Document:

Exhibit 4.1

 

Exhibit 4.1

ARS NETWORKS, INCORPORATED 

EMPLOYEE STOCK INCENTIVE PLAN FOR THE YEAR 2004 No. 1

 

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, who make
significant and extraordinary contributions to the long-term growth and
performance of the Company, with equity-based compensation incentives, 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.

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 190,000,000
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.  In the event
that any outstanding Stock Option or Award under this Plan for any reason
expires or is terminated, the shares of Common Stock allocable to the
unexercised portion of the Stock Option or Award shall be available for
issuance under the ARS Networks, Incorporated Non-Employee Directors and
Consultants Retainer Stock Plan for the Year 2004 No. 1.

 

 

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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 may determine, subject to the provisions of Paragraph 2.4.1. 
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.

 

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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.  Subject to the provisions
of this Paragraph 2.4 and Paragraph 2.5, the Employee has the right to exercise
his or her Stock Options at the rate of at least 20 percent per year over five
years from the date the Stock Option is granted.

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.  At no time shall the
total number of securities issuable upon exercise of all outstanding options
under this Plan, and the total number of securities provided for under any
bonus or similar plan or agreement of the Company exceed a number of securities
which is equal to 30 percent of the then outstanding securities of the Company,
unless a percentage higher than 30 percent is approved by at least two-thirds
of the outstanding securities entitled to vote.  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.

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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, 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.  Unless employment is terminated for cause, as
defined by applicable law, the right to exercise in the event of termination of
employment, to the extent that the optionee is entitled to exercise on the date
the employment terminates as follows:

                                (i)            At
least six months from the date of termination if termination was caused by
death or disability.

                                (ii)           At
least 30 days from the date of termination if termination was caused by other
than death or disability.

2.7.2           
Upon the termination of the employment of an Employee for any reason
other than those specifically set forth in Paragraph 2.7.1, (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.

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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:  

"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

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                                (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.  

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                
Amendment, Modification and 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 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.

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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.

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.

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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 3.3, 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                
Fairness of the Repurchase Price.  In the event that the Company
repurchases securities upon termination of employment pursuant to this Plan,
either: (a) the price will not be less than the fair market value of the
securities to be repurchased on the date of termination of employment, and the
right to repurchase will be exercised for cash or cancellation of purchase
money indebtedness for the securities within 90 days of termination of the
employment (or in the case of securities issued upon exercise of options after
the date of termination, within 90 days after the date of the exercise), and the
right terminates when the Company's securities become publicly traded, or (b)
Company will repurchase securities at the original purchase price, provided
that the right to repurchase at the original purchase price lapses at the rate
of at least 20 percent of the securities per year over five years from the date
the option is granted (without respect to the date the option was exercised or
became exercisable) and the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the securities within 90 days
of termination of employment (or in case of securities issued upon exercise of
options after the date of termination, within 90 days after the date of the
exercise).

4.8                
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.

4.9                
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
which results in material harm to the Company, as determined by the Committee,
in its sole and absolute discretion, the Employee shall forfeit all rights and
benefits under this Plan.

4.10             
Term of Plan.  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.  This Plan was adopted by the
Board effective January 26, 2004.  No Stock Options or Awards may be granted
under this Plan after January 26, 2014.

4.11             
Governing Law.  This Plan and all actions taken thereunder shall
be governed by, and construed in accordance with, the laws of the State of New
Hampshire.

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:

8

 

                                (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.

4.13             
Compliance with Rule 16b-3.  Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 promulgated
under the Exchange Act.  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.

IN WITNESS WHEREOF, this Plan has been executed
effective as of January 26, 2004.

ARS NETWORKS, INCORPORATED

By /s/ Sydney Harland                                        

    Sydney Harland, President

 

 

 

9Exhibit 4.2

 

Exhibit 4.2

ARS NETWORKS, INCORPORATED 

NON-EMPLOYEE DIRECTORS AND CONSULTANTS RETAINER STOCK PLAN FOR THE

YEAR 2004 NO.1

1.                   
Introduction.  This Plan shall be known as the "ARS Networks,
Incorporated Non-Employee Directors and Consultants Retainer Stock Plan for the
Year 2004 No.1," and is hereinafter referred to as the "Plan."  The purposes of
this Plan are to enable ARS Networks, Incorporated, a New Hampshire corporation
(the "Company"), to promote the interests of the Company and its stockholders
by attracting and retaining non-employee Directors and Consultants capable of
furthering the future success of the Company and by aligning their economic
interests more closely with those of the Company's stockholders, by paying
their retainer or fees in the form of shares of the Company's common stock, par
value $0.0001 per share (the "Common Stock").

2.                   
Definitions.  The following terms shall have the meanings set
forth below:

"Board" means the Board of Directors of the
Company.

"Change of Control" has the meaning set forth
in Paragraph 12(d) hereof.

"Code" means the Internal Revenue Code of 1986,
as amended, and the rules and regulations thereunder. References to any
provision of the Code or rule or regulation thereunder shall be deemed to
include any amended or successor provision, rule or regulation.

"Committee" means the committee that
administers this Plan, as more fully defined in Paragraph 13 hereof.

"Common Stock" has the meaning set forth in
Paragraph 1 hereof.

"Company" has the meaning set forth in
Paragraph 1 hereof.

"Deferral Election" has the meaning set forth
in Paragraph 6 hereof.

"Deferred Stock Account" means a bookkeeping
account maintained by the Company for a Participant representing the
Participant's interest in the shares credited to such Deferred Stock Account pursuant
to Paragraph 7 hereof.

"Delivery Date" has the meaning set forth in
Paragraph 6 hereof.

"Director" means an individual who is a member
of the Board of Directors of the Company.

"Dividend Equivalent" for a given dividend or
other distribution means a number of shares of the Common Stock having a Fair
Market Value, as of the record date for such dividend or distribution, equal to
the amount of cash, plus the Fair Market Value on the date of distribution of
any property, that is distributed with respect to one share of the Common Stock
pursuant to such dividend or distribution; such Fair Market Value to be
determined by the Committee in good faith.

"Effective Date" has the meaning set forth in
Paragraph 3 hereof.

"Exchange Act" has the meaning set forth in
Paragraph 12(d) hereof.

 

1

 

"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.

"Participant" has the meaning set forth in
Paragraph 4 hereof.

"Payment Time" means the time when a Stock
Retainer is payable to a Participant pursuant to Paragraph 5 hereof (without
regard to the effect of any Deferral Election).

"Stock Retainer" has the meaning set forth in
Paragraph 5 hereof.

"Third Anniversary" has the meaning set forth
in Paragraph 6 hereof.

3.                     
Effective Date of the Plan.  This Plan was adopted by the Board
effective January 26, 2004 (the "Effective Date").

4.                    
Eligibility.  Each individual who is a Director or Consultant on
the Effective Date and each individual who becomes a Director or Consultant
thereafter during the term of this Plan, shall be a participant (the
"Participant") in this Plan, in each case during such period as such individual
remains a Director or Consultant and is not an employee of the Company or any
of its subsidiaries.  Each credit of shares of the Common Stock pursuant to
this Plan shall be evidenced by a written agreement duly executed and delivered
by or on behalf of the Company and a Participant, if such an agreement is
required by the Company to assure compliance with all applicable laws and
regulations.  

5.                   
Grants of Shares.  Commencing on the Effective Date, the amount
of compensation for service to directors or consultants shall be payable in
shares of the Common Stock (the "Stock Retainer") pursuant to this Plan at the
deemed issuance price of $0.0065 per Share.

6.                    
Deferral Option.  From and after the Effective Date, a
Participant may make an election (a "Deferral Election") on an annual basis to
defer delivery of the Stock Retainer specifying which one of the following ways
the Stock Retainer is to be delivered (a) on the date which is three years
after the Effective Date for which it was originally payable (the "Third
Anniversary"), (b) on the date upon which the Participant ceases to be a
Director or Consultant for any reason (the "Departure Date") or (c) in five
equal annual installments commencing on the Departure Date (the "Third
Anniversary" and "Departure Date" each being referred to herein as a "Delivery
Date").  Such Deferral Election shall remain in effect for each Subsequent Year
unless changed, provided that, any Deferral Election with respect to a
particular Year may not be changed less than six months prior to the beginning
of such Year, and provided, further, that no more than one Deferral Election or
change thereof may be made in any Year.

Any Deferral Election and any change or
revocation thereof shall be made by delivering written notice thereof to the
Committee no later than six months prior to the beginning of the Year in which
it is to be effected; provided that, with respect to the Year beginning on the
Effective Date, any Deferral Election or revocation thereof must be delivered
no later than the close of business on the 30th day after the Effective Date.

7.                   
Deferred Stock Accounts.  The Company shall maintain a Deferred
Stock Account for each Participant who makes a Deferral Election to which shall
be credited, as of the applicable Payment Time, the number of shares of the
Common Stock payable pursuant to the Stock Retainer to which the Deferral
Election relates.  So long as any amounts in such Deferred Stock Account have
not been delivered to the Participant under Paragraph 8 hereof, each Deferred
Stock Account shall be credited as of the payment date for any dividend paid or
other distribution made with respect to the Common Stock, with a number of
shares of the Common Stock equal to (a) the number of shares of the Common
Stock shown in such Deferred Stock Account on the record date for such dividend
or distribution multiplied by (b) the Dividend Equivalent for such dividend or
distribution.

2

8.                   
Delivery of Shares.

(a)           The shares of the Common Stock in
a Participant's Deferred Stock Account with respect to any Stock Retainer for
which a Deferral Election has been made (together with dividends attributable
to such shares credited to such Deferred Stock Account) shall be delivered in
accordance with this Paragraph 8 as soon as practicable after the applicable
Delivery Date.  Except with respect to a Deferral Election pursuant to
Paragraph 6 hereof, or other agreement between the parties, such shares shall
be delivered at one time; provided that, if the number of shares so delivered
includes a fractional share, such number shall be rounded to the nearest whole
number of shares.  If the Participant has in effect a Deferral Election
pursuant to Paragraph 6 hereof, then such shares shall be delivered in five
equal annual installments (together with dividends attributable to such shares
credited to such Deferred Stock Account), with the first such installment being
delivered on the first anniversary of the Delivery Date; provided that, if in
order to equalize such installments, fractional shares would have to be
delivered, such installments shall be adjusted by rounding to the nearest whole
share.  If any such shares are to be delivered after the Participant has died
or become legally incompetent, they shall be delivered to the Participant's
estate or legal guardian, as the case may be, in accordance with the foregoing;
provided that, if the Participant dies with a Deferral Election pursuant to
Paragraph 6 hereof in effect, the Committee shall deliver all remaining
undelivered shares to the Participant's estate immediately.  References to a
Participant in this Plan shall be deemed to refer to the Participant's estate
or legal guardian, where appropriate.

(b)           The Company may, but shall not be
required to, create a grantor trust or utilize an existing grantor trust (in
either case, "Trust") to assist it in accumulating the shares of the Common
Stock needed to fulfill its obligations under this Paragraph 8.  However,
Participants shall have no beneficial or other interest in the Trust and the
assets thereof, and their rights under this Plan shall be as general creditors
of the Company, unaffected by the existence or nonexistence of the Trust,
except that deliveries of Stock Retainers to Participants from the Trust shall,
to the extent thereof, be treated as satisfying the Company's obligations under
this Paragraph 8.

9.                   
Share Certificates; Voting and Other Rights.  The certificates for
shares delivered to a Participant pursuant to Paragraph 8 above shall be issued
in the name of the Participant, and from and after the date of such issuance
the Participant shall be entitled to all rights of a stockholder with respect
to the Common Stock for all such shares issued in his name, including the right
to vote the shares, and the Participant shall receive all dividends and other
distributions paid or made with respect thereto.

10.                 
General Restrictions.

                (a)           Notwithstanding
any other provision of this Plan or agreements made pursuant thereto, the
Company shall not be required to issue or deliver any certificate or
certificates for shares of the Common Stock under this Plan prior to
fulfillment of all of the following conditions:  

                                (i)            Listing
or approval for listing upon official notice of issuance of such shares on the
New York Stock Exchange, Inc., or such other securities exchange as may at the
time be a market for the Common Stock;

                                (ii)           Any
registration or other qualification of such shares under any state or federal
law or regulation, or the maintaining in effect of any such registration or
other qualification which the Committee shall, upon the advice of counsel, deem
necessary or advisable; and

                                (iii)          Obtaining
any other consent, approval, or permit from any state or federal governmental
agency which the Committee shall, after receiving the advice of counsel,
determine to be necessary or advisable.

 

 

3

 

                (b)           Nothing contained
in this Plan shall prevent the Company from adopting other or additional
compensation arrangements for the Participants.

11.                
Shares Available.  Subject to Paragraph 12 below, the maximum
number of shares of the Common Stock which may in the aggregate be paid as
Stock Retainers pursuant to this Plan is 10,000,000.  Shares of the Common
Stock issuable under this Plan may be taken from treasury shares of the Company
or purchased on the open market.  In the event that any outstanding Stock
Retainer under this Plan for any reason expires or is terminated, the shares of
Common Stock allocable to the unexercised portion of the Stock Retainer shall
be available for issuance under the ARS Networks, Incorporated Employee Stock
Incentive Plan for the Year 2004 No. 1.

12.                
Adjustments; Change of Control.

                (a)           In the event that
there is, at any time after the Board adopts this Plan, any change in corporate
capitalization, such as a stock split, combination of shares, exchange of
shares, warrants or rights offering to purchase the Common Stock at a price
below its Fair Market Value, reclassification, or recapitalization, or a
corporate transaction, such as any merger, consolidation, separation, including
a spin-off, stock dividend, or other extraordinary distribution of stock or
property of the Company, any reorganization (whether or not such reorganization
comes within the definition of such term in Section 368 of the Code) or any
partial or complete liquidation of the Company (each of the foregoing a
"Transaction"), in each case other than any such Transaction which constitutes
a Change of Control (as defined below), (i) the Deferred Stock Accounts shall
be credited with the amount and kind of shares or other property which would
have been received by a holder of the number of shares of the Common Stock held
in such Deferred Stock Account had such shares of the Common Stock been
outstanding as of the effectiveness of any such Transaction, (ii) the number
and kind of shares or other property subject to this Plan shall likewise be
appropriately adjusted to reflect the effectiveness of any such Transaction,
and (iii) the Committee shall appropriately adjust any other relevant
provisions of this Plan and any such modification by the Committee shall be
binding and conclusive on all persons.

                (b)           If the shares of
the Common Stock credited to the Deferred Stock Accounts are converted pursuant
to Paragraph 12(a) into another form of property, references in this Plan to
the Common Stock shall be deemed, where appropriate, to refer to such other
form of property, with such other modifications as may be required for this
Plan to operate in accordance with its purposes.  Without limiting the
generality of the foregoing, references to delivery of certificates for shares
of the Common Stock shall be deemed to refer to delivery of cash and the
incidents of ownership of any other property held in the Deferred Stock
Accounts.

                (c)           In lieu of the
adjustment contemplated by Paragraph 12(a), in the event of a Change of
Control, the following shall occur on the date of the Change of Control (i) the
shares of the Common Stock held in each Participant's Deferred Stock Account
shall be deemed to be issued and outstanding as of the Change of Control; (ii)
the Company shall forthwith deliver to each Participant who has a Deferred
Stock Account all of the shares of the Common Stock or any other property held
in such Participant's Deferred Stock Account; and (iii) this Plan shall be
terminated.

                (d)           For purposes of
this Plan, Change of Control shall mean any of the following events:

                                (i)            The
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either
(1) the then outstanding shares of the Common Stock of the Company (the
"Outstanding Company Common Stock"), or (2) the combined voting power of then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change of
Control (A) any acquisition directly from the Company (excluding an acquisition
by virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company), (B) any
acquisition by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A), (B) and (C)
of paragraph (iii) of this Paragraph 12(d) are satisfied; or

4

 

                                (ii)           Individuals
who, as of the date hereof, constitute the Board of the Company (as of the date
hereof, "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or

                                (iii)          Approval
by the stockholders of the Company of a reorganization, merger, binding share
exchange or consolidation, unless, following such reorganization, merger,
binding share exchange or consolidation (A) more than 60 percent of,
respectively, then outstanding shares of common stock of the corporation
resulting from such reorganization, merger, binding share exchange or
consolidation and the combined voting power of then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, binding
share exchange or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger, binding share
exchange or consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger, binding
share exchange or consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger, binding share exchange or consolidation,
directly or indirectly, 20 percent or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20 percent or more of, respectively, then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger, binding share exchange or consolidation or the combined
voting power of then outstanding voting securities of such corporation entitled
to vote generally in the election of directors, and (C) at least a majority of
the members of the board of directors of the corporation resulting from such
reorganization, merger, binding share exchange or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger, binding share exchange or
consolidation; or  

                                (iv)          Approval
by the stockholders of the Company of (1) a complete liquidation or dissolution
of the Company, or (2) the sale or other disposition of all or substantially
all of the assets of the Company, other than to a corporation, with respect to
which following such sale or other disposition, (A) more than 60 percent of,
respectively, then outstanding shares of common stock of such corporation and
the combined voting power of then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the Company or such corporation
and any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20 percent or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 20 percent or more of,
respectively, then outstanding shares of common stock of such corporation and
the combined voting power of then outstanding voting securities of such
corporation entitled to vote generally in the election of directors, and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition
of assets of the Company.

5

 

13.                
Administration; Amendment and Termination.

                (a)           This Plan shall
be administered by a committee consisting of two members who shall be the current
directors of the Company or senior executive officers or other directors who
are not Participants as may be designated by the Chief Executive Officer (the
"Committee"), which shall have full authority to construe and interpret this
Plan, to establish, amend and rescind rules and regulations relating to this
Plan, and to take all such actions and make all such determinations in
connection with this Plan as it may deem necessary or desirable.

                (b)           The Board may
from time to time make such amendments to this Plan, including to preserve or
come within any exemption from liability under Section 16(b) of the Exchange
Act, as it may deem proper and in the best interest of the Company without
further approval of the Company's stockholders, provided that, to the extent
required under New Hampshire law or to qualify transactions under this Plan for
exemption under Rule 16b-3 promulgated under the Exchange Act, no amendment to
this Plan shall be adopted without further approval of the Company's
stockholders and, provided, further, that if and to the extent required for
this Plan to comply with Rule 16b-3 promulgated under the Exchange Act, no
amendment to this Plan shall be made more than once in any six month period
that would change the amount, price or timing of the grants of the Common Stock
hereunder other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the regulations
thereunder.  The Board may terminate this Plan at any time by a vote of a
majority of the members thereof.  

14.           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.

15.           Term of Plan.  No shares
of the Common Stock shall be issued, unless and until the Directors of the
Company have approved this Plan and all other legal requirements have been
met.  This Plan was adopted by the Board effective January 26, 2004, and shall
expire on January 26, 2014.

16.           Governing Law.  This Plan and all
actions taken thereunder shall be governed by, and construed in accordance
with, the laws of the State of New Hampshire.

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

18.           Miscellaneous.

                (a)           Nothing in this
Plan shall be deemed to create any obligation on the part of the Board to
nominate any Director for reelection by the Company's stockholders or to limit
the rights of the stockholders to remove any Director.

                (b)           The Company shall
have the right to require, prior to the issuance or delivery of any shares of
the Common Stock pursuant to this Plan, that a Participant make arrangements
satisfactory to the Committee for the withholding of any taxes required by law
to be withheld with respect to the issuance or delivery of such shares,
including, without limitation, by the withholding of shares that would
otherwise be so issued or delivered, by withholding from any other payment due
to the Participant, or by a cash payment to the Company by the Participant.

 

6

                 IN WITNESS WHEREOF, this Plan has been executed
effective as of January 26, 2004.

ARS Networks,
Incorporated

By /s/ Sydney Harland                                                        

    Sydney Harland, President

 

 

 

 

 

 

 

7

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