Document:

Exhibit 4.1.1

SUPPLEMENTAL INDENTURE

This Supplemental Indenture, dated as of August 10,
2006 (this “Supplemental Indenture”), between
Walter Industries, Inc. (hereinafter called the “Company”),
and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”) under the Indenture referred to below.

W I T N E S S E T H:

WHEREAS, the Company and the Trustee have heretofore
executed and delivered an Indenture, dated as of April 20, 2004 (as amended,
supplemented, waived or otherwise modified, the “Indenture”),
providing for the issuance of an aggregate principal amount of up to $175.0
million of 3.75% Convertible Subordinated Notes due 2024 of the Company (the “Notes”);

WHEREAS, pursuant to Section 11.01 of the Indenture,
the Indenture may be amended without the consent of any Noteholder to cure any
ambiguity or to correct or supplement any provision contained therein or in the
Notes or in any supplemental indenture that may be defective or inconsistent
with any other provisions contained therein or in any supplemental indenture;
and

WHEREAS, the Company has identified an ambiguity and
defect in a provision of the Indenture that it wishes to correct and
supplement;

NOW, THEREFORE, in consideration of the foregoing and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Noteholders as follows:

ARTICLE I

Definitions

SECTION 1.1  Defined Terms.  As used in this Supplemental Indenture, terms
defined in the Indenture or in the preamble or recital hereto are used herein
as therein defined.  The words “herein,” “hereof”
and “hereby” and other words of similar import used in this Supplemental
Indenture refer to this Supplemental Indenture as a whole and not to any
particular section hereof.

 

ARTICLE II

Amendments to Indenture

SECTION
2.1.  Amendments.  (a) 
The definition of “Last Reported Sale Price” is amended by inserting the
language that is italicized:

“Last Reported Sale Price”
of the Common Stock on any date means the closing sale price per share (or if
no closing sale price is reported, the average of the bid and asked prices or,
if more than one in either case, the average of the average bid and the average
asked prices) on that date as reported in composite transactions for the
principal U.S. securities exchange on which the Common Stock is traded or, if
the Common Stock is not listed on a U.S. national or regional securities
exchange, as reported by the Nasdaq National Market.  If the Common Stock is not listed for trading
on a U.S. national or regional securities exchange and not reported by the
Nasdaq National Market on the relevant date, the “Last Reported Sale Price”
will be the last quoted bid price for the Common Stock in the over-the-counter
market on the relevant date as reported by the National Quotation Bureau
Incorporated or similar organization.  If
the Common Stock is not so quoted, the “Last Reported Sale Price” will be the
average of the mid-point of the last bid and asked prices for the Common Stock
on the relevant date quoted by each of at least three nationally recognized
independent investment banking firms selected by the Company for this
purpose.  In
connection with any determination of the Spin-off Market Price for any share of
the capital stock of, or similar equity interests in, a Subsidiary or other
business unit of the Company, the “Last Reported Sale Price” shall be
determined as set forth above but substituting such capital stock of, or
similar equity interests in, a Subsidiary or other business unit of the Company
where there are references to “Common Stock”.

(b)   Section
15.05(d) of the Indenture is hereby amended by deleting the text marked below
that is stricken and inserting the language that is italicized:

(d) In case the Company
shall, by dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness, shares of capital stock, securities or other
property (but excluding any cash distributions referred to in Section 15.05(e),
rights, options or warrants referred to in Section 15.05(b) and any dividend or
distribution referred to in Section 15.05(a)), the Conversion Rate shall be
adjusted by dividing the Conversion Rate in effect immediately prior to the
close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction,

(i) the numerator of
which shall be the Current Market Price per share of the Common Stock on the
date fixed for such determination, and

(ii) the denominator of
which shall be such Current Market Price per share of the Common Stock plus the
then fair market value per share (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution) on
the date fixed for such determination of the evidences of indebtedness, shares
of capital stock, securities, or other property so to be distributed,

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such adjustment shall become effective immediately
prior to the opening of business on the Business Day following the date fixed
for the determination of stockholders entitled to receive such distribution; provided,
however, that in the event that the Company makes a distribution to all
holders of its Common Stock consisting of capital stock of, or similar equity
interest in, a subsidiary or other business unit of the Company, the Conversion
Rate shall be adjusted by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of which the
numerator shall be the Spin-off Market Price per share of the Common Stock on
the date fixed for such determination less the Spin-off Market Price per
share or similar equity interest of the subsidiary or other business unit of
the Company on such date and the denominator shall be the Spin-off Market
Price per share of the Common Stock plus the value per share
of Common Stock on such date of the share(s) or similar equity interest(s) of
the subsidiary or other business unit of the Company distributed based on the
Spin-off Market Price thereof on such date, such adjustment to
become effective 10 Trading Days after the effective date of such distribution
of capital stock of, or similar equity interest in, a subsidiary or other
business unit of the Company.  In any
case in which this Section 15.05(d) is applicable, Sections 15.05(a), (b) and
(e) shall not be applicable.  If such dividend
or distribution is not so paid or made, the Conversion Rate shall again be
adjusted to be the Conversion Rate that would then be in effect if such
dividend or distribution had not been declared.

ARTICLE III

Miscellaneous

SECTION 3.1  Parties.  Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee, any legal or equitable right, remedy or claim
under or in respect of this Supplemental Indenture or the Indenture or any
provision herein or therein contained.

SECTION 3.2  Governing Law; Waiver of
Jury Trial.  This Supplemental
Indenture shall be deemed a contract made under the laws of the State of New
York, and for all purposes shall be construed in accordance with the laws of
the State of New York (including Section 5-1401 of the New York General
Obligations Law or any successor to such statute).

EACH OF THE COMPANY AND THE TRUSTEE
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS SUPPLEMENTAL INDENTURE OR THE TRANSACTION CONTEMPLATED HEREBY.

SECTION 3.3  Severability Clause.  In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, then (to the extent
permitted by law) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

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SECTION 3.4  Ratification of Indenture;
Supplemental Indenture Part of Indenture. 
Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. 
This Supplemental Indenture shall form a part of the Indenture for all
purposes, and every holder of Notes heretofore or hereafter authenticated and
delivered shall be bound hereby.  The
Trustee makes no representation or warranty as to the validity or sufficiency
of this Supplemental Indenture.

SECTION 3.5  Execution in Counterparts.  This Indenture may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.

SECTION 3.6  Headings.  The headings in this Supplemental Indenture
are for convenience of reference only and shall not be deemed to alter or
affect the meaning or interpretation of any provisions hereof.

SECTION 3.7  Trustee.  The Trustee makes no representations as to
the validity or sufficiency of this Supplemental Indenture.  The recitals herein are deemed to be those of
the Company and not the Trustee and the Trustee assumes no responsibility for
their correctness.

IN WITNESS WHEREOF, the parties hereto have caused
this Supplemental Indenture to be duly executed as of the date first above
written.

	
  

  	
  WALTER
  INDUSTRIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Miles C.
  Dearden, III

  
	
   

  	
   

  	
  Name: Miles
  C. Dearden, III

  
	
   

  	
   

  	
  Title:   Senior
  Vice President and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW
  YORK TRUST COMPANY, N.A., as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Tina D.
  Gonzalez

  
	
   

  	
   

  	
  Name: Tina D.
  Gonzalez

  
	
   

  	
   

  	
  Title: Assistant
  Treasurer

  

 

 4Exhibit
10.1

IKANOS COMMUNICATIONS, INC.

AMENDED AND RESTATED 1999 STOCK PLAN

1.              Purposes of the Plan.  The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company’s business.  Options granted under the Plan may be
Incentive Stock Options or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant. 
Stock Purchase Rights may also be granted under the Plan.

2.              Definitions.  As used herein, the following definitions
shall apply:

(a)             “Administrator” means the
Board or any of its Committees as shall be administering the Plan in accordance
with Section 4 hereof.

(b)             “Applicable Laws” means the
requirements relating to the administration of stock option plans under U.S.
state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or
quoted and the applicable laws of any foreign country or jurisdiction where
Options or Stock Purchase Rights are granted under the Plan.

(c)             “Board” means the Board of
Directors of the Company.

(d)             “Code” means the Internal
Revenue Code of 1986, as amended.

(e)             “Committee” means a
committee of Directors appointed by the Board in accordance with Section 4
hereof.

(f)              “Common Stock” means the
Common Stock of the Company.

(g)             “Company” means IKANOS COMMUNICATIONS, INC., a Delaware
corporation.

(h)             “Consultant” means any
person who is engaged by the Company or any Parent or Subsidiary to render
consulting or advisory services and is compensated for such services.

(i)              “Director” means a member
of the Board of Directors of the Company.

(j)              “Employee” means any
person, including Officers and Directors, employed by the Company or any Parent
or Subsidiary of the Company.  A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any
successor.  For purposes of Incentive
Stock Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.  If reemployment 

 

 

upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the 181st day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.  Neither
service as a Director nor payment of a director’s fee by the Company shall be
sufficient to constitute “employment” by the Company.

(k)             “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

(l)              “Fair Market Value” means,
as of any date, the value of Common Stock determined as follows:

(i)               If the Common Stock is listed on
any established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;

(ii)              If the Common Stock is regularly
quoted by a recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high bid and low asked prices
for the Common Stock on the last market trading day prior to the day of
determination; or

(iii)             In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Administrator.

(m)            “Incentive Stock Option”
means an Option intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code.

(n)             “Nonstatutory Stock Option”
means an Option not intended to qualify as an Incentive Stock Option.

(o)             “Officer” means a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.

(p)             “Option” means a stock option
granted pursuant to the Plan.

(q)             “Option Agreement” means an
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. 
The Option Agreement is subject to the terms and conditions of the Plan.

(r)              “Option Exchange Program”
means a program whereby outstanding Options are exchanged for Options with a
lower exercise price.

 

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(s)             “Optioned Stock” means
the Common Stock subject to an Option or a Stock Purchase Right.

(t)              “Optionee” means the holder
of an outstanding Option or Stock Purchase Right granted under the Plan.

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

(v)             “Plan” means this Amended
and Restated 1999 Stock Plan.

(w)            “Restricted Stock” means
shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right
under Section 11 below.

(x)             “Section 16(b)” means
Section 16(b) of the Securities Exchange Act of 1934, as amended.

(y)             “Service Provider” means an
Employee, Director or Consultant.

(z)             “Share” means a share of the
Common Stock, as adjusted in accordance with Section 12 below.

(aa)           “Stock Purchase Right” means a
right to purchase Common Stock pursuant to Section 11 below.

(bb)          “Subsidiary” means a “subsidiary
corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.

3.              Stock Subject to the Plan.  Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 58,602,000 Shares.  The Shares may be authorized but unissued, or
reacquired Common Stock.

If an Option or
Stock Purchase Right expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated).  However, Shares that have actually been
issued under the Plan, upon exercise of either an Option or Stock Purchase
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such Shares
shall become available for future grant under the Plan.

4.              Administration of the Plan.

(a)             The Plan shall be administered by
the Board or a Committee appointed by the Board, which Committee shall be
constituted to comply with Applicable Laws.

 

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(b)             Powers of the Administrator.  Subject to the provisions of the Plan and, in
the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:

(i)               to determine the Fair Market
Value;

(ii)              to select the Service Providers to
whom Options and Stock Purchase Rights may from time to time be granted
hereunder;

(iii)             to determine the number of Shares
to be covered by each such award granted hereunder;

(iv)             to approve forms of agreement for
use under the Plan;

(v)              to determine the terms and
conditions, of any Option or Stock Purchase Right granted hereunder.  Such terms and conditions include, but are
not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

(vi)             to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(f) instead
of Common Stock;

(vii)            to reduce the exercise price of any
Option to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option has declined since the date the Option was
granted;

(viii)           to initiate an Option Exchange
Program;

(ix)             to prescribe, amend and rescind
rules and regulations relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of qualifying for preferred
tax treatment under foreign tax laws;

(x)              to allow Optionees to satisfy
withholding tax obligations by electing to have the Company withhold from the
Shares to be issued upon exercise of an Option or Stock Purchase Right that
number of Shares having a Fair Market Value equal to the amount required to be
withheld.  The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined.  All
elections by Optionees to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable; and

 

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(xi)             to construe and interpret the terms
of the Plan and awards granted pursuant to the Plan.

(c)             Effect of Administrator’s
Decision.  All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.

5.              Eligibility.

(a)             Nonstatutory Stock Options and
Stock Purchase Rights may be granted to Service Providers.  Incentive Stock Options may be granted only
to Employees.

(b)             Each Option shall be designated in
the Option Agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option.  However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. 
For purposes of this Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted.  The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(c)             Neither the Plan nor any Option or
Stock Purchase Right shall confer upon any Optionee any right with respect to
continuing the Optionee’s relationship as a Service Provider with the Company,
nor shall it interfere in any way with his or her right or the Company’s right
to terminate such relationship at any time, with or without cause.

6.              Term of Plan.  The Plan shall become effective upon its
adoption by the Board.  It shall continue
in effect for a term of ten (10) years unless sooner terminated under Section
14 of the Plan.

7.              Term of Option.  The term of each Option shall be stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof.  In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be
provided in the Option Agreement.

8.              Option Exercise Price and
Consideration.

(a)             The per share exercise price for
the Shares to be issued upon exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:

(i)               In the case of an Incentive Stock
Option

 

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(A)              granted to an Employee who, at the
time of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.

(B)              granted to any other Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.

(ii)              In the case of a Nonstatutory
Stock Option

(A)              granted to a Service Provider who,
at the time of grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.

(B)              granted to any other Service
Provider, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.

(iii)             Notwithstanding the foregoing,
Options may be granted with a per Share exercise price other than as required
above pursuant to a merger or other corporate transaction.

(b)             The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant).  Such consideration  may consist of (1) cash, (2) check,
(3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (6) any combination of the foregoing methods
of payment.  In making its determination
as to the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.

9.              Exercise of Option.

(a)             Procedure for Exercise;
Rights as a Shareholder. Any Option granted hereunder shall be exercisable
according to the terms hereof at such times and under such conditions as
determined by the Administrator and set forth in the Option Agreement, but in
no case at a rate of less than 20% per year over five (5) years from the date
the Option is granted.  Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
tolled during any unpaid leave of absence. 
An Option may not be exercised for a fraction of a Share.

An Option shall be
deemed exercised when the Company receives: (i) written or electronic notice of
exercise (in accordance with the Option Agreement) from the person entitled to
exercise the Option, and (ii) full payment for the Shares with respect to which
the Option is 

 

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exercised.  Full payment may consist of any consideration
and method of payment authorized by the Administrator and permitted by the
Option Agreement and the Plan.  Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse.  Until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be
issued) such Shares promptly after the Option is exercised.  No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 12 of the Plan.

Exercise of an
Option in any manner shall result in a decrease in the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.

(b)             Termination of Relationship
as a Service Provider.  If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of
at least thirty (30) days) to the extent that the Option is vested on the date
of termination (but in no event later than the expiration of the term of the
Option as set forth in the Option Agreement). 
To the extent that the Optionee is not entitled to exercise the Option
on the date of such termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.

(c)             Disability of Optionee.  If an Optionee ceases to be a Service
Provider as a result of Optionee’s disability, the Optionee may within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise an Option to the extent otherwise entitled to exercise it at
the date of such termination.  If such
disability is not a “disability” as such term is defined in Section 22(e)(3) of
the Code, in the case of an Incentive Stock Option such Incentive Stock Option
shall automatically cease to be treated as an Incentive Stock Option and shall
be treated for tax purposes as a Nonstatutory Stock Option on the day three
months and one day following such termination. 
To the extent that the Optionee is not entitled to exercise the Option
on the date of termination, or if the Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(d)             Death of Optionee.
If an Optionee dies while a Service Provider, the Option may be exercised at
any time within twelve (12) months following the date of death (but in no event
later than the expiration of the term of such Option as set forth in the Notice
of Grant) to the extent vested on the date of death.  If, at the time of death, the Optionee is not
vested as to the entire Option, the Shares covered by the unvested portion of
the Option shall revert to the Plan.  The
Option may be exercised by the executor or administrator of the Optionee’s
estate or, if none, by the person(s) entitled to exercise the Option under the
Optionee’s will or the laws of descent or distribution.  If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

 

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(e)             Buyout Provisions.  The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

10.            Limited
Transferability of Options and Stock Purchase Rights.  Unless determined otherwise by the
Administrator, Options and Stock Purchase Rights may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or the laws of descent and distribution, and may be exercised during the
lifetime of the Optionee, only by the Optionee. If the Administrator in its
sole discretion makes an Option or Stock Purchase Right transferable, such
Option or Stock Purchase Right may only be transferred (i) by will, (ii) by the
laws of descent and distribution, or (iii) to family members (within the
meaning of Rule 701 of the Securities Act) through gifts or domestic relations
orders, as permitted by Rule 701 of the Securities Act.

11.            Stock Purchase Rights.

(a)             Rights to Purchase.  Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. 
After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or electronically
of the terms, conditions and restrictions related to the offer, including the
number of Shares that such person shall be entitled to purchase, the price to
be paid, and the time within which such person must accept such offer.  The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations.  The offer shall be accepted
by execution of a Restricted Stock purchase agreement in the form determined by
the Administrator.

(b)             Repurchase Option.  Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser’s service with the Company for any reason (including death or
disability).  The purchase price for
Shares repurchased pursuant to the Restricted Stock purchase agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. 
The repurchase option shall lapse at such rate as the Administrator may
determine, but in no case at a rate of less than 20% per year over five years
from the date of purchase.

(c)             Other Provisions.  The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

(d)             Rights as a Shareholder.  Once the Stock Purchase Right is exercised,
the purchaser shall have rights equivalent to those of a shareholder and shall
be a shareholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. 
No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the Stock Purchase Right is exercised, except
as provided in Section 12 of the Plan.

 

 8
 

 

12.            Adjustments Upon Changes in Capitalization,
Merger or Asset Sale.

(a)             Changes in Capitalization.  Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company. 
The conversion of any convertible securities of the Company shall not be
deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.

(b)             Dissolution or Liquidation.  In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify the Optionee at
least fifteen (15) days prior to such proposed action.  To the extent it has not been previously
exercised, the Option or Stock Purchase Right shall terminate immediately prior
to the consummation of such proposed action.

(c)             Merger or Asset Sale.  In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation.  In the event that the successor corporation
refuses to assume or substitute for the Option or Stock Purchase Right, the
Optionee shall fully vest in and have the right to exercise the Option or Stock
Purchase Right as to all of the Optioned Stock, including Shares as to which it
would not otherwise be vested or exercisable. 
If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or sale
of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period.  For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
or Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen 

 

 9
 

 

by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.

13.            Time of Granting Options
and Stock Purchase Rights.  The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such other date as is determined by the
Administrator.  Notice of the
determination shall be given to each Employee or Consultant to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date
of such grant.

14.            Amendment and Termination of the Plan.

(a)             Amendment and Termination.  The Board may at any time amend, alter,
suspend or terminate the Plan.

(b)             Shareholder Approval.  The Board shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

(c)             Effect of Amendment or Termination.  No amendment, alteration, suspension or
termination of the Plan shall impair the rights of any Optionee, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.  Termination of the Plan shall not affect the
Administrator’s ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.

15.            Conditions Upon Issuance of Shares.

(a)             Legal Compliance.  Shares shall not be issued pursuant to the
exercise of an Option  unless the
exercise of such Option and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

(b)             Investment Representations.  As a condition to the exercise of an Option,
the Administrator may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

16.            Inability to Obtain Authority.  The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company’s counsel to be 

 

 10
 

 

necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.

17.            Reservation of Shares.  The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

18.            Shareholder Approval.  The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted.  Such shareholder approval
shall be obtained in the degree and manner required under Applicable Laws.

19.            Information to Optionees and
Purchasers.  The Company shall
provide to each Optionee and to each individual who acquires Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial
statements.  The Company shall not be
required to provide such statements to key employees whose duties in connection
with the Company assure their access to equivalent information.

 11

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