discretion in
the particular case (1) by requiring the Employee to tender a cash payment to
the Company, (2) by withholding from the Employee's salary, (3) by withholding
from the Option Shares which would otherwise be issuable upon exercise of the
Stock Option, or from the Award Shares on their grant or date of lapse of
restrictions, that number of Option Shares or Award Shares having an aggregate
Fair Market Value (determined in the manner prescribed by Paragraph 2.2) as of
the date the withholding tax obligation arises in an amount which is equal to
the Employee's Tax Liability or (4) by any other method deemed appropriate by
the Committee.  Satisfaction of the Tax Liability of a Section 16 Reporting
Person may be made by the method of payment specified in clause (3) above only
if the following two conditions are satisfied:

                                (a)           The
withholding of Option Shares or Award Shares and the exercise of the related
Stock Option occur at least six months and one day following the date of grant
of such Stock Option or Award; and

                                (b)           The
withholding of Option Shares or Award Shares is made either (i) pursuant to an
irrevocable election (the "Withholding Election") made by the Employee at least
six months in advance of the withholding of Options Shares or Award Shares, or
(ii) on a day within a 10-day "window period" beginning on the third business
day following the date of release of the Company's quarterly or annual summary
statement of sales and earnings.

Anything herein to the contrary
notwithstanding, a Withholding Election may be disapproved by the Committee at
any time.

        4.3                
Relationship to Other Employee Benefit Plans.  Stock Options and
Awards granted hereunder shall not be deemed to be salary or other compensation
to any Employee for purposes of any pension, thrift, profit-sharing, stock
purchase or any other employee benefit plan now maintained or hereafter adopted
by the Company.

       4.4                
Amendments and Termination.  The Board of Directors may at any
time suspend, amend or terminate this Plan.  No amendment, except as provided
in Paragraph 2.8, or modification of this Plan may be adopted, except subject
to stockholder approval, which would (1) materially increase the benefits
accruing to the Employees under this Plan, (2) materially increase the number
of securities which may be issued under this Plan (except for adjustments
pursuant to Paragraph 4.1 hereof), or (3) materially modify the requirements as
to eligibility for participation in this Plan.

        4.5                
Successors in Interest.  The provisions of this Plan and the
actions of the Committee shall be binding upon all heirs, successors and
assigns of the Company and of the Employees.

        4.6                
Other Documents.  All documents prepared, executed or delivered
in connection with this Plan (including, without limitation, Option Agreements
and Incentive Agreements) shall be, in substance and form, as established and
modified by the Committee; provided, however, that all such documents shall be
subject in every respect to the provisions of this Plan, and in the event of
any conflict between the terms of any such document and this Plan, the
provisions of this Plan shall prevail.

        4.7                
No Obligation to Continue Employment.  This Plan and the grants
which might be made hereunder shall not impose any obligation on the Company to
continue to employ any Employee.  Moreover, no provision of this Plan or any
document executed or delivered pursuant to this Plan shall be deemed modified
in any way by any employment contract between an Employee (or other employee)
and the Company.

 

7

        4.8                
 Misconduct of an Employee.  Notwithstanding any other provision
of this Plan, if an Employee commits fraud or dishonesty toward the Company or
wrongfully uses or discloses any trade secret, confidential data or other
information proprietary to the Company, or intentionally takes any other action
materially inimical to the best interests of the Company, as determined by the
Committee, in its sole and absolute discretion, the Employee shall forfeit all
rights and benefits under this Plan.

        4.9             
Term of Plan.  This Plan was adopted by the Board effective June
24, 2003.  No Stock Options or Awards may be granted under this Plan after June
24, 2013.

        4.10             
Governing Law.  This Plan shall be construed in accordance with,
and governed by, the laws of the State of New Hampshire.

        4.11             
Approval.  No Stock Option shall be exercisable, or Award
granted, unless and until the Directors of the Company have approved this Plan
and all other legal requirements have been met.

        4.12             
Assumption Agreements.  The Company will require each successor,
(direct or indirect, whether by purchase, merger, consolidation or otherwise),
to all or substantially all of the business or assets of the Company, prior to
the consummation of each such transaction, to assume and agree to perform the
terms and provisions remaining to be performed by the Company under each
Incentive Agreement and Stock Option and to preserve the benefits to the
Employees thereunder.  Such assumption and agreement shall be set forth in a
written agreement in form and substance satisfactory to the Committee (an
"Assumption Agreement"), and shall include such adjustments, if any, in the
application of the provisions of the Incentive Agreements and Stock Options and
such additional provisions, if any, as the Committee shall require and approve,
in order to preserve such benefits to the Employees.  Without limiting the
generality of the foregoing, the Committee may require an Assumption Agreement
to include satisfactory undertakings by a successor:

                                (a)           To
provide liquidity to the Employees at the end of the Restriction Period
applicable to the Common Stock awarded to them under this Plan, or on the
exercise of Stock Options;

                                (b)           If
the succession occurs before the expiration of any period specified in the
Incentive Agreements for satisfaction of performance criteria applicable to the
Common Stock awarded thereunder, to refrain from interfering with the Company's
ability to satisfy such performance criteria or to agree to modify such
performance criteria and/or waive any criteria that cannot be satisfied as a
result of the succession; 

                                (c)           To
require any future successor to enter into an Assumption Agreement; and

                                (d)           To
take or refrain from taking such other actions as the Committee may require and
approve, in its discretion.

The Committee referred to in this Paragraph
4.12 is the Committee appointed by a Board of Directors in office prior to the
succession then under consideration.

        4.13             
Compliance with Rule 16b-3.  Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3.  To the extent
that any provision of this Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.

        4.14             
Information to Shareholders.  The Company shall furnish to each
of its stockholders financial statements of the Company at least annually.

 

8

IN WITNESS WHEREOF, this Plan has been executed
effective as of June 24, 2003.

  	ARS NETWORKS, INCORPORATED

 

  
	By  /s/ Sydney A. Harland                                 

    Sydney A. Harland, President

 

 

 

9

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