Exhibit 10.1

 

CORPORATE AGREEMENT

 

THIS CORPORATE AGREEMENT (“ Agreement ”) is entered into as of May 26, 2006 by and between WALTER INDUSTRIES, INC., a Delaware corporation (“ Walter ”), and MUELLER WATER PRODUCTS, INC., a Delaware corporation (“ Mueller ”).

 

RECITALS

 

A.                                    Walter beneficially owns all of the issued and outstanding shares of capital stock of Mueller, and Mueller is a member of Walter’s “affiliated group” of corporations (the “ Walter Group ”) for federal income tax purposes.

 

B.                                      The parties are contemplating the possibility that (i) Mueller will sell shares of Series A Common Stock, par value $0.01 per share (“ Series A Common Stock ”), in an initial public offering (the “ Initial Public Offering ”) registered under the Securities Act of 1933, as amended, and (ii) immediately following the Initial Public Offering, Walter will own all of the outstanding shares of Series B Common Stock, par value $0.01 per share (“ Series B Common Stock ”), of Mueller, which will have eight votes per share and will be a series of common stock separate from the Series A Common Stock.

 

C.                                      The parties desire to enter into this Agreement to set forth their agreement regarding (i) Walter’s rights to purchase additional shares of Series B Common Stock upon any issuance of certain classes of capital stock of Mueller to any person to permit Walter to maintain its percentage ownership interest in Mueller, (ii) Walter’s rights to purchase shares of non-voting classes of capital stock of Mueller to permit Walter to own eighty percent (80%) of each class of such stock outstanding, (iii) certain registration rights with respect to Series B Common Stock (and any other securities issued in respect thereof or in exchange therefor) and (iv) certain representations, warranties, covenants and agreements applicable so long as Mueller is a subsidiary of Walter.

 

AGREEMENTS

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Walter and Mueller, for themselves, their successors and assigns, hereby agree as follows:

 

ARTICLE I
DEFINITIONS

 

1.1.                               Definitions . As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms described:

 

“ Affiliate ” means, with respect to a given Person, any Person controlling, controlled by or under common control with such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or

 

 

other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

“ Agreement ” has the meaning ascribed thereto in the preamble hereto, as such agreement may be amended and supplemented from time to time in accordance with its terms.

 

“ Applicable Stock ” means at any time the (i) shares of Common Stock owned by the Walter Entities that were owned on the date hereof, plus (ii) shares of Series B Common Stock purchased by the Walter Entities pursuant to Article II of this Agreement, plus (iii) shares of Common Stock that were issued to Walter Entities in respect of shares described in either clause (i) or clause (ii) in any reclassification, share combination, share subdivision, share dividend, share exchange, merger, consolidation or similar transaction or event.

 

“ Series A Common Stock ” has the meaning ascribed thereto in the recitals to this Agreement.

 

“ Series B Common Stock ” has the meaning ascribed thereto in the recitals to this Agreement.

 

“ Series B Common Stock Option ” has the meaning ascribed thereto in Section 2.1(a).

 

“ Series B Common Stock Option Notice ” has the meaning ascribed thereto in Section 2.2.

 

“ Series B Transferee ” shall have the meaning ascribed thereto in Mueller’s Restated Certificate of Incorporation.

 

“ Common Stock ” means the Series A Common Stock, the Series B Common Stock, any other class of Mueller’s capital stock representing the right to vote generally for the election of directors and, for so long as Mueller continues to be a subsidiary corporation includable in a consolidated federal income tax return of the Walter Group, any other security of Mueller treated as stock for purposes of Section 1504 of the Internal Revenue Code of 1986, as amended.

 

 “ Company Securities ” has the meaning ascribed thereto in Section 3.2(b).

 

“ Disadvantageous Condition ” has the meaning ascribed thereto in Section 3.1(a).

 

 “ Holder ” means Walter, the other Walter Entities and any Transferee.

 

“ Holder Securities ” has the meaning ascribed thereto in Section 3.2(b).

 

“ Initial Public Offering ” has the meaning ascribed thereto in the recitals to this Agreement.

 

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“ Initial Public Offering Date ” means the date of completion of the initial sale of Series A Common Stock in the Initial Public Offering.

 

“ Issuance Event ” has the meaning ascribed thereto in Section 2.2.

 

“ Issuance Event Date ” has the meaning ascribed thereto in Section 2.2.

 

“ Market Price ” of any shares of Series A Common Stock on any date means (i) the average of the last sale price of such shares on each of the five trading days immediately preceding such date on the New York Stock Exchange, Inc. or, if such shares are not listed thereon, on the principal national securities exchange or automated interdealer quotation system on which such shares are traded or (ii) if such sale prices are unavailable or such shares are not so traded, the value of such shares on such date determined in accordance with agreed-upon procedures reasonably satisfactory to Mueller and Walter.

 

“ Mueller ” has the meaning ascribed thereto in the preamble hereto.

 

“ Mueller Entities ” means Mueller and its Subsidiaries, and “ Mueller Entity ” shall mean any of the Mueller Entities.

 

“ Nonvoting Stock ” means any class of Mueller’s capital stock not representing the right to vote generally for the election of directors.

 

“ Nonvoting Stock Option ” has the meaning ascribed thereto in Section 2.1(c).

 

“ Nonvoting Stock Option Notice ” has the meaning ascribed thereto in Section 2.2.

 

“ Other Holders ” has the meaning ascribed thereto in Section 3.2(c).

 

“ Other Securities ” has the meaning ascribed thereto in Section 3.2.

 

“ Ownership Percentage ” means, at any time, the fraction, expressed as a percentage and rounded to the next highest thousandth of a percent, whose numerator is the aggregate Value of the Applicable Stock and whose denominator is the aggregate Value of the then-outstanding shares of Common Stock of Mueller; provided , however , that any shares of Common Stock issued by Mueller in violation of its obligations under Article II of this Agreement shall not be deemed outstanding for the purpose of determining the Ownership Percentage. For purposes of this definition, “ Value ” means, with respect to any share of stock, the value of such share determined by Walter under principles applicable for purposes of Section 1504 of the Internal Revenue Code of 1986, as amended.

 

“ Person ” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity.

 

“ Registrable Securities ” means shares of Series A Common Stock, shares of Series B Common Stock and any stock or other securities into which or for which such Common

 

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Stock may hereafter be changed, converted or exchanged and any other shares or securities issued to Holders of such Common Stock (or such shares or other securities into which or for which such shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, share dividend, share exchange, merger, consolidation or similar transaction or event or pursuant to the Nonvoting Stock Option. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been distributed to the public in accordance with Rule 144, (iii) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by Mueller and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any state securities or blue sky law then in effect or (iv) they shall have ceased to be outstanding.

 

“ Registration Expenses ” means any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article III, including, without limitation, (i) the fees, disbursements and expenses of Mueller’s counsel and accountants and the fees and expenses of counsel selected by the Holders in accordance with this Agreement in connection with the registration of the securities to be disposed of, such fees and expenses of such counsel selected by the Holders to be reasonable in the reasonable discretion of Mueller; (ii) all expenses, including filing fees, in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to any underwriters and dealers; (iii) the cost of printing or producing any underwriting agreements and blue sky or legal investment memoranda and any other documents in connection with the offering, sale or delivery of the securities to be disposed of; (iv) all expenses in connection with the qualification of the securities to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters or the Holders of securities in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) transfer agents’ and registrars’ fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering; (vii) all security engraving and security printing expenses; (viii) all fees and expenses payable in connection with the listing of the securities on any securities exchange or automated interdealer quotation system or the rating of such securities, (ix) any other fees and disbursements of underwriters customarily paid by the sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, and (x) other reasonable out-of-pocket expenses of Holders other than legal fees and expenses referred to in clause (i) above.

 

“ Rule 144 ” means Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act.

 

“ Rule 415 Offering ” means an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act.

 

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“ SEC ” means the United States Securities and Exchange Commission.

 

“ Securities Act ” means the Securities Act of 1933, as amended, or any successor statute.

 

“ Selling Holder ” has the meaning ascribed thereto in Section 3.4(e).

 

“ Subsidiary ” means, as to any Person, any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting capital stock or other voting ownership interests is owned or controlled, directly or indirectly, by such Person or by one or more of the Subsidiaries of such Person or by a combination thereof. “Subsidiary,” when used with respect to Walter or Mueller, shall also include any other entity affiliated with Walter or Mueller, as the case may be, that Walter and Mueller may hereafter agree in writing shall be treated as a “Subsidiary” for the purposes of this Agreement.

 

“ Transferee ” has the meaning ascribed thereto in Section 3.9.

 

“ Walter Entities ” means Walter and Subsidiaries of Walter (other than Subsidiaries that constitute Mueller Entities), and “ Walter Entity ” shall mean any of the Walter Entities.

 

“ Walter Ownership Reduction ” means any decrease at any time in the Ownership Percentage to less than forty-five percent (45%).

 

“ Walter Transferee ” has the meaning ascribed thereto in Section 3.9.

 

“ Walter ” has the meaning ascribed thereto in the preamble hereto.

 

“ Walter Group ” has the meaning ascribed thereto in the recitals to this Agreement.

 

1.2.                               Internal References . Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement.

 

ARTICLE II
OPTIONS

 

2.1.                               Options . (a)  Mueller hereby grants to Walter, on the terms and conditions set forth herein, a continuing right (the “ Series B Common Stock Option ”) to purchase from Mueller, at the times set forth herein, such number of shares of Series B Common Stock as is necessary to allow the Walter Entities to maintain the percentage of the then-outstanding Common Stock of Mueller that is equal to the Ownership Percentage. The Series B Common Stock Option shall be assignable, in whole or in part and from time to time, by Walter to any Walter Entity. The exercise price for the shares of Series B Common Stock purchased pursuant

 

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to the Series B Common Stock Option shall be the Market Price of the Series A Common Stock as of the date of first delivery of notice of exercise of the Series B Common Stock Option by Walter (or its permitted assignee hereunder) to Mueller; provided, however, that the exercise price shall be at least equal to the aggregate par value of the shares of Series B Common Stock purchased thereby.

 

(b)                                  The provisions of Section 2.1(a) hereof notwithstanding, the Series B Common Stock Option granted pursuant to Section 2.1(a) shall not apply and shall not be exercisable in connection with the issuance by Mueller of any shares of Common Stock pursuant to any stock option or other executive or employee benefit or compensation plan maintained by Mueller, so long as, from and after the date hereof and prior to the issuance of such shares, Mueller has repurchased from shareholders and not subsequently reissued a number of shares equal or greater to the number of shares to be issued in any such issuance.

 

(c)                                   Mueller hereby grants to Walter, on the terms and conditions set forth herein, a continuing right (the “ Nonvoting Stock Option ” and, together with the Series B Common Stock Option, the “ Options ”) to purchase from Mueller, at the times set forth herein, such number of shares of Nonvoting Stock as is necessary to allow the Walter Entities to own eighty percent (80%) of each class of outstanding Nonvoting Stock. The Nonvoting Stock Option shall be assignable, in whole or in part and from time to time, by Walter to any Walter Entity. The exercise price for the shares of Nonvoting Stock purchased pursuant to the Nonvoting Stock Option shall be the price at which such Nonvoting Stock is then being sold to third parties, or, if no Nonvoting Stock is being sold, the fair market value thereof as determined in good faith by the Board of Directors of Mueller; provided, however, that the exercise price shall be at least equal to the aggregate par value of the shares of Nonvoting Stock purchased thereby.

 

2.2.                               Notice . At least 20 business days prior to the issuance of any shares of Common Stock (other than in connection with the Initial Public Offering, including the full exercise of all underwriters’ over-allotment options granted in connection therewith and other than issuances of Common Stock to any Walter Entity) or the first date on which any event could occur that, in the absence of a full or partial exercise of the Series B Common Stock Option, would result in a reduction in the Ownership Percentage, Mueller will notify Walter in writing (a “ Series B Common Stock Option Notice ”) of any plans it has to issue such shares or the date on which such event could first occur. At least 20 business days prior to the issuance of any shares of Nonvoting Stock (other than issuances of Nonvoting Stock to any Walter entity) or the first date on which any event could occur that, in the absence of a full or partial exercise of the Nonvoting Stock Option, would result in the Walter Entities owning less than eighty percent (80%) of each class of outstanding Nonvoting Stock, Mueller will notify Walter in writing (a “ Nonvoting Stock Option Notice ” and, together with a Series B Common Stock Option Notice, an “ Option Notice ”) of any plans it has to issue such shares or the date on which such event could first occur. Each Option Notice must specify the date on which Mueller intends to issue such additional shares or on which such event could first occur (such issuance or event being referred to herein as an “ Issuance Event ” and the date of such issuance or event as an “ Issuance Event Date ”), the number of shares Mueller intends to issue or may issue and the other terms and conditions of such Issuance Event.

 

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2.3.                               Option Exercise and Payment . The Series B Common Stock Option may be exercised by Walter (or any Walter Entity to which all or any part of the Series B Common Stock Option has been assigned) for a number of shares equal to or less than the number of shares that are necessary for the Walter Entities to maintain, in the aggregate, the percentage of the then-outstanding shares of Common Stock of Mueller that is equal to the then-current Ownership Percentage. The Nonvoting Stock Option may be exercised by Walter (or any Walter Entity to which all or any part of the Nonvoting Stock Option has been assigned) for a number of shares equal to or less than the number of shares that are necessary for the Walter Entities to own, in the aggregate, eighty percent (80%) of each class of outstanding Nonvoting Stock. Each Option may be exercised at any time after receipt of an applicable Option Notice and prior to the applicable Issuance Event Date by the delivery to Mueller of a written notice to such effect specifying (i) the number of shares of Series B Common Stock or Nonvoting Stock, as the case may be, to be purchased by Walter, or any of the Walter Entities and (ii) a calculation of the exercise price for such shares; provided , however , that if Mueller shall have issued any shares of Common Stock in violation of its obligations under this Article II, the Option may be exercised at any time by the delivery to Mueller of a written notice to such effect specifying the information described in clauses (i) and (ii) above. Upon any exercise of an Option, Mueller will promptly (and in any event on or prior to the applicable Issuance Event Date) (i) deliver to Walter (or any Walter Entity designated by Walter), against payment therefor, certificates (issued in the name of Walter or its permitted assignee hereunder or as directed by Walter) representing the shares of Series B Common Stock or Nonvoting Stock, as the case may be, being purchased upon such exercise, and (ii) record the issuance of such shares, upon payment therefor, in Mueller’s stock ledger. Payment for such shares shall be made by wire transfer or intrabank transfer of immediately-available funds to such account as shall be specified by Mueller, for the full purchase price for such shares.

 

2.4.                               Effect of Failure to Exercise . Except as provided in Section 2.6, any failure by Walter to exercise either Option, or any exercise for less than all shares purchasable under either Option, in connection with any particular Issuance Event shall not affect Walter’s right to exercise the relevant Option in connection with any subsequent Issuance Event.

 

2.5.                               Initial Public Offering . Notwithstanding the foregoing, Walter shall not be entitled to exercise the Series B Common Stock Option in connection with the Initial Public Offering of the Series A Common Stock if, upon the completion of the Initial Public Offering, including the full exercise of all underwriters’ over-allotment options granted in connection therewith, the Ownership Percentage would be no less than eighty percent (80%).

 

2.6.                               Termination of Options . The Options shall terminate upon the occurrence of any Issuance Event that, after considering Walter’s response thereto and to any other Issuance Events, results in the Ownership Percentage being less than twenty percent (20%), other than any Issuance Event in violation of this Agreement. Each Option, or any portion thereof assigned to any Walter Entity other than Walter, also shall terminate in the event that the Person to whom such Option, or such portion thereof has been transferred, ceases to be a Walter Entity for any reason whatsoever.

 

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ARTICLE III
REGISTRATION RIGHTS

 

3.1.                               Demand Registration - Registrable Securities . (a)  Upon written notice provided at any time after the Initial Public Offering Date from any Holder of Registrable Securities requesting that Mueller effect the registration under the Securities Act of any or all of the Registrable Securities held by such Holder, which notice shall specify the intended method or methods of disposition of such Registrable Securities, Mueller shall use its best efforts to effect the registration under the Securities Act and applicable state securities laws of such Registrable Securities for disposition in accordance with the intended method or methods of disposition stated in such request (including in a Rule 415 Offering, if Mueller is then eligible to register such Registrable Securities on Form S-3 (or a successor form) for such offering); provided , that:

 

(i)                                      with respect to any registration statement filed, or to be filed, pursuant to this Section 3.1, if Mueller shall furnish to the Holders of Registrable Securities that have made such request a certified resolution of the Board of Directors of Mueller (adopted by the affirmative vote of a majority of the total number of directors, without any vacancies) stating that in the Board of Directors’ good faith judgment it would (because of the existence of, or in anticipation of, any acquisition or financing activity, or the unavailability for reasons beyond Mueller’s reasonable control of any required financial statements, or any other event or condition of similar significance to Mueller) be significantly disadvantageous (a “ Disadvantageous Condition ”) to Mueller for such a registration statement to be maintained effective, or to be filed and become effective, and setting forth the general reasons for such judgment, Mueller shall be entitled to cause such registration statement to be withdrawn and the effectiveness of such registration statement terminated, or, in the event no registration statement has yet been filed, shall be entitled not to file any such registration statement, until such Disadvantageous Condition no longer exists (notice of which Mueller shall promptly deliver to such Holders). Upon receipt of any such notice of a Disadvantageous Condition, such Holders shall forthwith discontinue use of the prospectus contained in such registration statement and, if so directed by Mueller, each such Holder will deliver to Mueller all copies, other than permanent file copies then in such Holder’s possession, of the prospectus then covering such Registrable Securities current at the time of receipt of such notice; provided , that the filing of any such registration statement may not be delayed for a period in excess of six months due to the occurrence of any particular Disadvantageous Condition;

 

(ii)                                   after any Walter Ownership Reduction, the Holders of Registrable Securities may collectively exercise their rights under this Section 3.1 (through notice delivered by Holders owning in the aggregate a majority in economic interest of the Registrable Securities then held by Holders) on not more than three occasions (it being acknowledged that prior to any Walter Ownership Reduction, there shall be no limit to the number of occasions on which such Holders (other than any Walter Transferees and their Affiliates (other than Walter Entities)) may exercise such rights);

 

(iii)                                except as otherwise provided herein, the Holders of Registrable Securities shall not have the right to exercise registration rights pursuant to this Section

 

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3.1 within the 180-day period following the registration and sale of Registrable Securities effected pursuant to a prior exercise of the registration rights provided in this Section 3.1; and

 

(iv)                               the Holders of Registrable Securities shall not have the right to exercise registration rights pursuant to this Section 3.1 within the 180-day period following the effective date of the Registration Statement in connection with the Initial Public Offering.

 

(b)                                  Notwithstanding any other provision of this Agreement to the contrary, a registration requested by a Holder of Registrable Securities pursuant to this Section 3.1 shall not be deemed to have been effected (and, therefore, not requested for purposes of paragraph (a) above), (i) unless it has become effective, (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by such Holder and, as a result thereof, the Registrable Securities requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement or (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of some act or omission by such Holder of Registrable Securities.

 

(c)                                   In the event that any registration pursuant to this Section 3.1 shall involve, in whole or in part, an underwritten offering, the Holders of a majority of the Registrable Securities to be registered shall have the right to designate an underwriter or underwriters reasonably acceptable to Mueller as the lead or managing underwriters of such underwritten offering and, in connection with each registration pursuant to this Section 3.1, such Holders may select one counsel reasonably acceptable to Mueller to represent all such Holders.

 

(d)                                  Mueller shall have the right to cause the registration of additional equity securities for sale for its account, the account of any Mueller Entity or any existing or former directors, officers or employees of the Mueller Entities in any registration of Registrable Securities requested by the Holders pursuant to paragraph (a) above; provided , however , that if the registration and sale of such additional equity securities would require Walter or any Walter Entity to exercise the Options to maintain the then-current Ownership Percentage or ownership of eighty percent (80%) of each class of outstanding Nonvoting Stock, then the number of such additional equity securities shall be reduced so that exercise of the Options would not be necessary for Walter or any Walter Entity to maintain such ownership levels and, provided , further , that if such Holders are advised in writing (with a copy to Mueller) by a nationally recognized investment banking firm selected by such Holders reasonably acceptable to Mueller (which shall be the lead underwriter or a managing underwriter in the case of an underwritten offering) that, in such firm’s good faith view, all or a part of such additional equity securities cannot be sold and the inclusion of such additional equity securities in such registration would be likely to have an adverse effect on the price, timing or distribution of the offering and sale of the Registrable Securities then contemplated by any Holder, the registration of such additional equity securities or part thereof shall not be permitted. The Holders of the Registrable Securities to be offered may require that any such additional equity securities be included in the offering proposed by such Holders on the same conditions as the Registrable Securities that are included

 

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therein. In the event that the number of Registrable Securities requested to be included in a registration statement by the Holders thereof exceeds the number which, in the good faith view of such investment banking firm, can be sold without adversely affecting the price, timing, distribution or sale of securities in the offering, the number shall be allocated pro rata among the requesting Holders on the basis of the relative number of Registrable Securities then held by each such Holder (provided that any number in excess of a Holder’s request may be reallocated among the remaining requesting Holders in a like manner).

 

3.2.                               Piggyback Registration . In the event that Mueller at any time after the Initial Public Offering Date proposes to register any of its Common Stock, any other of its equity securities or securities convertible into or exchangeable for its equity securities (collectively, including Common Stock, “ Other Securities ”) under the Securities Act, whether or not for sale for its own account, in a manner that would permit registration of Registrable Securities for sale for cash to the public under the Securities Act, it shall at each such time give prompt written notice to each Holder of Registrable Securities of its intention to do so and of the rights of such Holder under this Section 3.2. Subject to the terms and conditions hereof, such notice shall offer each such Holder the opportunity to include in such registration statement such number of Registrable Securities as such Holder may request. Upon the written request of any such Holder made within 15 days after the receipt of Mueller’s notice (which request shall specify the number of Registrable Securities intended to be disposed of and the intended method of disposition thereof), Mueller shall use its best efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Registrable Securities which Mueller has been so requested to register, to the extent required to permit the disposition (in accordance with such intended method of disposition thereof) of the Registrable Securities so requested to be registered; provided , that:

 

(a)                                   if, at any time after giving such written notice of its intention to register any Other Securities and prior to the effective date of the registration statement filed in connection with such registration, Mueller shall determine for any reason not to register the Other Securities, Mueller may, at its election, give written notice of such determination to such Holders and thereupon Mueller shall be relieved of its obligation to register such Registrable Securities in connection with the registration of such Other Securities, without prejudice, however, to the rights of the Holders of Registrable Securities immediately to request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder;

 

(b)                                  if the registration referred to in the first sentence of this Section 3.2 is to be an underwritten registration on behalf of Mueller, and a nationally recognized investment banking firm selected by Mueller advises Mueller in writing that, in such firm’s good faith view, all or a part of such Registrable Securities cannot be sold and the inclusion of all or a part of such Registrable Securities in such registration would be likely to have an adverse effect upon the price, timing or distribution of the offering and sale of the Other Securities then contemplated, Mueller shall include in such registration:  (i) first, all Other Securities Mueller proposes to sell for its own account (“ Company Securities ”), (ii) second, up to the full number of Registrable Securities held by Holders constituting Walter Entities that are requested to be included in such registration (Registrable Securities that are so held being sometimes referred to herein as “ Holder Securities ”) in excess of the number of Company Securities to be sold in such offering which, in the good faith view of such investment banking firm, can be sold without adversely affecting

 

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such offering (and (x) if such number is less than the full number of such Holder Securities, such number shall be allocated by Walter among such Walter Entities and (y) in the event that such investment banking firm advises that less than all of such Holder Securities may be included in such offering, such Walter Entities may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder), (iii) third, up to the full number of Registrable Securities held by Holders (other than Walter Entities) of Registrable Securities that are requested to be included in such registration in excess of the number of Company Securities and Holder Securities to be sold in such offering which, in the good faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Registrable Securities, such number shall be allocated pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder and (y) in the event that such investment banking firm advises that less than all of such Registrable Securities may be included in such offering, such Holders may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder) and (iv) fourth, up to the full number of the Other Securities (other than Company Securities), if any, in excess of the number of Company Securities and Registrable Securities to be sold in such offering which, in the good faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and, if such number is less than the full number of such Other Securities, such number shall be allocated pro rata among the holders of such Other Securities (other than Company Securities) on the basis of the number of securities requested to be included therein by each such Holder);

 

(c)                                   if the registration referred to in the first sentence of this Section 3.2 is to be an underwritten secondary registration on behalf of holders of Other Securities (the “ Other Holders ”), and the lead underwriter or managing underwriter advises Mueller in writing that in their good faith view, all or a part of such additional securities cannot be sold and the inclusion of such additional securities in such registration would be likely to have an adverse effect on the price, timing or distribution of the offering and sale of the Other Securities then contemplated, Mueller shall include in such registration the number of securities (including Registrable Securities) that such underwriters advise can be so sold without adversely affecting such offering, allocated pro rata among the Other Holders and the Holders of Registrable Securities on the basis of the number of securities (including Registrable Securities) requested to be included therein by each Other Holder and each Holder of Registrable Securities; provided , that if such registration statement is to be filed at any time after a Walter Ownership Reduction, if such Other Holders have requested that such registration statement be filed pursuant to demand registration rights granted to them by Mueller, Mueller shall include in such registration (i) first, Other Securities sought to be included therein by the Other Holders pursuant to the exercise of such demand registration rights, (ii) second, the number of Holder Securities sought to be included in such registration in excess of the number of Other Securities sought to be included in such registration by the Other Holders which in the good faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Holder Securities, such number shall be allocated by Walter among

 

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such Walter Entities and (y) in the event that such investment banking firm advises that less than all of such Holder Securities may be included in such offering, such Walter Entities may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder) and (iii) third, the number of Registrable Securities sought to be included in such registration by Holders (other than Walter Entities) of Registrable Securities in excess of the number of Other Securities and the number of Holder Securities sought to be included in such registration which, in the good faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Registrable Securities, such number shall be allocated pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder and (y) in the event that such investment banking firm advises that less than all of such Registrable Securities may be included in such offering, such Holders may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder);

 

(d)                                  Mueller shall not be required to effect any registration of Registrable Securities under this Section 3.2 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans; and

 

(e)                                   no registration of Registrable Securities effected under this Section 3.2 shall relieve Mueller of its obligation to effect a registration of Registrable Securities pursuant to Section 3.1.

 

3.3.                               Expenses . Except as provided herein, Mueller shall pay all Registration Expenses with respect to a particular offering (or proposed offering). Notwithstanding the foregoing, each Holder and Mueller shall be responsible for its own internal administrative and similar costs, which shall not constitute Registration Expenses.

 

3.4.                               Registration and Qualification . If and whenever Mueller is required to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 3.1 or 3.2, Mueller shall as promptly as practicable:

 

(a)                                   prepare, file and use its reasonable best efforts to cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered;

 

(b)                                  prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (A) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of

 

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disposition set forth in such registration statement and (B) the expiration of six months after such registration statement becomes effective; provided , that such six-month period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by paragraph (f) of this Section 3.4 is given by Mueller to (y) the date on which Mueller delivers to the Holders of Registrable Securities the supplement or amendment contemplated by paragraph (f) of this Section 3.4;

 

(c)                                   furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as the Holders of Registrable Securities or such underwriter may reasonably request, and upon request a copy of any and all transmittal letters or other correspondence to or received from, the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering;

 

(d)                                  use its reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or blue sky laws of such U.S. jurisdictions as the Holders of such Registrable Securities or any underwriter to such Registrable Securities shall request, and use its reasonable best efforts to obtain all appropriate registrations, permits and consents in connection therewith, and do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities or any such underwriter to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement; provided , that Mueller shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any such jurisdiction wherein it is not so qualified or to consent to general service of process in any such jurisdiction;

 

(e)                                   (i) use its best efforts to furnish to each Holder of Registrable Securities included in such registration (each, a “ Selling Holder ”) and to any underwriter of such Registrable Securities an opinion of counsel for Mueller addressed to each Selling Holder and dated the date of the closing under the underwriting agreement (if any) (or if such offering is not underwritten, dated the effective date of the registration statement) and (ii) use its best efforts to furnish to each Selling Holder a “cold comfort” letter addressed to each Selling Holder and signed by the independent public accountants who have audited the financial statements of Mueller included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Selling Holders may reasonably request and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements;

 

(f)                                     as promptly as practicable, notify the Selling Holders in writing (i) at any time when a prospectus relating to a registration pursuant to Sections 3.1 or 3.2 is required to be

 

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delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) of any request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading;

 

(g)                                  if reasonably requested by the lead or managing underwriters, use its best efforts to list all such Registrable Securities covered by such registration on each securities exchange and automated inter-dealer quotation system on which a class of common equity securities of Mueller is then listed;

 

(h)                                  to the extent reasonably requested by the lead or managing underwriters, cause appropriate officers of Mueller to participate in any “road shows” scheduled in connection with any such registration, with all out-of-pocket costs and expense incurred by Mueller or such officers in connection with such participation to be paid by Mueller; and

 

(i)                                      furnish for delivery in connection with the closing of any offering of Registrable Securities pursuant to a registration effected pursuant to Sections 3.1 or 3.2 unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by the Selling Holders or the underwriters.

 

3.5.                               Conversion of Other Securities, Etc . In the event that any Holder offers any options, rights, warrants or other securities issued by it or any other Person that are offered with, convertible into or exercisable or exchangeable for any Registrable Securities, the Registrable Securities underlying such options, rights, warrants or other securities shall continue to be eligible for registration pursuant to Sections 3.1 and 3.2.

 

3.6.                               Underwriting; Due Diligence . (a)  If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article III, Mueller shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by Mueller and such other terms and provisions as are customarily contained in underwriting agreements of Mueller to the extent relevant and as are customarily contained in underwriting agreements generally with respect to secondary distributions to the extent relevant, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.7, and agreements as to the provision of opinions of counsel and accountants’ letters to the effect and to the extent provided in Section 3.4(e). The Selling Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on

 

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the part of, Mueller to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders. Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, when relevant, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.7.

 

(b)                                  In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article III, Mueller shall give the Holders of such Registrable Securities and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books and records and such opportunities to discuss the business of Mueller with its officers and the independent public accountants who have certified the financial statements of Mueller as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.

 

3.7.                               Indemnification and Contribution . (a)  In the case of each offering of Registrable Securities made pursuant to this Article III, Mueller agrees to indemnify and hold harmless, to the extent permitted by law, each Selling Holder, each underwriter of Registrable Securities so offered and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act and the officers, directors, affiliates, employees and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable attorney’s fees and disbursements), claims and damages, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement by Mueller or alleged untrue statement by Mueller of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities prepared by Mueller or at its direction, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission by Mueller or alleged omission by Mueller to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided , however , that Mueller shall not be liable to any Person in any such case to the extent that any such loss, liability, cost, claim or damage arises out of or relates to any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information relating to a Selling Holder, another holder of securities included in such registration statement or underwriter furnished to Mueller by or on behalf of such Selling Holder, other holder or underwriter specifically for use in the registration statement (or in any preliminary or final prospectus included therein), offering memorandum or other offering document, or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Selling Holder, any other holder or any underwriter and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that Mueller may otherwise have to each Selling Holder, other holder or underwriter of the Registrable Securities or any controlling person of the foregoing and the officers, directors, affiliates, employees and agents of each of the foregoing; provided , further ,

 

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that, in the case of an offering with respect to which a Selling Holder has designated the lead or managing underwriters (or a Selling Holder is offering Registrable Securities directly, without an underwriter), this indemnity does not apply to any loss, liability, cost, claim or damage arising out of or relating to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus or offering memorandum if a copy of a final prospectus or offering memorandum was not sent or given by or on behalf of any underwriter (or such Selling Holder or other holder, as the case may be) to such Person asserting such loss, liability, cost, claim or damage at or prior to the written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such final prospectus or offering memorandum.

 

(b)                                  In the case of each offering made pursuant to this Agreement, each Selling Holder, by exercising its registration rights hereunder, agrees to indemnify and hold harmless, and to cause each underwriter of Registrable Securities included in such offering (in the same manner and to the same extent as set forth in Section 3.7(a)) to agree to indemnify and hold harmless, Mueller, each other underwriter who participates in such offering, each other Selling Holder or other holder with securities included in such offering and in the case of an underwriter, such Selling Holder or other holder, and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act and the officers, directors, affiliates, employees and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable attorney’s fees and disbursements), claims and damages to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement or alleged untrue statement by such Selling Holder or underwriter, as the case may be, of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities prepared by Mueller or at its direction, or any amendment thereof or supplement thereto, or any omission by such Selling Holder or underwriter, as the case may be, or alleged omission by such Selling Holder or underwriter, as the case may be, of a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement of a material fact is contained in, or such material fact is omitted from information relating to such Selling Holder or underwriter, as the case may be, furnished to Mueller by or on behalf of such Selling Holder or underwriter, as the case may be, specifically for use in such registration statement (or in any preliminary or final prospectus included therein), offering memorandum or other offering document, or any amendment thereof or supplement thereto. The foregoing indemnity is in addition to any liability which such Selling Holder or underwriter, as the case may be, may otherwise have to Mueller, or controlling persons and the officers, directors, affiliates, employees, and agents of each of the foregoing; provided , however , that, in the case of an offering made pursuant to this Agreement with respect to which Mueller has designated the lead or managing underwriters (or Mueller is offering securities directly, without an underwriter), this indemnity does not apply to any loss, liability, cost, claim, or damage arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus or offering memorandum if a copy of a final prospectus or offering memorandum was not sent or given by or on behalf of any underwriter (or Mueller, as the case may be) to such Person

 

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asserting such loss, liability, cost, claim or damage at or prior to the written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such final prospectus or offering memorandum.

 

(c)                                   Each party indemnified under paragraph (a) or (b) of this Section 3.7 shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) of this Section 3.7 otherwise than under such paragraphs. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 3.7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation. If the indemnifying party does not assume the defense of such claim or action, it is understood that the indemnifying party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to one separate firm of local attorneys in each such jurisdiction) at any time for all such indemnified parties. Any indemnifying party against whom indemnity may be sought under this Section 3.7 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party, which consent shall not be unreasonably withheld.

 

(d)                                  If the indemnification provided for in this Section 3.7 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any loss, liability, cost, claim or damage referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, cost, claim or damage in such proportion as shall be appropriate to reflect (i) the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the indemnified party failed to give the notice required under paragraph (c) of this Section 3.7, the relative benefits and the relative fault of the indemnifying party on the one hand and the indemnified party on the other with respect to the statements or omissions which resulted in such loss, liability, cost, claim or damage as well as any other relevant equitable considerations. The relative benefits received by the indemnifying party and the indemnified party shall be deemed to be in the same respective proportion as the net proceeds (before deducting expenses) of the offering received by such party (or, in the case of an underwriter, such underwriter’s discounts and commissions) bear to the aggregate offering price of the Registrable Securities or Other Securities. The relative fault shall be determined by

 

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reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the indemnifying party on the one hand or the indemnified party on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission, but not by reference to any indemnified party’s stock ownership in Mueller. The amount paid or payable by an indemnified party as a result of the loss, cost, claim, damage or liability, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

(e)                                   Indemnification and contribution similar to that specified in the preceding paragraphs of this Section 3.7 (with appropriate modifications) shall be given by Mueller, the Selling Holders and underwriters with respect to any required registration or other qualification of securities under any state law or regulation or governmental authority.

 

(f)                                     The obligations of the parties under this Section 3.7 shall be in addition to any liability which any party may otherwise have to any other party.

 

3.8.                               Rule 144 and Form S-3 . Commencing 90 days after the Initial Public Offering Date, Mueller shall use its best efforts to ensure that the conditions to the availability of Rule 144 set forth in paragraph (c) thereof shall be satisfied. Upon the request of any Holder of Registrable Securities, Mueller will deliver to such Holder a written statement as to whether it has complied with such requirements. Mueller further agrees to use its reasonable efforts to cause all conditions to the availability of Form S-3 (or any successor form) under the Securities Act of the filing of registration statements under this Agreement to be met as soon as practicable after the Initial Public Offering Date. Notwithstanding anything contained in this Section 3.8, Mueller may deregister under Section 12 of the Securities Exchange Act of 1934, as amended, if it then is permitted to do so pursuant to said Act and the rules and regulations thereunder.

 

3.9.                               Transfer of Registration Rights . Any Holder may transfer all or any portion of its rights under Article III to any transferee of a number of Registrable Securities owned by such Holder exceeding three percent (3%) of the outstanding class or series of such securities at the time of transfer (each transferee that receives such minimum number of Registrable Securities, a “ Transferee ”); provided , that each Transferee of Registrable Securities (other than Walter Entities) to which Registrable Securities are transferred, sold or assigned directly by a Walter Entity (such Transferee, a “ Walter Transferee ”), together with any Affiliate of such Walter Transferee (and any subsequent direct or indirect Transferees of Registrable Securities from such Walter Transferee and any Affiliates thereof) shall be entitled to request the registration of Registrable Securities pursuant to this Section 3.9 only once prior to a Walter Ownership Reduction and thereafter shall only be entitled to request the registration of Registrable Securities pursuant to Section 3.1(a)(ii) and, provided, further, that no Transferee shall be entitled to request registration pursuant to this Section 3.9 for an amount of Registrable Securities equal to less than $50,000,000. Any transfer of registration rights pursuant to this Section 3.9 shall be effective upon receipt by Mueller of (i) written notice from such Holder

 

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stating the name and address of any Transferee and identifying the number of Registrable Securities with respect to which the rights under this Agreement are being transferred and the nature of the rights so transferred and (ii) a written agreement from such Transferee to be bound by the terms of this Article III and Sections 5.3, 5.4, 5.9, 5.10, and 5.11 of this Agreement. The Holders may exercise their rights hereunder in such priority as they shall agree upon among themselves.

 

3.10.                         Holdback Agreement . If any registration pursuant to this Article III shall be in connection with an underwritten public offering of Registrable Securities, each Selling Holder agrees not to effect any public sale or distribution, including any sale under Rule 144, of any equity security of Mueller or any security convertible into or exchangeable or exercisable for any equity security of Mueller, in the case of Registrable Securities (otherwise than through the registered public offering then being made), within 7 days prior to or 90 days (or such lesser period as the lead or managing underwriters may permit) after the effective date of the registration statement (or the commencement of the offering to the public of such Registrable Securities in the case of Rule 415 offerings). Mueller hereby also so agrees; provided , that, subject to Section 3.6(a) hereof, Mueller shall not be so restricted from effecting any public sale or distribution of any security in connection with any merger, acquisition, exchange offer, subscription offer, dividend reinvestment plan or stock option or other executive or employee benefit or compensation plan.

 

3.11.                         Registration of Preferred Stock . Mueller agrees that it shall from time to time enter into one or more agreements with Walter and/or the Series B Transferee, if any, in form and substance reasonably satisfactory to the parties thereto, granting to Walter or the Series B Transferee, as the case may be, registration rights for the registration of any shares of preferred stock of Mueller that may hereafter be owned, directly or indirectly, by Walter or the Series B Transferee, as the case may be, substantially upon the same terms and conditions as those contained in Article III for the benefit of Walter.

 

ARTICLE IV
CERTAIN COVENANT AND AGREEMENTS

 

4.1.                               No Violations . (a)  For so long as the Walter Entities collectively own shares of capital stock of Mueller having more than fifty percent (50%) of the total voting power of all capital stock of Mueller outstanding, Mueller covenants and agrees that it will not take any action or enter into any commitment or agreement which may reasonably be anticipated to result, with or without notice and with or without lapse of time or otherwise, in a contravention or event of default by any Walter Entity of (i) any provisions of applicable law or regulation, including but not limited to provisions pertaining to the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as amended, (ii) any provision of Walter’s certificate of incorporation or bylaws, (iii) any credit agreement or other material instrument binding upon Walter or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over Walter or any of its assets.

 

(b)                                  Mueller and Walter agree to provide to the other any information and documentation requested by the other for the purpose of evaluating and ensuring compliance with Section 4.1(a) hereof.

 

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(c)                                   Notwithstanding the foregoing Sections 4.1(a) and 4.1(b), nothing in this Agreement is intended to limit or restrict in any way Walter’s rights as a shareholder of Mueller.

 

4.2.                               Confidentiality . Except as required by law, regulation or legal or judicial process, Walter agrees that neither it nor any Walter Entity nor any of their respective directors, officers or employees will without the prior written consent of Mueller disclose to any Person any material, non-public information concerning the business or affairs of Mueller acquired from any director, officer or employee of Mueller (including any director, officer or employee of Mueller who is also a director, officer or employee of Walter).

 

ARTICLE V
MISCELLANEOUS

 

5.1.                               Limitation of Liability . Neither Walter nor Mueller shall be liable to the other for any special, indirect, incidental or consequential damages of the other arising in connection with this Agreement.

 

5.2.                               Subsidiaries . Walter agrees and acknowledges that Walter shall be responsible for the performance by each Walter Entity of the obligations hereunder applicable to such Walter Entity.

 

5.3.                               Amendments . This Agreement may not be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto. Any such amendment shall be validly and sufficiently authorized for purposes of this Agreement if it is signed on behalf of Walter and Mueller by any of their respective presidents or vice presidents.

 

5.4.                               Term . This Agreement shall remain in effect until all Registrable Securities held by Holders have been transferred by them to Persons other than Transferees; provided , that the provisions of Section 3.7 shall survive any such expiration.

 

5.5.                               Severability . If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision of the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, shall remain in full force and effect to the fullest extent permitted by law and shall not be affected thereby, unless such a construction would be unreasonable.

 

5.6.                               Notices . All notices and other communications required or permitted hereunder shall be in writing, shall be deemed duly given upon actual receipt, and shall be delivered (a) in person, (b) by registered or certified mail, postage prepaid, return receipt requested or (c) by facsimile or other generally accepted means of electronic transmission (provided that a copy of any notice delivered pursuant to this clause (c) shall also be sent pursuant to clause (b)), addressed as follows:

 

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(a)	if to Mueller, to:
	Mueller Water Products, Inc.
	4211 W. Boy Scout Blvd.
	Tampa, FL 33607
	Attention: Chief Executive Officer
	Tel: (813) 871-4455
	Fax: (813) 871-4430
(b)	If to Walter, to:
	Walter Industries, Inc.
	4211 W. Boy Scout Blvd.
	Tampa, FL 33607
	Attention: General Counsel
	Tel: (813) 871-4120
	Fax: (813) 871-4420

 

or to such other addresses or telecopy numbers as may be specified by like notice to the other parties.

 

5.7.                               Further Assurances . Walter and Mueller shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such instruments and take such other action as may be necessary or advisable to carry out their obligations under this Agreement and under any exhibit, document or other instrument delivered pursuant hereto.

 

5.8.                               Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same agreement.

 

5.9.                               Governing Law . This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the State of Delaware.

 

5.10.                         Entire Agreement . This Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof.

 

5.11.                         Series B Transferee . Mueller agrees that it shall enter into an agreement with the Series B Transferee (as defined in Mueller’s Restated Certificate of Incorporation), if any, in form and substance reasonably satisfactory to the Series B Transferee and Mueller (i) granting to the Series B Transferee options for the purchase of Series B Common Stock and Nonvoting Stock substantially upon the same terms and conditions as those contained in Article II, (ii) granting to the Series B Transferee registration rights for the registration of Registrable Securities substantially upon the same terms and conditions as those contained in Article III for the benefit of Walter and (iii) containing other covenants and agreement for the benefit of the Series B Transferee that are substantially similar to the other covenants and agreements contained in this Agreement for the benefit of Walter; provided , that such agreement shall contain terms (including covenants and agreements of the Series B Transferee) for the benefit of

 

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Mueller that are substantially similar to the terms (including the covenants and agreements of Walter) for the benefit of Mueller contained herein.

 

5.12.                         Successors . This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. Nothing contained in this Agreement, express or implied, is intended to confer upon any other person or entity any benefits, rights or remedies.

 

5.13.                         Specific Performance . The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that they shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.

 

 

	WALTER INDUSTRIES, INC.
	By:	/s/		William F. Ohrt
		Name:		William F. Ohrt
		Title:		Executive Vice President and  Chief Financial Officer
	MUELLER WATER PRODUCTS, INC.
	By:	/s/	Victor P. Patrick
		Name:	Victor P. Patrick
		Title:	Vice President and Secretary

 

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Exhibit 10.2

 

INCOME TAX ALLOCATION AGREEMENT

 

THIS INCOME TAX ALLOCATION AGREEMENT (this “Agreement”) dated as of May 26, 2006 is made and entered into by Walter Industries, Inc., a Delaware corporation (“Walter”) and the Walter Affiliates (as defined below), and Mueller Water Products, Inc., a Delaware corporation (“Mueller”) and the Mueller Affiliates (as defined below).

 

RECITALS

 

WHEREAS, Walter is the common parent corporation of an “affiliated group” of corporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and of certain combined groups as defined under similar laws of other jurisdictions and Mueller and the Mueller Affiliates are, as of the date hereof, and have been members of such groups;

 

WHEREAS, the groups of which Walter is the common parent and Mueller and the Mueller Affiliates are members file or intend to file Consolidated Returns and Combined Returns (each as defined below);

 

WHEREAS, Mueller intends to effect the initial public offering by Mueller of Mueller common stock that will reduce Walter’s ownership of Mueller, on a fully diluted basis, to less than eighty percent (80%) of the value of Mueller’s common stock (the “IPO”);

 

WHEREAS, as a result of the reduction in Walter’s ownership, Mueller and the Mueller Affiliates will cease to be members of the Consolidated Group and may cease to be members of one or more Combined Groups (each as defined below);

 

WHEREAS, Walter intends to make a distribution of the issued and outstanding shares of Mueller stock pro rata to the holders of Walter capital stock in a transaction that is intended to qualify as a tax-free distribution under Section 355 of the Code; and

 

WHEREAS, Walter and Mueller desire to set forth their agreement regarding the allocation of taxes, the filing of tax returns, the administration of tax contests and other related matters and to replace in its entirety the Income Tax Allocation Agreement, dated as of October 3, 2005, between Walter and Mueller setting forth their agreement with respect to certain tax matters (the “Original Income Tax Allocation Agreement”) with the terms of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

SECTION 1.                                 DEFINITIONS

 

1.1                                  “AUDIT” includes any audit, assessment of Taxes, other examination by any Tax Authority, proceeding, or appeal of such proceeding relating to Taxes, whether administrative or judicial.

 

 

1.2                                  “COMBINED GROUP” means a group of corporations or other entities that files a Combined Return.

 

1.3                                  “COMBINED RETURN” means any Tax Return with respect to Non-Federal Taxes filed on a consolidated, combined (including nexus combination, worldwide combination, domestic combination, line of business combination or any other form of combination) or unitary basis wherein one or more members of the Mueller Group join in the filing of a Tax Return with Walter or a Walter Affiliate that is not also a member of the Mueller Group.

 

1.4                                  “CONSOLIDATED GROUP” means the affiliated group of corporations within the meaning of Section 1504(a) of the Code of which Walter is the common parent and which includes the Mueller Group.

 

1.5                                  “CONSOLIDATED RETURN” means any Tax Return with respect to Federal Income Taxes filed by the Consolidated Group pursuant to Section 1501 of the Code.

 

1.6                                  “DECONSOLIDATION” means any event pursuant to which Mueller and the Mueller Group cease to be includible in either the Consolidated Group or any Combined Group, as the context requires.

 

1.7                                  “DECONSOLIDATION DATE” means the close of business on the day on which a Deconsolidation occurs. Unless otherwise required by the relevant Tax Authority or a court of competent jurisdiction, Walter and Mueller, for itself and the Mueller Group, agree to file all Tax Returns, and to take all other actions, relating to Federal Income Taxes or Non-Federal Combined Taxes in a manner consistent with the position that Mueller and the Mueller Group are includible in the Consolidated Group and any applicable Combined Group for all days from the date hereof through and including a Deconsolidation Date.

 

1.8                                  “DISTRIBUTION” means any distribution by Walter of the issued and outstanding shares of Mueller stock that Walter holds at such time in a transaction intended to qualify as a tax-free distribution under Section 355 of the Code.

 

1.9                                  “DISTRIBUTION TAXES” means any (i) Taxes imposed on, or increase in Taxes incurred by, Walter or any Walter Affiliate and (ii) any Taxes of a Walter shareholder (or former Walter shareholder) that are required to be paid or reimbursed by Walter or any Walter Affiliate pursuant to a legal determination, resulting from, or arising in connection with, the failure of a Distribution to qualify as a tax-free transaction under Section 355 of the Code (including, without limitation, any Tax resulting from the application of Section 355(d) or Section 355(e) of the Code to a Distribution) or corresponding provisions of the laws of any other jurisdictions. Any Tax referred to in the immediately preceding sentence shall be determined using the highest applicable statutory Tax rate for the relevant taxable period (or portion thereof).

 

1.10                            “ESTIMATED TAX INSTALLMENT DATE” means the installment due dates prescribed in Section 6655(c) of the Code (presently April 15, June 15, September 15 and December 15).

 

1.11                            “FEDERAL INCOME TAX” or “FEDERAL INCOME TAXES” means any tax imposed under Subtitle A of the Code (including the taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), including any interest, additions to Tax, or penalties

 

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applicable thereto, and any other income based United States Federal Tax which is hereinafter imposed upon corporations.

 

1.12                            “FEDERAL TAX” means any Tax imposed under the Code or otherwise under United States federal Tax law.

 

1.13                            “FINAL DETERMINATION” means (a) the final resolution of any Tax (or other matter) for a taxable period, including any related interest or penalties, that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise, including (1) by the expiration of a statute of limitations (giving effect to any extension, waiver or mitigation thereof) or a period for the filing of claims for refunds, amended returns, appeals from adverse determinations, or recovering any refund (including by offset), (2) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable, (3) by a closing agreement or an accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under laws of other jurisdictions, (4) by execution of an IRS Form 870-AD, or by a comparable form under the laws of other jurisdictions (excluding, however, any such form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of the Tax Authority to assert a further deficiency), or (5) by any allowance of a refund or credit, but only after the expiration of all periods during which such refund or credit may be recovered (including by way of offset) or (b) the payment of Tax by any member of the Consolidated Group or Combined Group with respect to any item disallowed or adjusted by a Tax Authority provided that Walter determines that no action should be taken to recoup such payment.

 

1.14                            “IRS” means the Internal Revenue Service.

 

1.15                            “MARKET VALUATION” means as of the first business day immediately following the date on which the Distribution is effected (i) with respect to Mueller, the fair market value of all of its issued and outstanding stock (measured using the mean of the high and low of the public trading price as published in The Wall Street Journal) as of such date, or (ii) with respect to Walter, the fair market value of all of its issued and outstanding stock (measured using the mean of the high and low of the public trading price as published in The Wall Street Journal) as of such date.

 

1.16                            “MUELLER AFFILIATE” means any corporation or other entity, including any entity that is a disregarded entity for federal income tax purposes, directly or indirectly “controlled” by Mueller where “control” means the ownership of fifty percent (50%) or more of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity.

 

1.17                            “MUELLER BUSINESS” means the business and operations conducted by Mueller and its Affiliates as such business and operations will continue after the date of the IPO.

 

1.18                            “MUELLER GROUP” means the affiliated group of corporations, including any entity that is a disregarded entity for federal income tax purposes, as defined in Section 1504(a) of the Code, or similar group of entities as defined under similar laws of other jurisdictions, of which Mueller would be the common parent if it were not a subsidiary of Walter, and any corporation or other entity, including any entity that is a disregarded entity

 

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for federal income tax purposes, which may be or become a member of such group from time to time.

 

1.19                            “MUELLER GROUP COMBINED TAX LIABILITY” means, with respect to any taxable year, the Mueller Group’s liability for Non-Federal Combined Taxes as determined under Section 3.6 of this Agreement.

 

1.20                            “MUELLER GROUP FEDERAL INCOME TAX LIABILITY” means, with respect to any taxable year, the Mueller Group’s liability for Federal Income Taxes as determined under Section 3.5 of this Agreement.

 

1.21                            “NON-FEDERAL COMBINED TAXES” means any Non-Federal Taxes with respect to which a Combined Return is filed.

 

1.22                            “NON-FEDERAL SEPARATE TAXES” means any Non-Federal Taxes that are not Non-Federal Combined Taxes.

 

1.23                            “NON-FEDERAL TAXES” means any Tax other than a Federal Tax.

 

1.24                            “OFFICER’S CERTIFICATE” means a letter executed by an officer of Walter or Mueller and provided to Tax Counsel as a condition for the completion of a Tax Opinion or Supplemental Tax Opinion.

 

1.25                            “POST-DECONSOLIDATION PERIOD” means a taxable period beginning after the applicable Deconsolidation Date.

 

1.26                            “PRE-DECONSOLIDATION PERIOD” means any taxable period beginning on or prior to the applicable Deconsolidation Date.

 

1.27                            “PRO FORMA MUELLER GROUP COMBINED RETURN” means a pro forma non-federal combined tax return or other schedule prepared pursuant to Section 3.6 of this Agreement.

 

1.28                            “PRO FORMA MUELLER GROUP CONSOLIDATED RETURN” means a pro forma consolidated federal income tax return prepared pursuant to Section 3.5(b) of this Agreement.

 

1.29                            “REDETERMINATION AMOUNT” means, with respect to any taxable year, the amount determined under Section 3.10 of this Agreement.

 

1.30                            “RULING” means (i) any private letter ruling issued by the IRS in connection with a Distribution in response to a request for such a private letter ruling filed by Walter (or any Walter Affiliate) prior to the date of a Distribution, and (ii) any similar ruling issued by any other Tax Authority addressing the application of a provision of the laws of another jurisdiction to a Distribution.

 

1.31                            “RULING DOCUMENTS” means (i) the request for a Ruling filed with the IRS, together with any supplemental filings or other materials subsequently submitted on behalf of Walter, its Affiliates and shareholders to the IRS, or on behalf of Mueller, its Affiliates and shareholders to the IRS the appendices and exhibits thereto, and any Ruling issued by the IRS to Walter (or any Walter Affiliate) or Mueller (or any Mueller Affiliate) in

 

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connection with a Distribution and (ii) any similar filings submitted to, or rulings issued by, any other Tax Authority in connection with a Distribution.

 

1.32                            “SUPPLEMENTAL RULING” means (i) any ruling (other than the Ruling) issued by the IRS in connection with a Distribution, and (ii) any similar ruling issued by any other Tax Authority addressing the application of a provision of the laws of another jurisdiction to a Distribution.

 

1.33                            “SUPPLEMENTAL RULING DOCUMENTS” means (i) the request for a Supplemental Ruling, together with any supplemental filings or other materials subsequently submitted, the appendices and exhibits thereto, and any Supplemental Rulings issued by the IRS in connection with a Distribution and (ii) any similar filings submitted to, or rulings issued by, any other Tax Authority in connection with a Distribution.

 

1.34                            “SUPPLEMENTAL TAX OPINION” has the meaning set forth in Section 4.2(c) of this Agreement.

 

1.35                            “TAX ASSET” means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other deduction, credit or tax attribute which could reduce Taxes (including without limitation deductions and credits related to alternative minimum taxes).

 

1.36                            “TAX AUTHORITY” includes the IRS and any state, local, or other governmental authority responsible for the administration of any Taxes.

 

1.37                            “TAX COUNSEL” means a nationally recognized law firm or accounting firm selected by Walter to provide a Tax Opinion or a Supplemental Tax Opinion.

 

1.38                            “TAX” or “TAXES” means any charges, fees, levies, imposts, duties, or other assessments of a similar nature, including without limitation, income, alternative or add-on minimum, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, withholding, Social Security, unemployment, disability, ad valorem, estimated, highway use, commercial rent, capital stock, paid up capital, recording, registration, property, real property gains, value added, business license, custom duties, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by any Tax Authority including any interest, additions to Tax, or penalties applicable thereto.

 

1.39                            “TAX RETURN” OR “TAX RETURNS” means any return, declaration, statement, report, schedule, certificate, form, information return or any other document (and any related or supporting information) including an amended tax return required to be supplied to, or filed with, a Tax Authority with respect to Taxes.

 

1.40                            “TAX OPINION” means an opinion issued by Tax Counsel as one of the conditions to completing a Distribution addressing certain United States federal income tax consequences of a Distribution under Section 355 of the Code.

 

1.41                            “WALTER AFFILIATE” means any corporation or other entity, including any entity that is disregarded for federal income tax purposes, directly or indirectly “controlled” by Walter where “control” means the ownership of fifty percent (50%) or more of the ownership interests of such corporation or other entity (by vote or value) or the possession,

 

5

 

directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity, but at all times excluding Mueller or any Mueller Affiliate.

 

1.42                            “WALTER BUSINESS” means all of the businesses and operations conducted by Walter and its Affiliates, excluding the Mueller Business, at any time, whether prior to, or after the date of the IPO.

 

SECTION 2.                                 PREPARATION AND FILING OF TAX RETURNS

 

2.1                                  IN GENERAL. (a)  Walter shall have the sole and exclusive responsibility for the preparation and filing of any Consolidated Return or Combined Return.

 

(b) Mueller shall, subject to Section 2.2 of this Agreement, be responsible for preparing and filing all Tax Returns of Mueller and the Mueller Affiliates other than those described in Section 2.1(a) of this Agreement.

 

2.2                                  PREPARATION AND FILING OF RETURNS. (a) All Tax Returns filed after the date of this Agreement by Walter, any Walter Affiliate, Mueller, or any Mueller Affiliate shall (1) be prepared in a manner that is consistent with Section 4 of this Agreement and the Code, and (2) filed on a timely basis (taking into account applicable extensions) by the party responsible for such filing under Section 2.1 of this Agreement.

 

(b)                                  In its sole discretion, Walter shall have the exclusive right with respect to any Consolidated Return or Combined Return (a) to determine (1) the manner in which such Tax Return shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (2) whether any extensions may be requested, (3) the elections that will be made by any member of the Consolidated Group or applicable Combined Group, and (4) whether any amended Tax Returns should be filed, (b) to control, contest, and represent the interests of the Consolidated Group and any Combined Group in any Audit and to resolve, settle, or agree to any adjustment or deficiency proposed, asserted or assessed as a result of any Audit, (c) to file, prosecute, compromise or settle any claim for refund, and (d) to determine whether any refunds, to which the Consolidated Group or applicable Combined Group may be entitled, shall be paid by way of refund or credited against the Tax liability of the Consolidated Group or applicable Combined Group. Mueller, for itself and its subsidiaries, hereby irrevocably appoints Walter as its agent and attorney-in-fact to take such action (including the execution of documents) as Walter may deem appropriate to effect the foregoing.

 

2.3                                  FURNISHING INFORMATION. Mueller (or the applicable Mueller Affiliate) shall (a) furnish to Walter in a timely manner such information and documents as Walter may reasonably request for purposes of (1) preparing any original or amended Consolidated Return or Combined Return, (2) contesting or defending any Audit relating to a Consolidated Return or a Combined Return, and (3) making any determination or computation necessary or appropriate under this Agreement, (b) cooperate in any Audit of any Consolidated Return or Combined Return, (c) retain and provide on demand books, records, documentation or other information relating to any tax return until the later of (1) the expiration of the applicable statute of limitations (giving effect to any extension, waiver, or mitigation thereof) and (2) in the event any claim is made under this Agreement for which such information is relevant, until a Final Determination with respect to such claim, and (d) take such action as Walter may deem appropriate in connection therewith. Walter shall provide Mueller (or the

 

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applicable Mueller Affiliate) any assistance reasonably required in providing any information requested pursuant to this Section 2.3.

 

2.4                                  EXPENSES. Mueller shall reimburse Walter for any outside legal and accounting expenses incurred by Walter in the course of the conduct of any Audit regarding the Tax liability of the Consolidated Group or any Combined Group, and for any other expense incurred by Walter in the course of any litigation relating thereto, to the extent such costs are reasonably attributable to Mueller or any Mueller Affiliate and provided Walter has conferred with Mueller as to the portion of the Audit relating to Mueller or the Mueller Affiliate. Notwithstanding the foregoing, Walter shall have the sole discretion to control, contest, represent, file, prosecute, challenge or settle any Audit pursuant to Section 2.2 of this Agreement.

 

SECTION 3.                                 PAYMENT OF TAXES AND TAX SHARING AMOUNTS

 

3.1                                  FEDERAL INCOME TAXES. Walter shall pay (or cause to be paid) to the IRS all Federal Income Taxes, if any, of the Consolidated Group.

 

3.2                                  NON-FEDERAL COMBINED TAXES. Walter shall pay (or cause to be paid) to the appropriate Tax Authorities all Non-Federal Combined Taxes, if any, of any Combined Group.

 

3.3                                  NON-FEDERAL SEPARATE TAXES AND OTHER TAXES. Mueller shall pay to the appropriate Tax Authorities all Non-Federal Separate Taxes and any other Taxes (other than those described in Section 3.1 and Section 3.2 of this Agreement), if any, of Mueller and the Mueller Affiliates.

 

3.4                                  MUELLER LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL COMBINED TAXES. For each taxable year (or portion thereof ending on the applicable Deconsolidation Date) during a Pre-Deconsolidation Period, Mueller shall pay to Walter an amount equal to the sum of the Mueller Group Federal Income Tax Liability and the Mueller Group Combined Tax Liability for such period.

 

3.5                                  MUELLER GROUP FEDERAL INCOME TAX LIABILITY. (a)  IN GENERAL. The Mueller Group Federal Income Tax Liability for each taxable year (or portion thereof ending on the applicable Deconsolidation Date) shall be the Mueller Group’s liability for Federal Income Taxes as determined on a Pro Forma Mueller Group Consolidated Return prepared in accordance with Section 3.5(b) of this Agreement.

 

(b)                                  PRO FORMA FEDERAL RETURN. For each taxable year (or portion thereof ending on the applicable Deconsolidation Date) during a Pre-Deconsolidation Period, Walter shall prepare or cause to be prepared (and, as requested by Walter, Mueller shall cooperate in preparing) a Pro Forma Mueller Group Consolidated Return as if the Mueller Group were not and never were part of the Consolidated Group, but rather were a separate affiliated group of corporations of which Mueller were the common parent filing a consolidated federal income tax return pursuant to Section 1501 of the Code. For purposes of this Section 3.5(b), the Mueller Group’s Federal Income Tax Liability shall not be reduced by the Mueller Group’s carrybacks and carryovers of federal Tax Assets from other taxable years (such items being addressed by Section 3.5(c) herein).

 

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(c)                                   FEDERAL TAX ASSETS. Walter shall pay to the Mueller Group, not later than 15 business days after Walter makes a payment to, or receives a payment, credit or offset from any Tax Authority pursuant to this Section 3, the amount, if any, by which one or more federal Tax Assets of the Mueller Group reduced the Federal Income Tax liability of the Consolidated Group for any taxable year. For purposes of computing the amount of the payment described in this Section 3.5(c), one or more federal Tax Assets of the Mueller Group shall be considered to have reduced the Consolidated Group’s Federal Income Tax liability in a given year by an amount equal to the difference, if any, between (i) the amount of the Consolidated Group’s Federal Income Tax liability for the year computed without regard to such Tax Asset or Tax Assets and (ii) the amount of the Consolidated Group’s Federal Income Tax liability for the year computed with regard to such Tax Asset or Tax Assets.

 

3.6                                  MUELLER GROUP COMBINED TAX LIABILITY. (a) IN GENERAL. The Mueller Group Combined Tax Liability for each taxable year (or portion thereof ending on the applicable Deconsolidation Date) shall be the sum for such taxable period of the Mueller Group’s liability for each Non-Federal Combined Tax, as determined on Pro Forma Mueller Group Combined Returns prepared in a manner consistent with the principles and procedures set forth in Section 3.5 hereof.

 

(b)                                  STATE TAX ASSETS. Walter shall pay to the Mueller Group, not later than 15 business days after Walter makes a payment to, or receives a payment, credit or offset from any Tax Authority pursuant to this Section 3, the amount, if any, by which one or more state or local Tax Assets of Mueller and the Mueller Affiliates reduced the Combined Tax liability of the applicable Combined Group for any taxable year. For purposes of computing the amount of the payment described in this Section 3.6(b), one or more state or local Tax Assets of Mueller and the Mueller Affiliates shall be considered to have reduced the Combined Group’s Tax liability in a given year by an amount equal to the difference, if any, between (i) the amount of the Combined Group’s Tax liability for the year computed without regard to such Tax Asset or Tax Assets and (ii) the amount of the Combined Group’s Tax liability for the year computed with regard to such Tax Asset or Tax Assets.

 

3.7                                  FOREIGN TAX ASSETS. Any other Tax Assets (other than Tax Assets described in Sections 3.5(c) and 3.6(b)) will be reimbursed at the time of use by Walter or Walter Affiliates in accordance with principles set forth in Sections 3.5(c) and 3.6(b).

 

3.8                                  TAX SHARING INSTALLMENT PAYMENTS. (a)  FEDERAL INCOME TAXES. Not later than five business days prior to each Estimated Tax Installment Date with respect to any Pre-Deconsolidation Period, Walter shall determine under Section 6655 of the Code the estimated amount of the related installment of the Mueller Group Federal Income Tax Liability. Mueller shall then pay to Walter, not later than such Estimated Tax Installment Date, the amount thus determined.

 

(b)                                  NON-FEDERAL COMBINED TAXES. Not later than five business days prior to any estimated tax installment date with respect to Non-Federal Combined Taxes for any Pre-Deconsolidation Period, Walter shall determine the estimated amount of the related installment of the Mueller Group Combined Tax Liability for the taxable year. Mueller shall pay to Walter, not later than the due date for such installment, the amount thus determined.

 

3.9                                  TAX SHARING TRUE-UP PAYMENTS. (a)  FEDERAL INCOME TAXES. Not later than 15 business days after the Consolidated Return is filed with respect

 

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to any Pre-Deconsolidation Period, Walter shall deliver to Mueller a Pro Forma Mueller Group Consolidated Return or other comparable schedule reflecting the Mueller Group Federal Income Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date). Not later than 10 business days after the date such Pro Forma Mueller Group Consolidated Return or other schedule is delivered, Mueller shall pay to Walter, or Walter shall pay to Mueller, as appropriate, an amount equal to the difference, if any, between the Mueller Group Federal Income Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date) and the aggregate amount paid by Mueller with respect to such taxable year (or portion thereof ending on the applicable Deconsolidation Date) under Section 3.8(a) of this Agreement.

 

(b)                                  NON-FEDERAL COMBINED TAXES. Not later than 15 business days after the Combined Return is filed with respect to any period that includes any Pre-Deconsolidation Period, Walter shall deliver to Mueller a Pro Forma Mueller Group Combined Return or other comparable schedule reflecting the Mueller Group Combined Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date). Not later than 10 business days following delivery of such Pro Forma Mueller Group Combined Return or other schedule, Mueller shall pay to Walter, or Walter shall pay to Mueller, as appropriate, an amount equal to the difference, if any, between the Mueller Group Combined Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date) and the amount paid by Mueller with respect to such taxable year (or portion thereof ending on the applicable Deconsolidation Date) under Section 3.8(b) of this Agreement.

 

3.10                            REDETERMINATION AMOUNT. (a)  IN GENERAL. In the event of any redetermination of any item of income, gain, loss, deduction or credit of any member of the Consolidated Group or any Combined Group as a result of a Final Determination or any settlement or compromise with any Tax Authority (including any amended Tax Return or claim for refund filed by Walter), Mueller shall pay Walter or Walter shall pay Mueller, as the case may be, the Redetermination Amount.

 

(b)                                  COMPUTATION. The Redetermination Amount shall be the difference, if any, between all amounts previously determined under Section 3 of this Agreement and all amounts that would have been determined under Section 3 of this Agreement taking such redetermination into account (including any additions to Tax or penalties applicable thereto), together with interest for each day calculated (1) with respect to redeterminations affecting Federal Income Taxes, at the rate determined, in the case of payment by Mueller to Walter, under Section 6621(a)(2) of the Code and, in the case of payment by Walter to Mueller, under Section 6621(a)(1) of the Code, and (2) with respect to redeterminations affecting Non-Federal Combined Taxes, under similar laws, if any, of other jurisdictions.

 

(c)                                   PAYMENT. Walter shall deliver to Mueller a schedule reflecting the computation of any Redetermination Amount with respect to any taxable year. Not later than 5 business days after the date such schedule is delivered, Mueller shall pay Walter, or Walter shall pay Mueller, such Redetermination Amount.

 

3.11.                         INTEREST. Payments under this Section 3 that are not made within the prescribed period shall thereafter bear interest at the Federal short-term rate established pursuant to Section 6621 of the Code.

 

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3.12.                         CARRYBACKS. (a) In the event any Tax Asset of the Mueller Group for any Post-Deconsolidation Period is eligible to be carried back to a Pre-Deconsolidation Period, Mueller shall, to the extent permitted by applicable law, elect to carry such amounts forward to any Post-Deconsolidation Period. If Mueller is required by law to carry back any such Tax Asset to a taxable Pre-Deconsolidation Period, Walter agrees to make a payment to Mueller to the extent that such a payment would be required under the terms of Section 3.5(c), Section 3.6(b) or Section 3.7 of this Agreement, net of any expenses incurred by Walter or Walter Affiliates. If subsequent to the payment by Walter to Mueller of any such amount, there shall be (a) a Final Determination which results in a disallowance or a reduction of the Tax Asset so carried back or (b) a reduction in the amount of the benefit realized by the Walter Group for any reason, Mueller shall repay to Walter, within 30 business days of such event any amount which would not have been payable to Mueller pursuant to this Section 3.12 had the amount of the benefit been determined in light of these events. Mueller shall hold Walter harmless for any penalty, addition to Tax or interest payable by any member of the Walter Group as a result of any such event. Any such amount shall be paid by Mueller to Walter within 30 business days of the payment by Walter or any member of the Consolidated Group or Combined Group of any such penalty, addition to Tax, or interest.

 

SECTION 4.                                 DECONSOLIDATION AND DISTRIBUTION TAXES

 

4.1                                  CONTINUING COVENANTS. Mueller, for itself and the Mueller Affiliates, covenants that on or after a Deconsolidation it will not (nor will it cause or permit any member of the Mueller Group ), in respect of any Pre-Deconsolidation Period, (i) make or change any tax election, (ii) change any accounting method, (iii) amend any Tax Return or take any Tax position on any Tax Return that is inconsistent with any Tax position on any Tax Return of the Walter Group, or (iv) take any action, omit to take any action or enter into any transaction that results in any increased Tax liability or reduction of any Tax Asset of the Walter Group.

 

4.2                                  ADDITIONAL CONTINUING COVENANTS. (a)  MUELLER RESTRICTIONS. Mueller agrees that, until such time as the stock of Mueller owned by Walter and Walter Affiliates constitutes fifty percent (50%) or less of the total combined voting power of all of the outstanding stock of Mueller, Mueller (1) will not knowingly take or fail to take, or permit any Mueller Affiliate to knowingly take or fail to take, any action that could reasonably be expected to preclude Walter’s ability to effectuate a Distribution, and (2) will not issue any stock of Mueller (or any instrument that is convertible, exercisable or exchangeable into any such stock) in an acquisition or public or private offering if, immediately after such issuance, Walter would, or would reasonably be expected to, not own stock of Mueller that, on a fully diluted basis, constitutes “control” (within the meaning of Section 368(c) of the Code) of Mueller. In the event of a Distribution, Mueller agrees that (1) it will take, and cause each Mueller Affiliate to take, any action reasonably requested by Walter in order to enable Walter to effectuate a Distribution (including, without limitation, any internal restructuring necessary to satisfy the active trade or business requirement of Section 355(b) of the Code) and (2) it will not take or fail to take, or permit any Mueller Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any written representations of an officer of Mueller pursuant to Section 4.2(e) of this Agreement with respect to any material, information, covenant or representation that relates to facts or matters related to Mueller, any Mueller Affiliate, or the Mueller Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling other than as

 

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permitted by Section 4.2(c) of this Agreement. For this purpose an action is considered inconsistent with a representation if the representation states that there is no plan or intention to take such action. In the event of a Distribution, Mueller agrees that it will not take (and it will cause the Mueller Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with the treatment of a Distribution as a tax-free transaction under Section 355 of the Code.

 

(b)                                  WALTER RESTRICTIONS. In the event of a Distribution, Walter agrees that it will not take or fail to take, or permit any Walter Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any material, information, covenant or representation that relates to facts or matters related to Walter (or any Walter Affiliate) or within the control of Walter and is contained in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling. For this purpose an action is considered inconsistent with a representation if the representation states that there is no plan or intention to take such action. In the event of a Distribution, Walter agrees that it will not take (and it will cause the Walter Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with the treatment of a Distribution as a tax-free transaction under Section 355 of the Code.

 

(c)                                   CERTAIN MUELLER ACTIONS FOLLOWING A DISTRIBUTION. In the event of a Distribution, Mueller agrees that, during the 2-year period following a Distribution, without first obtaining, at Mueller’s own expense, either a supplemental opinion from Tax Counsel that such action will not result in Distribution Taxes (a “Supplemental Tax Opinion”) or a Supplemental Ruling that such action will not result in Distribution Taxes, unless in any such case Walter and Mueller agree otherwise, Mueller shall not (1) sell all or substantially all of the assets of Mueller or any Mueller Affiliate, (2) merge Mueller or any Mueller Affiliate with another entity, without regard to which party is the surviving entity, (3) transfer any assets of Mueller in a transaction described in Section 351 (other than a transfer to a corporation which files a consolidated return with Mueller and which is wholly-owned, directly or indirectly, by Mueller) or subparagraph (C) or (D) of Section 368(a)(1) of the Code, (4) issue stock of Mueller or any Mueller Affiliate (or any instrument that is convertible or exchangeable into any such stock) in an acquisition or public or private offering, or (5) facilitate or otherwise participate in any acquisition of stock in Mueller that would result in any shareholder owning five percent (5%) or more of the outstanding stock of Mueller. Mueller or any Mueller Affiliate shall only undertake any of such actions after Walter’s receipt of such Supplemental Tax Opinion or Supplemental Ruling and pursuant to the terms and conditions of any such Supplemental Tax Opinion or Supplemental Ruling or as otherwise consented to in writing in advance by Walter. The parties hereby agree that they will act in good faith to take all reasonable steps necessary to amend this Section 4.2(c), from time to time, by mutual agreement, to (i) add certain actions to the list contained herein, or (ii) remove certain actions from the list contained herein, in either case, in order to reflect any relevant change in law, regulation or administrative interpretation occurring after the date of this Agreement.

 

(d)                                  NOTICE OF SPECIFIED TRANSACTIONS. Not later than 30 days prior to entering into any oral or written contract or agreement, and not later than 5 days after it first becomes aware of any negotiations, plan or intention (regardless of whether it is a party to such negotiations, plan or intention), regarding any of the transactions described in Section 4.2(c) of this Agreement, Mueller shall provide written notice of its intent to consummate

 

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such transaction or the negotiations, plan or intention of which it becomes aware, as the case may be, to Walter.

 

(e)                                   MUELLER COOPERATION. Mueller agrees that, at the request of Walter, Mueller shall cooperate fully with Walter to take any action necessary or reasonably helpful to effectuate a Distribution, including seeking to obtain, as expeditiously as possible, a Tax Opinion, Supplemental Tax Opinion, Ruling, and/or Supplemental Ruling. Such cooperation shall include the execution of any documents that may be necessary or reasonably helpful in connection with obtaining any Tax Opinion, Supplemental Tax Opinion, Ruling, and/or Supplemental Ruling (including, without limitation, any (i) power of attorney, (ii) Officer’s Certificate, (iii) Ruling Documents, (iv) Supplemental Rulings Documents, and/or (v) reasonably requested written representations confirming that (a) Mueller has read the Officer’s Certificate, Ruling Documents, and/or Supplemental Ruling Documents and (b) all information and representations, if any, relating to Mueller, any Mueller Affiliate, or the Mueller Business contained in the Officer’s Certificate, Ruling Documents, and/or Supplemental Ruling Documents are true, correct and complete in all material respects).

 

4.3                                  DISTRIBUTION TAXES. The parties have set forth how certain Tax matters with respect to a Distribution would be handled in the event that a Distribution is pursued at some future time.

 

(a)                                   WALTER’S LIABILITY FOR DISTRIBUTION TAXES. In the event of a Distribution, notwithstanding Section 3 of this Agreement, Walter and each Walter Affiliate shall be jointly and severally liable for any Distribution Taxes, to the extent that such Distribution Taxes are attributable to, caused by, or result from, one or more of the following:

 

(1)                                   any action or omission by Walter (or any Walter Affiliate) inconsistent with any material, information, covenant or representation related to Walter, any Walter Affiliate, or the Walter Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling (for the avoidance of doubt, disclosure of any action or fact that is inconsistent with any material, information, covenant or representation submitted to Tax Counsel, the IRS, or other Tax Authority, as applicable, in connection with an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling shall not relieve Walter (or any Walter Affiliate) of liability under this Agreement);

 

(2)                                   any action or omission by Walter (or any Walter Affiliate), including a cessation, transfer to affiliates, or disposition of its active trades or businesses, or an issuance of stock, stock buyback or payment of an extraordinary dividend by Walter (or any Walter Affiliate) following a Distribution;

 

(3)                                   any acquisition of any stock or assets of Walter (or any Walter Affiliate) by one or more other persons (other than Mueller or a Mueller Affiliate) prior to or following a Distribution; or

 

(4)                                   any issuance of stock by Walter (or any Walter Affiliate).

 

(b)                                  MUELLER’S LIABILITY FOR DISTRIBUTION TAXES. In the event of a Distribution, notwithstanding Section 3 of this Agreement, Mueller and each Mueller Affiliate shall be jointly and severally liable for any Distribution Taxes, to the extent that

 

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such Distribution Taxes are attributable to, caused by, or result from, one or more of the following:

 

(1)                                   any action or omission by Mueller (or any Mueller Affiliate) after a Distribution at any time, that is inconsistent with any written representations of an officer of Mueller pursuant to Section 4.2(e) of this Agreement with respect to any material, information, covenant or representation related to Mueller, any Mueller Affiliate, or the Mueller Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling (for the avoidance of doubt, disclosure by Mueller (or any Mueller Affiliate) to Walter (or any Walter Affiliate) of any action or fact that is inconsistent with any material, information, covenant or representation submitted to Tax Counsel, the IRS, or other Tax Authority, as applicable, in connection with an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling shall not relieve Mueller (or any Mueller Affiliate) of liability under this Agreement);

 

(2)                                   any action or omission by Mueller (or any Mueller Affiliate) after the date of a Distribution (including any act or omission that is in furtherance of, connected to, or part of a plan or series of related transactions (within the meaning of Section 355(e) of the Code) occurring on or prior to the date of a Distribution) including a cessation, transfer to affiliates or disposition of the active trades or businesses of Mueller (or any Mueller Affiliate), stock buyback or payment of an extraordinary dividend;

 

(3)                                   any acquisition of any stock or assets of Mueller (or any Mueller Affiliate) by one or more other persons (other than Walter or any Walter Affiliate) prior to or following a Distribution; or

 

(4)                                   any issuance of stock by Mueller (or any Mueller Affiliate) after a Distribution, including any issuance pursuant to the exercise of employee stock options or other employment related arrangements or the exercise of warrants.

 

(c)                                   JOINT LIABILITY FOR REMAINING DISTRIBUTION TAXES. Walter and each Walter Affiliate shall be liable for a percentage of any Distribution Taxes (not otherwise allocated by Sections 4.3(a) or (b) of this Agreement) equal to the quotient of (i) Walter’s Market Valuation, divided by (ii) the sum of (x) Walter’s Market Valuation, and (y) Mueller’s Market Valuation. Mueller and each Mueller Affiliate shall be jointly and severally liable for a percentage of any Distribution Taxes (not otherwise allocated by Sections 4.3(a) or (b) of this Agreement) equal to the quotient of (i) Mueller’s Market Valuation, divided by (ii) the sum of (x) Walter’s Market Valuation, and (y) Mueller’s Market Valuation.

 

SECTION 5.                                 MISCELLANEOUS

 

5.1                                  TERM. All rights and obligations arising hereunder shall survive until they are fully effectuated or performed provided that, notwithstanding anything in this Agreement to the contrary, this Agreement shall remain in effect and its provisions shall survive for the full period of all applicable statutes of limitation (giving effect to any extension, waiver or mitigation thereof).

 

5.2                                  ALLOCATIONS. (a)  IN GENERAL. All computations with respect to any Pre-Deconsolidation Period shall be made pursuant to the principles of Treasury Regulations

 

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Section 1.1502-76(b), taking into account such elections thereunder as Walter, in its sole discretion, shall make.

 

(b)                                  TAX ASSETS. Walter shall advise Mueller in writing within 90 days after the filing of the Consolidated Return for the taxable year that includes the Deconsolidation Date of the allocation of any Tax Assets among Walter, each Walter Affiliate, Mueller, and each Mueller Affiliate. The parties hereby agree that, for purposes of determining such allocation, Walter shall be free to use any legally permissible method of allocation in its sole discretion.

 

5.3                                  CHANGES IN LAW. Any reference to a provision of the Code or a similar law of another jurisdiction shall include a reference to any successor provision to such provision.

 

5.4                                  CONFIDENTIALITY. Each party shall hold and cause its advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such party) concerning the other parties hereto furnished it by such other party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (a) previously known by the party to which it was furnished, (b) in the public domain through no fault of such party, or (c) later lawfully acquired from other sources not under a duty of confidentiality by the party to which it was furnished), and each party shall not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to be bound by the provisions of this Section 5.4. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information.

 

5.5                                  SUCCESSORS. This Agreement shall be binding on and inure to the benefit of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto (including any successor of Walter and Mueller succeeding to the tax attributes of such party under Section 381 of the Code), to the same extent as if such successor had been an original party.

 

5.6                                  AUTHORIZATION, ETC. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding on such party.

 

5.7                                  ENTIRE AGREEMENT. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements.

 

5.8                                  SECTION CAPTIONS. Section captions used in this Agreement are for convenience and reference only and shall not affect the construction of this Agreement.

 

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5.9                                  GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to laws and principles relating to conflicts of law.

 

5.10                            COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

 

5.11                            WAIVERS AND AMENDMENTS. This Agreement shall not be waived, amended or otherwise modified except in writing, duly executed by all of the parties hereto.

 

5.12                            SEVERABILITY. In case any one or more of the provisions in this Agreement should be invalid, illegal or unenforceable, the enforceability of the remaining provisions hereof will not in any way be effected or impaired thereby.

 

5.13                            NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties to this Agreement and each Walter Affiliate and Mueller Affiliate and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other rights in excess of those existing without this Agreement.

 

5.14                            OTHER REMEDIES. Mueller recognizes that any failure by it or any Mueller Affiliate to comply with its obligations under Section 4 of this Agreement would, in the event of a Distribution, result in Distribution Taxes that would cause irreparable harm to Walter, Walter Affiliates, and their stockholders. Accordingly, Walter shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which Walter is entitled at law or in equity.

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of the date first above written.

 

	WALTER INDUSTRIES, INC.
	on behalf of itself and the Walter Affiliates
	By:	/s/ William F. Ohrt
	Name:		William F. Ohrt
	Title:		Executive Vice President and Chief Financial Officer
	MUELLER WATER PRODUCTS, INC.
	on behalf of itself and the Mueller Affiliates
	By:	/s/ Victor P. Patrick
	Name:			Victor P. Patrick
	Title:			Vice President and Secretary

 

Exhibit 10.3

 

TRANSITION SERVICES AGREEMENT

 

This Transition Services Agreement (this “ Services Agreement ”) is made as of the 26 ^th day of May, 2006, by and among (i) Walter Industries, Inc., a Delaware corporation (“ Walter ”) on behalf of itself and each of the other Walter Entities, and (ii) Mueller Water Products, Inc., a Delaware corporation (“ Mueller ”), on behalf of itself and each of the other Mueller Entities. The Mueller Entities currently receive certain services from and provide certain services to the Walter Entities. Each of the Walter Entities and the Mueller Entities desire that these services continue to be provided after the initial public offering of shares of Mueller and the subsequent spin-off of Mueller’s common stock to Walter’s shareholders, upon the terms and conditions set forth in this Services Agreement.

 

In consideration of the mutual covenants and agreements contained in this Services Agreement, the parties hereto hereby agree as follows:

 

ARTICLE 1.

 

DEFINITIONS

 

1.1                                  Unless the context otherwise requires, the following terms and their singular or plural, used in this Services Agreement shall have the meanings set forth below:

 

a)               “ Force Majeure ” shall have the meaning set forth in Section 7.1 of this Services Agreement.

 

b)              “ Mueller ” shall have the meaning set forth in the preamble to this Services Agreement.

 

c)               “ Mueller Entities ” means, collectively, Mueller and any of its Affiliates that are listed as Recipients on Schedule A or as Providers on Schedule B.

 

d)              “ Mueller Provided Services ” shall have the meaning set forth in Section 2.2 of this Services Agreement.

 

e)               “ Person ” means an individual, partnership, corporation, trust, unincorporated association, or other entity or association.

 

f)                 “ Provider ” shall mean the particular Walter Entity or Mueller Entity, in any Services Agreement.

 

g)              “ Recipient ” shall mean the particular Walter Entity or Mueller Entity, in any given location, that is receiving services or leasing or subleasing property (as tenant) pursuant to this Services Agreement.

 

 

h)              “ Term ” shall have the meaning set forth in Section 5.1 of this Services Agreement.

 

i)                  “ Walter ” shall have the meaning set forth in the preamble to this Services Agreement.

 

j)                  “ Walter Entities ” means, collectively, Walter and any of its Affiliates that are listed as Providers on Schedule A or as Recipients on Schedule B.

 

k)               “ Walter Provided Services ” shall have the meaning set forth in Section 2.1 of this Services Agreement.

 

Other terms are used as defined elsewhere herein.

 

ARTICLE 2.

 

SERVICES

 

2.1                                  Walter Provided Services. Pursuant to the terms of this Services Agreement, the Walter Entities agree to provide, or cause to be provided, to the respective Mueller Entities the services described in Schedule A to this Services Agreement (the “Walter Provided Services”).

 

2.2                                  Mueller Provided Services . Pursuant to the terms of this Services Agreement, the Mueller Entities agree to provide, or cause to be provided, the services described in Schedule B to this Services Agreement (the “Mueller Provided Services”).

 

2.3                                  Other Services . If, after the execution of this Services Agreement, the parties determine that a service provided by the Walter Entities to the Mueller Entities or by the Mueller Entities to the Walter Entities prior to the date hereof was omitted from the Schedules to this Services Agreement, then the parties shall negotiate in good faith to agree to the terms and conditions upon which such services would be added to this Services Agreement, it being agreed that the charges for such services should be determined on a basis consistent with the methodology for determining the initial prices provided for in Section 3.3.

 

ARTICLE 3.

 

COMPENSATION

 

3.1                                  Compensation for Walter Provided Services . Subject to Section 3.4, the compensation for the Walter Provided Services for the duration of the Term shall be as described for each individual service provided as set forth on Schedule A plus applicable sales or value-added taxes, if any.

 

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3.2                                  Compensation for Mueller Provided Services . Subject to Section 3.4, the compensation for the Mueller Provided Services for the duration of the term shall be as described for each individual service as set forth on Schedule B plus applicable sales or value-added taxes, if any.

 

3.3                                  Methodology for Determining Prices . The parties agree that the prices charged by a Provider for any Service provided hereunder shall be sufficient to cover such Provider’s reasonable estimate of its actual costs and, if applicable, consistent with the prices such provider would charge to an Affiliate, in each case without taking into account any profit margin or projected savings from increased efficiency.

 

3.4                                  Price Adjustments . It is the intent of the parties that the prices set forth on the Schedules hereto are consistent with the methodology for determining prices as described in Section 3.3. If the parties determine in good faith that the initial prices set forth on the Schedules hereto are not consistent with such methodology, then the parties shall negotiate in good faith to adjust such prices in a manner that is consistent with such methodology.

 

3.5                                  Allocation of Certain Expenses .

 

(a)              (i)  In respect of software applications which are resident in the Mueller Entities while they are affiliates of the Walter Entities, Mueller shall bear the costs and expenses of obtaining any and all licenses for such software applications for Mueller.

 

(ii)  Walter and Mueller cooperate in good faith to minimize the costs and expenses to be incurred pursuant to this Section 3.5(a).

 

(b)                                  Walter and Mueller shall each bear the costs and expenses of obtaining any and all consents from third parties which may be necessary in connection with the other party’s provision of services to the Recipient hereunder.

 

3.6                                  Terms of Payment; Dispute Resolution .

 

(a)                                   Except as otherwise expressly provided herein, Providers shall invoice Recipients monthly (or, if mutually agreeable to Provider and Recipient, quarterly or semi-annually) in arrears for the services provided by them under this Services Agreement. Payment in U.S. dollars shall be made by Recipients within 30 days after receipt of any invoice. No Recipient shall withhold any payments to its Provider under this Services Agreement, and no Provider shall withhold the provision of any services to its Recipient, notwithstanding any dispute that may be pending between them, whether under this Services Agreement or otherwise (any required adjustment being made on subsequent invoices), unless such withholding is provided for in an arbitral award in accordance with Section 9.6 of this Services Agreement.

 

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(b)                                  If there is a dispute between any Recipient and any Provider regarding the amounts shown as billed to such Recipient on any invoice, such Provider shall furnish to such Recipient reasonable documentation to substantiate the amounts billed including, but not limited to listings of the dates, times and amounts of the services in question where applicable and practicable. Upon delivery of such documentation, such Recipient and such Provider shall cooperate and use their best efforts to resolve such dispute among themselves. If such disputing parties are unable to resolve their dispute within thirty (30) calendar days of the initiation of such procedure, and such Recipient believes in good faith and with a reasonable basis that the amounts shown as billed to such Recipient are inaccurate or are otherwise not in accordance with the terms of this Services Agreement, then such Recipient shall have the right, as its own expense, to commence arbitration in accordance with Section 9.1 of this Services Agreement.

 

ARTICLE 4.

 

OCCUPANCY RIGHTS

 

4.1                                  Any Employee of a Walter Entity or Mueller Entity who is located at a facility of the other party may remain at such location for a period not to exceed 180 days after the date of the spin-off; provided , however , that such employee shall be required to adhere to all applicable security restrictions and guidelines at such facility. Thereafter, the owner of such facility may require such employee(s) to vacate the premises unless, prior to such time, the parties have executed a formal lease or other occupancy arrangements upon commercially reasonable terms that are mutually acceptable to the parties.

 

ARTICLE 5.

 

TERM

 

5.1                                  Term . Except as expressly provided otherwise in this Services Agreement, or with respect to specific services as indicated on the Schedules hereto, the term of this Services Agreement shall commence immediately and shall expire automatically at the time the term of every service described on the Schedules hereto has terminated (the “ Term ”). The obligation of any Recipient to make a payment for services previously rendered shall not be affected by the expiration of the term and shall continue until full payment is made.

 

5.2                                  Termination of Individual Services . (a)  Each of the individual services described on the schedules hereto has a separate term which, in respect of some services, includes a right of extension. Unless earlier terminated pursuant to the following sentence, the obligation of a Provider to provide a service will terminate upon the expiration of the term of such service. Effective between the respective Provider and Recipient, a Recipient may terminate at any time during the Term any individual service provided under this Services Agreement on a service-by-service basis (and/or location-by-location basis where an individual service is provided to multiple locations of a Recipient) upon

 

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written notice to the Provider identifying the particular service (or location) to be terminated and the effective date of termination, which date shall not be less than 30 days after receipt of such notice unless the Provider otherwise agrees. Effective upon the termination of any service, an appropriate reduction will be made in the fees charged to such Recipient.

 

ARTICLE 6.

 

CERTAIN COVENANTS

 

6.1                                  Points of Contact. Each Provider and Recipient shall name a point of contact which shall be added to the Schedules hereto. Such points of contact shall be responsible for the implementation of this Services Agreement between the respective Provider and its Recipient, including resolutions of any issues that may arise during the performance hereunder on a day-to-day basis.

 

6.2                                  Cooperation; Reasonable Care .

 

(a)                                   The parties will cooperate (using reasonable commercial efforts) to effect a smooth and orderly transition of the services provided hereunder from the Providers to the respective Recipients including, without limitation, the separation of the Mueller Entities from the Walter Entities; provided , however , that this Section 6.2 shall not require any party hereto to incur any out-of-pocket expenses unless and except as expressly provided otherwise herein.

 

(c)                                   Each Provider shall perform the services that it is required to provide to its respective Recipient(s) under this Services Agreement with reasonable skill and care and shall use at least that degree of skill and care that it would exercise in similar circumstances in carrying out its own business. Each Provider shall take necessary measures to protect the respective Recipient’s data that is processed by such Provider from destruction, deletion or unauthorized change and allow its recovery in events of Force Majeure; provided , however , that a Provider shall be deemed to have satisfied this obligation if the measures taken to protect and recover recipient’s data are equivalent to what it uses in carrying out its own business.

 

6.3                                  Migration Projects . Each Provider will provide the respective Recipient with reasonable support necessary to transition the services, which may include consulting and training and providing reasonable access to data and other information and to Providers employees; provided , however , that such activities shall not unduly burden or interfere with Provider’s business and operations. Where required for transitioning the services, the Recipient’s employees will be granted reasonable access to the respective Provider’s facilities during normal business hours.

 

6.4                                  Further Assurances . From time to time after the date hereof, without further consideration, each party shall execute and deliver such formal lease or license

 

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agreements as another party may reasonably request to evidence any lease or license provided for herein or contemplated hereby.

 

6.5                                  Certain disbursements/receipts . The parties hereto contemplate that, from time to time, Walter-related entities and/or Mueller-related entities (any such party, the “ Paying Party ”), as a convenience to another Mueller-related entity or Walter-related entity, as the case may be (the “ Responsible Party ”), in connection with the transactions contemplated by this Services Agreement, may make certain payments that are properly the responsibility of the Responsible Party (any such payment made, a “ Disbursement ”). Similarly, from time to time, Walter Entities and/or Mueller Entities (any such party, the “ Receiving Party ”) may receive from third parties certain payments to which another Mueller-related entity or Walter-related entity, as the case may be, is entitled (any such party, the “Other Party”, and any such payment received, a “ Receipt ”).

 

(a)                                   Disbursements .

 

(i)                                      For Disbursements made by check, the Responsible Party will reimburse the Paying Party within seven (7) business days after written notice of such Disbursement has been given to the Responsible Party.

 

(ii)                                   In case of a Disbursement by wire, if written notice has been given by 2:00 p.m. on the business day prior to the payment of such Disbursement, the Responsible Party shall reimburse the Paying Party for the amount of such payment on the date the Disbursement is made by the Paying Party. If notice as provided above has not been given prior to the payment of such Disbursement, the Responsible Party shall reimburse the Paying party for the amount of such payment within one business day after receipt of the Responsible Party of such notice from the Paying Party.

 

(iii)                                A Paying Party shall provide such supporting documentation regarding Disbursements for which it is seeking reimbursement as the Responsible Party may reasonably request.

 

(b)                                  Receipts . A Receiving Party shall remit Receipts to the Other Party within one business day of receipt thereof. Concerning the cash collection of outstanding receivables, the Receiving Party shall remit such cash on a weekly basis with interest at the prime rate stated in 6.5(e).

 

(c)                                   Certain Exceptions . Notwithstanding anything to the contrary set forth above, if with respect to any particular transaction(s), it is impossible or impracticable under the circumstances to comply with the procedures set forth in subsections (a) and (b) of this Section 6.5 (including the time periods specified therein), the parties will cooperate to find a mutually agreeable alternative that will achieve substantially similar economic results from the point of view of the Paying Party or the Other Party, as the case may be (i.e., an alternative pursuant to which the Paying Party will not incur any material interest expense or the Other Party will not be deprived of any material interest income); provided , however , that if a Receiving party cannot comply with the procedures

 

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set forth in subsection (b) of this Section because it does not become aware of a Receipt on behalf of the Other Party shall remit such Receipt (without interest thereon) to the Other Party within one business day after the Receiving Party becomes aware of such Receipt.

 

(d)                                  Funding of Payroll . Notwithstanding anything which may be to the contrary set forth in Section 6(a) or 6(c) above, payroll checks disbursed by or at the direction of a Walter Entity as part of the Walter Provided Services shall be funded in immediately available funds to an account as directed by such Walter Entity on the day the checks are issued to Mueller employees, provided such Walter Entity notifies the respective Mueller Entity by 3:00 p.m. on the business day prior to check issuance of the funding requirement amount (which amount shall be grossed up to include any social charges and other accessories on salaries). Direct deposit of payroll will have the same notice requirement and be funded on payday (alternately referred to as the settlement date).

 

(e)                                   Interest Rate . The rate for any interest or expense that is paid or payable pursuant to Section 6.5(b) shall be the prime rate as published by the Wall Street Journal.

 

ARTICLE 7.

 

FORCE MAJEURE

 

7.1                                  Force Majeure . No Provider shall bear any responsibility or liability for any losses, damages, liabilities, claims, costs or expenses, including attorneys’, accountants’ or experts’ fees (“Damages”) arising out of any delay, inability to perform or interruption of its performance of obligations under this Services Agreement due to any acts or omissions of Recipient or for events beyond its reasonable control (herinafter referred to as “Force Majeure”) including, without limitation, acts of God, act of governmental authority, act of the public enemy or due to war, riot, flood, civil commotion, insurrection, labor difficulty, severe or adverse weather conditions, lack of or shortage of electrical power, malfunctions of equipment or software programs or any other cause beyond the reasonable control of the Provider whose performance is affected by the Force Majeure event.

 

ARTICLE 8.

 

INDEMNITY

 

8.1                                  Indemnity .

 

(a)  The Walter Entities and Mueller Entities, in both instances jointly and severally, will each indemnify and hold harmless the other, their agents, employees and invitees, against all liabilities, claims, losses, damages, death or personal injury of

 

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whatever nature or kind, arising out of their respective performance of this Services Agreement or the entry of their respective agents, employees or invitees in the premises of the other, to the extent occasioned by their own willful misconduct or negligent actions or omissions or the willful misconduct or negligent actions or omissions of their respective agents, employees or invitees.

 

(b)                                  Notwithstanding the foregoing, no party shall be entitled to any damages with respect to lost profits or other consequential damages or punitive damages with respect to the performance by any other party under this Services Agreement.

 

ARTICLE 9.

 

MISCELLANEOUS

 

9.1                                  Resolution of Disputes; Continuation of Services Pending Outcome of Dispute . In the event of any dispute between the parties or between Providers and Recipients, the parties agree to be bound by the arbitration procedures set forth in Section 9.6 of this Services Agreement. Notwithstanding the existence of any dispute between the parties, no Provider shall discontinue the supply of any service provided for herein, unless so provided in an arbitral determination that the respective Recipient is in default of an obligation under this Services Agreement.

 

9.2                                  Notices . All notices, consents, waiver, claims and other communications hereunder (each a “ Notice ”) shall be in writing and shall be (a) personally delivered, (b) deposited, prepaid in a nationally established overnight delivery firm such as Federal Express, (c) mailed by certified mail, return receipt requested, or (d) transmitted by facsimile as follows:

 

As to Walter or any other Walter Entity:
	Walter Industries, Inc.
	4211 W. Boy Scout Blvd.
	Tampa, FL 33607
	Attention:	Victor P. Patrick
		Senior Vice President and General Counsel
	Fax No.: (813) 871-4420
As to Mueller or any other Mueller Entity:
	Mueller Water Products, Inc.
	4211 W. Boy Scout Blvd.
	Tampa, FL 33607
	Attention:	Chief Executive Officer
	Fax No.: (813) 871-4430

 

or to any other address which such party may have subsequently communicated to the other party by a Notice given in accordance with the provisions of this Section. Each Notice shall be deemed given and effective upon receipt (or refusal or receipt).

 

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9.3                                  Entire Agreement . This Services Agreement and the Schedules attached hereto contain every obligation and understanding between the parties relating to the subject matter hereof and merge all prior discussion, negotiations and agreement, if any, between them, and none of the parties shall be bound by any representations, warranties, covenants or other understandings, other than as expressly provided herein or therein.

 

9.4                                  Waiver and Amendment . Any representation, warranty, covenant, term or condition of this Services Agreement which may legally be waived, may be waived, or the time of performance thereof extended, at any time by the party hereto entitled to the benefit thereof, and any term, condition or covenant hereto may be amended by the parties hereto at any time. Any such waiver, extension or amendment shall be evidenced by an instrument in writing executed on behalf of the appropriate party by a Person who has been authorized by such party to execute waivers, extensions or amendments on its behalf. No waiver by any party hereto, whether express or implied, of its rights under any provisions at any other time or a waiver of such party’s rights under any other provision of this Services Agreement. No failure by any party hereto to take any action against any breach of this Services Agreement or default by another party shall constitute a waiver of the former party’s right to enforce any provision of this Services Agreement or to take action against such breach or default or any subsequent breach or default by such other party.

 

9.5                                  Severability . In the event that any one or more of the provisions contained in this Services Agreement shall be declared invalid, void or unenforceable, the remainder of the provisions of this Services Agreement shall remain in full force and effect, and such invalid, void or unenforceable provision shall be interpreted as closely as possible to the manner in which it was written.

 

9.6                                  Governing Law; Jurisdiction . This Services Agreement shall be interpreted and construed in accordance with the laws of New York without giving effect to the principles of conflicts of laws thereof. Neither party shall commence any proceeding against the other party under this Services Agreement unless and until the parties shall have attempted in good faith to settle the underlying dispute through negotiation or mediation for a period of not less than 30 days. If the parties have not resolved the dispute within 30 days, then either party may initiate arbitration by notifying the other party in writing that arbitration is demanded. The arbitration shall be conducted in accordance with the CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration (the “ Rules ”) by one arbitrator. Unless the parties agree on an individual arbitrator by name, each party shall appoint one arbitrator, obtain its appointee’s acceptance of such appointment, and deliver written notification of such appointment and acceptance to the other party within 10 days after delivery of the written notice demanding arbitration. The two party appointed arbitrators shall then jointly appoint a third arbitrator, obtain the appointee’s acceptance of such appointment and notify the parties in writing of such appointment and acceptance within 10 days after their appointment and acceptance. The arbitrator appointed by the two party-appointed arbitrators shall serve as the sole arbitrator. If the party appointed arbitrators fail to appoint an arbitrator within the time limits specified herein, the CPR Institute for Dispute

 

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Resolution shall appoint the arbitrator in accordance with Article 6 of the Rules. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. Unless otherwise agreed, the place of the arbitration shall be Jacksonville, Florida.

 

9.7                                  Counterpart Execution . This Services Agreement may be executed in counterparts with the same effect as if all of the parties had signed the same document. Such counterparts shall be construed together and shall constitute one and the same instrument, notwithstanding that all of the parties are not signatories to the original or the same instrument, or that signature pages from different counterparts are combined. The signature of any party to one counterpart shall be deemed to be a signature to and may be appended to any other counterpart.

 

9.8                                  Assignment. This Services Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that this Agreement may not be assigned by either party to any Person without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign any of its rights and obligations under this Services Agreement, in whole or in part, to one or more wholly owned subsidiaries of such party. Any party so assigning this Services Agreement shall remain fully liable to the other party for the performance by any assignee of any obligation of such party so assigned. Any purported assignment in violation of this Section 9.8 shall be void.

 

9.9                                  No Third Party Beneficiary . Nothing expressed or implied in this Services Agreement is intended, or shall be construed, to confer upon or give any Person other than the parties hereto, their respective successors and permitted assigns and the indemnities, any rights or remedies under or by reason of this Services Agreement.

 

9.10                            Headings and Interpretation . Titles and headings to articles and sections herein and titles to the Schedules are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Services Agreement. The Schedules referred to herein shall be construed with and as an integral part of this Services Agreement to the same extent as if they were set forth verbatim herein.

 

9.11                            Survival . Notwithstanding anything to the contrary herein, the rights and obligations of the parties under this Services Agreement which by their nature would continue beyond the termination of this Services Agreement, including but not limited to rights and obligations those set forth in Sections 3.6, 6.5, 8.1, 9.1 and 9.6, shall survive termination of this Services Agreement.

 

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IN WITNESS WHEREOF, the duly authorized officers or representatives of the parties hereto have duly executed this Services Agreement as of the date first written above.

 

 

MUELLER ENTITIES :		WALTER ENTITIES :
MUELLER WATER PRODUCTS, INC.		WALTER INDUSTRIES, INC.
/s/ Victor P. Patrick		/s/ William F. Ohrt
Name: Victor P. Patrick		Name: William F. Ohrt
Title: Vice President and Secretary		Title: Executive Vice President and Chief Financial Officer

 

 

Exhibit 10.4

 

MUELLER WATER PRODUCTS, INC.

 

2006 STOCK INCENTIVE PLAN

 

Approved by the Board of Directors on May 24, 2006

 

Approved by Stockholders on May 25, 2006

 

Effective Date: May 25, 2006

 

Termination Date: May 23, 2016

 

I. PURPOSE.

 

1.1.                                                  The purpose of this Plan is to aid the Company and its Affiliates in recruiting and retaining key Employees (including officers), Directors, and Consultants of outstanding ability and to motivate such persons to exert their best efforts on behalf of the Company and its Affiliates by providing incentives through the granting of Stock Awards. The Company expects that it will benefit from the added interest which such key Employees, Directors and Consultants will have in the welfare of the Company as a result of their proprietary interest in the Company’s success.

 

II. DEFINITIONS.

 

2.1.                                                  “Affiliate” means, with respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or any Affiliate has an interest.

 

2.2.                                                  “Applicable Law” means the legal requirements relating to the administration of an equity compensation plan under applicable U.S. federal and state corporate and securities laws, the Code, any stock exchange rules or regulations, and the applicable laws of any other country or jurisdiction, as such laws, rules, regulations and requirements shall be in place from time to time.

 

2.3.                                                  “Beneficial Owner” means the definition given in Rule 13d-3 promulgated under the Exchange Act.

 

2.4.                                                  “Board” means the board of directors of the Company.

 

2.5.                                                  “Cause” means any of the following: (1) the Participant’s theft, dishonesty, or falsification of any documents or records related to the Company or any of its Affiliates; (2) the Participant’s improper use or disclosure of the Company’s or any of its Affiliate’s confidential or proprietary information; (3) any action by the Participant which has a material detrimental effect on the reputation or business of the Company or any of its Affiliates; (4) the Participant’s failure or inability to perform any reasonable assigned duties, if such failure or inability is reasonably capable of cure, after being provided with a reasonable opportunity to cure, such failure or inability; (5) any material breach by the Participant of any employment or service agreement between the Participant and the

 

 

Company or any of its Affiliates or applicable policy of the Company or any of its Affiliates, which breach is not cured pursuant to the terms of such agreement; or (6) the Participant’s indictment or plea of guilty or nolo contendere with respect to any criminal act which impairs the Participant’s ability to perform his or her duties with the Company or any of its Affiliates. Notwithstanding the foregoing, the definition of “Cause” in an individual written agreement between the Company or any of its Affiliates and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such individual agreement to the extent expressly provided for in such individual written agreement (it being understood, however, that if no definition of the term “Cause” is set forth in such an individual written agreement, the foregoing definition shall apply).

 

2.6.                                                  “Change of Control” means the occurrence of any of the following events:

 

(i)                                      The sale, exchange, lease or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to a person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act;

 

(ii)                                   A merger or consolidation or similar transaction involving the Company if the stockholders of the Common Stock of the Company immediately prior to such transaction do not own a majority of the outstanding common stock of the surviving company or its parent immediately after the transaction in substantially the same proportions relative to each other as immediately prior to such transaction;

 

(iii)                                Any person or group becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company, including by way of merger, consolidation or otherwise (for the purposes of this clause (iii), a member of a group will not be considered to be the Beneficial Owner of the securities owned by other members of the group other than in response to a contested proxy or other control battle); or

 

(iv)                               During any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board (together with any new Directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the Directors of the Company then still in office, who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office.

 

2.7.                                                  “Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

2.8.                                                  “Committee” means the Board, or a committee of one or more members of the Board (or other individuals who are not members of the Board to the extent allowed by law) duly appointed by the Board in accordance with the Plan and Applicable Law. At any time that no such committee has been appointed, the Board shall constitute the “Committee” hereunder.

 

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2.9.                                                  “Common Stock” means the Series A common stock of the Company, par value $0.01 per Share.

 

2.10.                                            “Company” means Mueller Water Products, Inc., a Delaware corporation.

 

2.11.                                            “Consultant” means any person (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the board of directors of an Affiliate. For purposes of determining eligibility to participate in the Plan, the term Consultant shall be clarified pursuant to the provisions of Section 5.4.

 

2.12.                                            “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director, or Consultant, as applicable, is not interrupted or terminated. Unless otherwise expressly provided in the Stock Award, the Participant’s Continuous Service shall be deemed to have terminated in the event of a termination of all positions a Participant holds with the Company and its Affiliates, except in the case of a transition from status as a Consultant to status as an Employee if and only if there is no interruption or termination of the Participant’s service in connection with such transition. For example, unless otherwise expressly provided in the Stock Award, a termination in a Participant’s status as an Employee and the immediate commencement of service as a Consultant of the Company will constitute a termination of Continuous Service. Notwithstanding anything herein to the contrary, the Committee, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Company or an Affiliate, including sick leave, military leave or any other personal leave.

 

2.13.                                            “Covered Employee” means a “covered employee” as determined for purposes of Section 162(m) of the Code.

 

2.14.                                            “Director” means a member of the Board of Directors of the Company.

 

2.15.                                            “Disability” (a) means with respect to all Incentive Stock Options, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code, (b) for all other purposes, has the meaning under Section 409A(a)(2)(C)(i) of the Code, that is, the Participant (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death, or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer.

 

2.16.                                            “Employee” means any person employed by the Company or an Affiliate. Compensation by the Company or an Affiliate solely for services as a Director or as a Consultant shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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2.17.                                            “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

 

2.18.                                            “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

 

(i)                                      If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no such sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;

 

(ii)                                   If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or

 

(iii)                                In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

 

(iv)                               Notwithstanding the foregoing, to the extent required to comply with Section 409A of the Code in order to avoid the imposition of penalties or interest in respect thereof, the value of the Common Stock shall be determined in a manner consistent with Section 409A (and the regulations and guidance promulgated thereunder).

 

2.19.                                            “Full-Value Stock Award” shall mean any of a Restricted Stock Bonus, Restricted Stock Units, Phantom Stock Units, Performance Share Bonus, or Performance Share Units.

 

2.20.                                            “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

2.21.                                            “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

 

2.22.                                            “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

 

2.23.                                            “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 

2.24.                                            “Participant” means an Employee, Director or Consultant to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

 

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2.25.                                            “Performance Share Bonus” means a grant of shares of the Company’s Common Stock not requiring a Participant to pay any amount of monetary consideration (other than par value to the extent required by Applicable Law), and subject to the provisions of Section 8.2 of the Plan.

 

2.26.                                            “Performance Share Unit” means the right to receive the value of one (1) share of the Company’s Common Stock at the time the Performance Share Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of Performance Share Units to the extent permitted in the Participant’s agreement. These Performance Share Units are subject to the provisions of Section 8.2 of the Plan.

 

2.27.                                            “Phantom Stock Unit” means the right to receive the value of one (1) share of the Company’s Common Stock, subject to the provisions of Section 8.2 of the Plan.

 

2.28.                                            “Plan” means this Mueller Water Products, Inc. 2006 Stock Incentive Plan, as amended and in effect from time to time.

 

2.29.                                            “Retirement” means the voluntary termination of a Participant’s Continuous Service in all capacities with the Company and all of its Affiliates at such time that the Participant’s age and years of service equal or exceed 70.

 

2.30.                                            “Restricted Stock Bonus” means a grant of shares of the Company’s Common Stock not requiring a Participant to pay any amount of monetary consideration (other than par value to the extent required by Applicable Law), and subject to the provisions of Section 8.2 of the Plan.

 

2.31.                                            “Restricted Stock Purchase Right” means the right to acquire shares of the Company’s Common Stock upon the payment of the agreed-upon monetary consideration, subject to the provisions of Section 8.2 of the Plan.

 

2.32.                                            “Restricted Stock Unit” means the right to receive the value of one (1) share of the Company’s Common Stock at the time the Restricted Stock Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of restricted stock to the extent permitted in the Participant’s agreement. These Restricted Stock Units are subject to the provisions of Section 8.2 of the Plan.

 

2.33.                                            “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule l6b-3, as in effect from time to time.

 

2.34.                                            “Securities Act” means the Securities Act of 1933, as amended from time to time.

 

2.35.                                            “Stock Appreciation Right” means the right to receive an amount equal to the Fair Market Value of one (1) share of the Company’s Common Stock on the day the Stock Appreciation Right is redeemed, reduced by the deemed exercise price or base price of such right, subject to the provisions of Section 8.1 of the Plan.

 

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2.36.                                            “Stock Award” means any award of an Option, Restricted Stock Bonus, Restricted Stock Purchase Right, Stock Appreciation Right, Phantom Stock Unit, Restricted Stock Unit, Performance Share Bonus, Performance Share Unit, or other stock-based award.

 

2.37.                                            “Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award setting forth the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

 

2.38.                                            “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code.

 

2.39.                                            “Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation.

 

III. ADMINISTRATION.

 

3.1.                                                  Administration . The Committee shall administer the Plan and shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

 

(i)                                      To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Awards shall be granted; the terms and conditions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash and/or Common Stock pursuant to a Stock Award; the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person; and whether a Stock Award will be adjusted to account for dividends paid with respect to the Company’s Common Stock.

 

(ii)                                   To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for the administration of the Plan. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan and the terms of the Stock Award fully effective.

 

(iii)                                To amend the Plan or a Stock Award as provided in the Plan.

 

(iv)                               Generally, to exercise such powers and to perform such acts as the Committee deems necessary, desirable, convenient or expedient to promote the best interests of the Company consistent with the provisions of the Plan.

 

(v)                                  To adopt sub-plans and/or special provisions applicable to Stock Awards regulated by the laws of a jurisdiction other than and outside of the United States. Except with respect to Section 4 of the Plan and such other sections as required by Applicable Law, the sub-plans and/or special provisions may take precedence over other provisions

 

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of the Plan to the extent expressly set forth in the terms of such sub-plans and/or special provisions.

 

(vi)                               To authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of a Stock Award previously granted by the Committee.

 

(vii)                            To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any shares of Common Stock issued as a result of or under a Stock Award, including, without limitation, (A) restrictions under an insider trading policy and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

 

(viii)                         To provide, either at the time a Stock Award is granted or by subsequent action, that a Stock Award shall contain as a term thereof, a right, either in tandem with the other rights under the Stock Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of shares of Common Stock, cash or a combination thereof, the amount of which is determined by reference to the value of the Stock Award.

 

(ix)                                 To assume, or provide for the issuance of substitute Stock Awards that will substantially preserve the otherwise applicable terms of, stock options and other stock-based awards previously granted by an Affiliate to an award holder who is or becomes eligible to participate in the Plan, as determined by the Committee in its sole discretion; provided, however, that any such assumption or substitution shall comply with Applicable Law, including but not limited to Sections 409A and 424 of the Code, and any such substitute Stock Awards may be granted at a price below Fair Market Value only to the extent that such grants would otherwise comply with the terms of this Plan, including but not limited to Section 10.10 hereof.

 

3.2.                                                  Delegation by the Committee . In no way limiting any other provision of the Plan, the Committee may delegate its duties and powers hereunder in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are intended to qualify as “Non-Employee Directors” within the meaning of Rule 16b-3 under the Exchange Act and “outside directors” within the meaning of Section 162(m) of the Code.

 

3.3.                                                  Effect of the Committee’s Decision . All determinations, interpretations and constructions made by the Committee or its duly authorized sub-committee(s) in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

 

IV. SHARES SUBJECT TO THE PLAN.

 

4.1.                                                  Share Reserve . Subject to the provisions of Section 11 of the Plan relating to adjustments upon changes in Common Stock, the maximum aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards shall not exceed 8,000,000

 

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shares of Common Stock (“Share Reserve”), provided that each share of Common Stock issued pursuant to an Option or Restricted Stock Purchase Right shall reduce the Share Reserve by one (1) share and each share of Common Stock subject to the redeemed portion of a Stock Appreciation Right (whether the distribution upon redemption is made in cash, stock or a combination of the two) shall reduce the Share Reserve by one (1) share. Each share of Common Stock issued pursuant to a Full-Value Stock Award shall reduce the Share Reserve by one (1) share. To the extent that a distribution pursuant to a Stock Award is made in cash, the Share Reserve shall be reduced by the number of shares of Common Stock subject to the redeemed or exercised portion of the Stock Award. Notwithstanding any other provision of the Plan to the contrary, the maximum aggregate number of shares of Common Stock that may be issued under the Plan pursuant to Incentive Stock Options is 1,250,000 shares of Common Stock (“ISO Limit”), subject to the adjustments provided for in Section 11 of the Plan.

 

4.2.                                                  Reversion of Shares to the Share Reserve . If any Stock Award granted under this Plan shall for any reason (i) expire, be cancelled or otherwise terminate, in whole or in part, without having been exercised or redeemed in full, (ii) be reacquired by the Company prior to vesting, or (iii) be repurchased at cost by the Company prior to vesting, the shares of Common Stock not acquired under such Stock Award shall revert or be added to the Share Reserve and become available for issuance under the Plan; provided, however, that such shares of Common Stock shall not be available for issuance pursuant to the exercise of Incentive Stock Options.

 

4.3.                                                  Source of Shares . The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares (whether purchased on the market or otherwise reacquired).

 

V. ELIGIBILITY.

 

5.1.                                                  Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors, and Consultants.

 

5.2.                                                  Ten Percent Shareholders . A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant, except as provided in Section 3.1(ix) above.

 

5.3.                                                  Annual Section 162(m) Limitation . Subject to the provisions of Section 11 of the Plan relating to adjustments upon changes in the shares of Common Stock, and to the extent required for compliance with Section 162(m) of the Code, no Employee shall be eligible to be granted Options and other Stock Awards covering more than 1,000,000 shares of Common Stock (with respect to Stock Awards payable in shares) or with a value in excess of $5,000,000 (with respect to Stock Awards payable in cash) during any fiscal year; provided that in connection with his or her initial service, an Employee may be granted Options and other Stock Awards covering not more than an additional 300,000 shares of

 

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Common Stock (with respect to Stock Awards payable in shares) or with a value in excess of $5,000,000 (with respect to Stock Awards payable in cash), which shall not count against the limit set forth in the preceding sentence.

 

5.4.                                                  Consultants . A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (1) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (2) that such grant complies with the securities laws of all other relevant jurisdictions.

 

VI. OPTION PROVISIONS.

 

6.1                                                     Form of Options . Each Option shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased upon exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

 

6.2                                                     Term . In the absence of a provision to the contrary in the individual Optionholder’s Stock Award Agreement, and subject to the provisions of Section 5.2 of the Plan regarding grants of Incentive Stock Options to Ten Percent Shareholders, the term of the Option shall be ten (10) years from the date it was granted.

 

6.3                                                     Incentive Stock Option $100,000 Limitation . To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), or such other limit as may be set by Applicable Law, the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.

 

6.4                                                     Exercise Price of an Incentive Stock Option . The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (or less than one hundred and ten percent (110%) in the case of a Ten Percent Shareholder), except as provided in Section 3.1(ix) above.

 

6.5                                                     Exercise Price of a Nonstatutory Stock Option . The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair

 

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Market Value of the Common Stock subject to the Option on the date the Option is granted, except as provided in Section 3.1(ix) above.

 

6.6                                                     Consideration .

 

(i)                                      The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by check at the time the Option is exercised or (b) at the discretion of the Committee (in the case of Incentive Stock Options, at the time of the grant of the Option): (1) by delivery to the Company of other shares of Common Stock (subject to such requirements as may be imposed by the Committee), (2) if there is a public market for the Common Stock at such time, and to the extent permitted by Applicable Law, pursuant to a “same day sale” program that results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds, (3) reduction of the Company’s liability to the Optionholder, (4) by any other form of consideration permitted by law, but in no event shall a promissory note or other form of deferred payment constitute a permissible form of consideration for an Option granted under the Plan, or (5) by some combination of the foregoing.

 

(ii)                                   Unless otherwise specifically provided in the Stock Award Agreement, the purchase price of Common Stock acquired pursuant to a Stock Award that is paid by delivery to the Company of other Common Stock, which Common Stock was acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a supplemental charge to earnings for financial accounting purposes).

 

(iii)                                Whenever a Participant is permitted to pay the exercise price of a Stock Award and/or taxes relating to the exercise of a Stock Award by delivering Common Stock, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirements by presenting proof of beneficial ownership of such Common Stock, in which case the Company shall treat the Stock Award as exercised or redeemed without further payment and shall withhold such number of shares of Common Stock from the Common Stock acquired under the Stock Award. When necessary to avoid a supplemental charge to earnings for financial accounting purposes, any such withholding for tax purposes shall be made at the statutory minimum rate of withholding.

 

6.7                                                     Transferability of an Incentive Stock Option . An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.

 

6.8                                                     Transferability of a Nonstatutory Stock Option . Except as otherwise provided in the Stock Award Agreement, a Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.

 

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6.9                                                     Vesting Generally . Options granted under the Plan shall be exercisable at such times and upon such terms and conditions as may be determined by the Committee. The vesting provisions of individual Options may vary. The provisions of this Section 6.9 are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

 

6.10                                               Termination of Unvested Options . Any Option or portion thereof that is not vested at the time of termination of Continuous Service shall lapse and terminate, and shall not be exercisable by the Optionee or any other person, unless otherwise provided for in the Stock Award Agreement.

 

6.11                                               Termination of Continuous Service . In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death, Disability or Retirement or termination for Cause), the Option shall remain exercisable for three (3) months following the date of termination (to the extent that the Option was exercisable at that time), or such other period specified in the Stock Award Agreement. In no event may the Option be exercised after the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Optionholder does not exercise his or her Option within the specified time, the Option shall terminate.

 

6.12                                               Extension of Termination Date . An Optionholder’s Stock Award Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or termination for Cause) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or other applicable securities law, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Stock Award Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements or other applicable securities law. The provisions of this Section 6.12 notwithstanding, in the event that a sale of the shares of Common Stock received upon exercise of his or her Option would subject the Optionholder to liability under Section 16(b) of the Exchange Act, then the Option will terminate on the earlier of (1) the fifteenth (15 ^th ) day after the last date upon which such sale would result in liability, or (2) two hundred ten (210) days following the date of termination of the Optionholder’s employment or other service to the Company (and in no event later than the expiration of the term of the Option).

 

6.13                                               Disability or Retirement of Optionholder . In the event an Optionholder’s Continuous Service terminates upon the Optionholder’s Disability or Retirement, the Option shall remain exercisable for two (2) years following the date of termination (to the extent that the Option was exercisable at that time), or such other period specified in the Stock Award Agreement. In no event may the Option be exercised after than the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Optionholder does not exercise his or her Option within the specified time, the Option shall terminate.

 

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6.14                                               Death of Optionholder . In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies after the termination of his or her Continuous Service but within the post-termination exercise period applicable to the Option, then, except as otherwise provided in the Stock Award Agreement, the Option shall remain exercisable for two (2) years following the date of death (to the extent that the Option was exercisable at that time). In no event may the Option be exercised after the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Option is not exercised by the person entitled to do so within the specified time, the Option shall terminate.

 

6.15                                               Termination for Cause . Unless otherwise provided in the applicable Stock Award Agreement, the Option shall cease to be exercisable as to all unexercised shares of Common Stock (including any vested shares) immediately upon the termination of the Optionholder’s Continuous Service for Cause.

 

6.16                                               Early Exercise Generally Not Permitted . The Company may grant Options which permit the Optionholder to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the vesting of the Option. If a Stock Award Agreement does permit such early exercise, any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.

 

VII. NON-DISCRETIONARY STOCK AWARDS FOR ELIGIBLE DIRECTORS.

 

7.1                                                     Stock Awards for Eligible Directors . In addition to any other Stock Awards that Directors may be granted on a discretionary basis under the Plan, each Director of the Company who is not an Employee of the Company or any Affiliate (each, an “Eligible Director”) shall be automatically granted, without the necessity of action by the Committee, the following Stock Awards:

 

(i)                                      Initial Grant . On the first day following the date that a Director commences service on the Board and satisfies the definition of an Eligible Director, an initial grant of a Stock Award (the “Initial Grant”) shall automatically be made to that Eligible Director. The type of Stock Award, the number of shares subject to this Initial Grant and other terms governing this Initial Grant shall be as determined by the Committee in its sole discretion. If the Committee does not establish the terms and conditions of the Initial Grant for a given newly-elected Eligible Director prior to the date of grant, then the Stock Award shall be of the same type, and for the same number of shares, as the Initial Grant made to the immediately preceding newly-elected Eligible Director. If at the time a Director first commences service on the Board, the Director does not satisfy the definition of an Eligible Director, such Director shall not be entitled to an Initial Grant at any time, even if such Director subsequently becomes an Eligible Director.

 

(ii)                                   Annual Grant . An annual Stock Award grant (the “Annual Award”) shall automatically be made to each Director who (1) is re-elected to the Board, (2) is an Eligible Director on the relevant grant date, and (3) has served as a Director for a period

 

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of at least six (6) months on the relevant grant date. The type of Stock Award, the number of shares subject to the Annual Grant and other terms governing the Annual Grant shall be as determined by the Committee in its sole discretion. If the Committee does not establish the terms and conditions of the Annual Grant prior to the date of grant, then the Annual Grant shall be of the same type, and for the same number of shares of Common Stock, as the Annual Grants made for the immediately preceding year. The date of grant of an Annual Grant is the date on which the Director is re-elected to serve on the Board.

 

(iii)                                Vesting on Retirement . All Initial Grants and Annual Grants held by an Eligible Director shall become fully vested and exercisable upon the termination of the Eligible Director’s Continuous Service by reason of Retirement, unless otherwise expressly set forth in the applicable Stock Award Agreement(s).

 

VIII. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

 

8.1.                                                  Stock Appreciation Rights . Each award of Stock Appreciation Rights (“SARs”) granted under the Plan shall be subject to such terms and conditions as the Committee shall deem appropriate. The terms and conditions of SAR agreements need not be identical, but each SAR agreement shall include the substance of each of the applicable provisions of this Section 8.1. The two types of SARs that are authorized for issuance under this Plan are:

 

(i)                                      Stand-Alone SARs . The following terms and conditions shall govern the grant and redeemability of stand-alone SARs:

 

(A)                               The stand-alone SAR shall cover a specified number of underlying shares of Common Stock and shall be redeemable upon such terms and conditions as the Committee may establish. Upon redemption of the stand-alone SAR, the holder shall be entitled to receive a distribution from the Company in an amount equal to the excess of (i) the aggregate Fair Market Value (on the redemption date) of the shares of Common Stock underlying the redeemed right over (ii) the aggregate base price in effect for those shares.

 

(B)                                 The number of shares of Common Stock underlying each stand-alone SAR and the base price in effect for those shares shall be determined by the Committee in its sole discretion at the time the stand-alone SAR is granted. In no event, however, may the base price per share be less than one hundred percent (100%) of the Fair Market Value per underlying share of Common Stock on the grant date.

 

(C)                                 The distribution with respect to any redeemed stand-alone SAR may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.

 

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(ii)                                   Stapled SARs . The following terms and conditions shall govern the grant and redemption of stapled SARs:

 

(A)                               Stapled SARs may only be granted concurrently with an Option to acquire the same number of shares of Common Stock as the number of such shares underlying the stapled SARs.

 

(B)                                 Stapled SARs shall be redeemable upon such terms and conditions as the Committee may establish and shall grant a holder the right to elect among (i) the exercise of the concurrently granted Option for shares of Common Stock, whereupon the number of shares of Common Stock subject to the stapled SARs shall be reduced by an equivalent number, (ii) the redemption of such stapled SARs in exchange for a distribution from the Company in an amount equal to the excess of the Fair Market Value (on the redemption date) of the number of vested shares which the holder redeems over the aggregate base price for such vested shares, whereupon the number of shares of Common Stock subject to the concurrently granted Option shall be reduced by any equivalent number, or (iii) a combination of (i) and (ii).

 

(C)                                 The distribution to which the holder of stapled SARs shall become entitled upon the redemption of stapled SARs may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.

 

(iii)                                Limitations . The total number of shares of Common Stock subject to a SAR may, but need not, vest in period installments that may, but need not, be equal. The Committee shall determine the criteria under which shares of Common Stock under the SAR may vest. If the Stock Award Agreement does not provide for transferability, then the shares subject to the SAR shall not be transferable except by will or by the laws of descent and distribution.

 

8.2.                                                  Other Stock-Based Awards . The Committee, in its sole discretion, may grant or sell an award of a Restricted Stock Bonus, Restricted Stock Purchase Right, Phantom Stock Unit, Restricted Stock Unit, Performance Share Bonus, Performance Share Unit, or other stock-based award that is valued in whole or in part by reference to, or is otherwise based on, the Fair Market Value of the Company’s Common Stock (each, an “Other Stock-Based Award”). Each Other Stock-Based Award shall be subject to a Stock Award Agreement which shall contain such terms and conditions as the Committee shall deem appropriate, including any provisions for the deferral of the receipt of any shares of Common Stock, cash or property otherwise distributable to the Participant in respect of the Stock Award. The terms and conditions of Other Stock-Based Awards may change from time to time, and the terms and conditions of separate Other Stock-Based Awards need not be identical, but each Other Stock-Based Award shall be subject to the following provisions (either through incorporation of provisions hereof by reference in the applicable Stock Award Agreement or otherwise):

 

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(i)                                      Purchase Price . Other Stock-Based Awards may be granted in consideration for past services actually rendered to the Company or an Affiliate. The purchase price (if any) under each Other Stock-Based Award shall be such amount as the Committee shall determine and designate in the applicable Stock Award Agreement. To the extent required by Applicable Law, the purchase price shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Other Stock-Based Award on the date such award is made or at the time the purchase is consummated, as applicable.

 

(ii)                                   Consideration .

 

(A)                               The purchase price (if any) of Common Stock acquired pursuant to Other Stock-Based Awards shall be paid either: (1) in cash or by check, or (2) as determined by the Committee (and to the extent required by Applicable Law, at the time of the grant): (v) by delivery to the Company of other shares of Common Stock (subject to such requirements as may be imposed by the Committee), (w) if there is a public market for the Common Stock at such time, and to the extent permitted by Applicable Law, pursuant to a “same day sale” program that results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds, (x) reduction of the Company’s liability to the Participant, (y) by any other form of consideration permitted by law, but in no event shall a promissory note or other form of deferred payment constitute a permissible form of consideration, or (z) by some combination of the foregoing.

 

(B)                                 Unless otherwise specifically provided in the Stock Award Agreement, the purchase price of Common Stock acquired pursuant to any Other Stock-Based Award that is paid by delivery to the Company of other Common Stock, which Common Stock was acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a supplemental charge to earnings for financial accounting purposes). To the extent required by Applicable Law, the Participant shall pay the Common Stock’s “par value” solely in cash or by check.

 

(C)                                 Whenever a Participant is permitted to pay the exercise price of any Other Stock-Based Award and/or taxes relating to the exercise thereof by delivering Common Stock, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirements by presenting proof of beneficial ownership of such Common Stock, in which case the Company shall treat the Other Stock-Based Award as exercised or redeemed without further payment and shall withhold such number of shares of Common Stock from the Common Stock acquired under the Other Stock-Based Award. When necessary to avoid a supplemental charge to earnings for financial accounting purposes, any such withholding for tax purposes shall be made at the statutory minimum rate of withholding.

 

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(iii)                                Vesting . The total number of shares of Common Stock subject to each Other Stock-Based Award may, but need not, vest and/or become redeemable in periodic installments that may, but need not, be equal. The Committee shall determine the criteria under which shares of Common Stock under the each Other Stock-Based Award may vest. The criteria may or may not include performance criteria or Continuous Service. Shares of Common Stock acquired under each Other Stock-Based Award may, but need not, be subject to a share repurchase right or similar forfeiture feature in favor of the Company in accordance with a vesting schedule to be determined by the Committee.

 

(iv)                               Distributions . The distribution with respect to any Other Stock-Based Award may be made in shares of Common Stock valued at Fair Market Value on the redemption or exercise date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.

 

(v)                                  Termination of Participant’s Continuous Service . In the event a Participant’s Continuous Service terminates, the Company may repurchase or reacquire, and/or the Participant shall forfeit (as applicable), any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination on such terms and conditions as set forth in the Stock Award Agreement.

 

(vi)                               Transferability . Rights to acquire shares of Common Stock under Other Stock-Based Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Committee shall determine in its discretion. If the Stock Award Agreement does not provide for transferability, then the shares subject to Other Stock-Based Award shall not be transferable except by will or by the laws of descent and distribution.

 

IX. ISSUANCE OF SHARES.

 

9.1.                                                  Availability of Shares . During the terms of the outstanding Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

 

9.2.                                                  Securities Law Compliance . The grant of Stock Awards and the issuance of Common Stock pursuant to Stock Awards shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to securities. The Company shall use commercially reasonable efforts to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise, redemption or satisfaction of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act or under any foreign law of similar effect the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after commercially reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock related to such Stock Awards unless and until such authority is obtained.

 

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9.3.                                                  Proceeds . Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

 

X. MISCELLANEOUS.

 

10.1.                                            Vesting Generally . Unless otherwise provided in the Stock Award Agreement or the terms of the Plan, if the vesting of a Stock Award is based solely on the Participant’s Continuous Service, the Stock Award will not fully vest in less than three (3) years and if the vesting of a Stock Award is based on the Participant’s achievement of performance criteria, the Stock Award will not fully vest in less than one (1) year.

 

10.2.                                            Acceleration of Exercisability and Vesting . The Committee shall have the power to accelerate exercisability and/or vesting when it deems fit, such as upon a Change of Control. The Committee shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

 

10.3.                                            Clawback . The Company may provide in any Stock Award Agreement that, upon the Committee’s discovery of facts that would be grounds for a termination for Cause of a Participant’s Continuous Service, and regardless of whether such discovery is made prior to or following a termination of Continuous Service for any reason, the Committee may (in its sole discretion, but acting in good faith) direct that the Company recover all or a portion of the Stock Award, including any shares of Common Stock then held by the Participant as well as any gain recognized by the Participant upon any sale of the shares of Common Stock issued pursuant to the Stock Award. In no event shall the amount to be recovered by the Company be less than any amount required to be repaid or recovered as a matter of law. The Committee shall determine whether the Company shall effect any such recovery or repayment (i) by seeking recovery or repayment from the Participant, (ii) by reducing (subject to Applicable Law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program, agreement or arrangement maintained by the Company or any of its Affiliates, (iii) by withholding payment of future compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the otherwise applicable compensation practices of the Company or any Affiliate, or (iv) by any combination of the foregoing.

 

10.4.                                            Compliance of Performance Awards . Notwithstanding anything to the contrary herein, any Stock Award granted under this Plan may, but need not, be granted in a manner which may be deductible by the Company under Section 162(m) of the Code and, as applicable, compliant with the requirements of Section 409A of the Code (such awards, “Performance-Based Awards”). A Participant’s Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee, which goals are approved (i) while the outcome for that performance period is substantially uncertain and (ii) during such period of time as permitted by Applicable Law. The performance goals, which must be objective,

 

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shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before one or more of the following: interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on stockholders’ equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs and/or cost reductions or savings; (xvi) cash flow; (xvii) working capital; (xviii) return on invested capital or assets; (xix) consummations of acquisitions or sales of certain Company assets, subsidiaries or other businesses; (xx) funds from operations and (xxi) pre-tax income. The foregoing criteria may relate to the Company, one or more of its Affiliates or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto) and/or Section 409A of the Code, the performance goals may be calculated without regard to extraordinary items. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) and/or Section 409A of the Code, elect to defer payment of a Performance-Based Award.

 

10.5.                                            Stockholder Rights . No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award except to the extent that the Company has issued the shares of Common Stock relating to such Stock Award or except as expressly provided in a Stock Award Agreement.

 

10.6.                                            No Employment or Other Service Rights . Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company, and any applicable provisions of the corporate law of the state or other jurisdiction in which the Company is domiciled, as the case may be.

 

10.7.                                            Investment Assurances . The Company may require a Participant, as a condition of exercising or redeeming a Stock Award or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the

 

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Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of acquiring the Common Stock; (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock; and (iii) to give such other written assurances as the Company may determine are reasonable in order to comply with Applicable Law. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws, and in either case otherwise complies with Applicable Law. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with Applicable Laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

10.8.                                            Designation of a Beneficiary . The Committee may establish rules pertaining to the designation by the Participant of a beneficiary who is to receive any shares of Common Stock and/or any cash, or have the right to exercise or redeem that Participant’s Stock Award, in the event of such Participant’s death.

 

10.9.                                            Withholding Obligations . To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state, local, or foreign tax withholding obligation relating to the grant, exercise, acquisition or redemption of a Stock Award or the acquisition, vesting, distribution or transfer of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (where withholding in excess of the minimum amount will result in a supplemental charge to earnings for financial accounting purposes); or (iii) delivering to the Company owned and unencumbered shares of Common Stock; provided, however, that in the case of the tender of shares, that any such shares have been held by the Participant for not less than six (6) months (or such other period as established from time to time by the Committee in order to avoid a supplemental charge to earnings for financial accounting purposes).

 

10.10.                                      Section 409A . Notwithstanding anything in the Plan to the contrary, it is the intent of the Company that the administration of the Plan, and the granting of all Stock Awards under this Plan, shall be done in accordance with Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including any guidance or regulations that may be issued after the effective date of this Plan, and shall not cause the acceleration of, or the imposition of the additional, taxes provided for

 

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in Section 409A of the Code. Any Stock Award shall be granted, deferred, paid out or modified under this Plan in a manner that shall be intended to avoid resulting in the acceleration of taxation, or the imposition of penalty taxation, under Section 409A upon a Participant. In the event that it is reasonably determined by the Committee that any amounts payable in respect of any Stock Award under the Plan will be taxable to a Participant under Section 409A of the Code prior to the payment and/or delivery to such Participant of such amounts or will be subject to the acceleration of taxation or the imposition of penalty taxation under Section 409A of the Code, the Company may either (i) adopt such amendments to the Plan and related Stock Award, and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Stock Awards hereunder, and/or (ii) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Section 409A of the Code.

 

10.11.                                      Market Standoff Provision . If required by the Company (or a representative of the underwriter(s)) in connection with the first underwritten registration of the offering of any equity securities of the Company under the Securities Act, for a specified period of time, the Participant shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of the Common Stock acquired by the Participant pursuant to a Stock Award, and shall execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to such shares until the end of such period.

 

XI. ADJUSTMENTS UPON CHANGES IN STOCK.

 

11.1.                                            Capitalization Adjustments . In the event of any change in the Common Stock subject to the Plan or subject to or underlying any Stock Award, by reason of any stock dividend, stock split, reverse stock split, reorganization, recapitalization, merger, consolidation, spin-off, combination, exchange of shares of Common Stock or other corporate exchange, or any distribution or dividend to stockholders of Common Stock (whether paid in cash or otherwise) or any transaction similar to the foregoing, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable to (i) the type, class(es) and maximum number of securities or other property subject to the Plan pursuant to the Share Reserve, the ISO Limit, and Section 5.3, (ii) the type, class(es) and number of securities subject to option grants to Eligible Directors under Section 7 of the Plan, (iii) the type, class(es) and number of securities or other property subject to, as well as the exercise price, base price, redemption price or purchase price applicable to, outstanding Stock Awards or (iv) any other affected terms of any outstanding Stock Awards. Any determination, substitution or adjustment made by the Committee under this Section 11.1, shall be final, binding and conclusive on all persons. The conversion of any convertible securities of the Company shall not be treated as a transaction that shall cause the Committee to make any determination, substitution or adjustment under this Section 11.1.

 

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11.2.                                            Adjustments Upon a Change of Control . In the event of a Change of Control, then the Committee or the board of directors of any surviving entity or acquiring entity may provide or require that the surviving or acquiring entity shall: (1) assume or continue all or any part of the Stock Awards outstanding under the Plan or (2) substitute substantially equivalent stock awards (including an award to acquire substantially the same consideration paid to the stockholders in the transaction by which the Change of Control occurs) for those Stock Awards outstanding under the Plan. In the event any surviving entity or acquiring entity refuses to assume or continue outstanding Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the Committee in its sole discretion and without liability to any person may: (1) provide for the payment of a cash amount in exchange for the cancellation of a Stock Award equal to the product of (x) the excess, if any, of the Fair Market Value per share of Common Stock at such time over the exercise or redemption price, if any, and (y) the total number of shares then subject to such Stock Award; (2) continue the Stock Awards upon such terms as the Committee determines in its sole discretion; (3) provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected Stock Awards (including any unrealized value immediately prior to the Change of Control) previously granted hereunder, as determined by the Committee in its sole discretion; or (4) notify Participants holding Stock Awards that they must exercise or redeem any portion of such Stock Award (including, at the discretion of the Committee, any unvested portion of such Stock Award) at or prior to the closing of the transaction by which the Change of Control occurs and that the Stock Awards shall terminate if not so exercised or redeemed at or prior to the closing of the transaction by which the Change of Control occurs. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised or redeemed with respect to the vested portion of the Stock Award (and, at the discretion of the Committee, any unvested portion of such Stock Award) at or prior to the closing of the transaction by which the Change of Control occurs. In the event of the dissolution or liquidation of the Company, unless the Board determined otherwise, all outstanding Stock Awards will terminate immediately prior to the dissolution or liquidation of the Company. In all cases, the Committee shall not be obligated to treat all Stock Awards, even those that are of the same type, in the same manner.

 

XII. AMENDMENT OR TERMINATION OF THE PLAN OR STOCK AWARDS.

 

12.1.                                            Term and Termination of the Plan . The Committee may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10 ^th ) anniversary of the earlier of the date that the Plan is approved by the stockholders of the Company or the date the Plan is adopted by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

12.2.                                            Amendment of the Plan and Stock Awards . The Committee at any time, and from time to time, may amend the Plan, subject to the approval of the Company’s stockholders to the extent such approval is necessary under Applicable Law. The Committee at any time, and from time to time, may amend the terms of one or more Stock Awards. It is expressly contemplated that the Committee may amend the Plan and Stock Awards in any respect the Committee deems necessary or advisable (i) to provide eligible Participants with

 

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the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and deferred compensation and/or (ii) to bring the Plan and/or Stock Awards granted under the Plan into compliance with Applicable Law.

 

12.3.                                            No Material Impairment of Rights . Notwithstanding anything to the contrary in the Plan, the amendment, suspension or termination of the Plan and the amendment of outstanding Stock Awards, shall not materially impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant unless such amendment is necessary pursuant to Section 10.10 hereof, in which case the Participant will be deemed to have consented to the amendment by virtue of accepting the grant of the Stock Award.

 

XIII. EFFECTIVE DATE OF PLAN.

 

13.1                                               Effective Date . The Plan shall become effective as of the date the Board approves the Plan, or such later date as is designated by the Board (such date, as set forth on the first page of this Plan, the “Effective Date”), subject to the approval of the Plan by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board.

 

XIV. CHOICE OF LAW.

 

14.1                                               Choice of Law . The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

 

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Exhibit 10.5

 

MUELLER WATER PRODUCTS, INC.

 

2006 EMPLOYEE STOCK PURCHASE PLAN

 

Approved by the Board of Directors on May 24, 2006

 

Approved by Stockholders on May 25, 2006

 

Termination Date: May 24, 2016

 

The following constitute the provisions of the 2006 Employee Stock Purchase Plan of Mueller Water Products, Inc.

 

1.                                        Purpose . The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. The Company intends that the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

 

2.                                        Definitions .

 

(a)                                   “ Applicable Law ” means the legal requirements relating to the administration of an employee stock purchase plan under applicable U.S. state corporate and securities laws, U.S. federal securities laws, the Code, any stock exchange rules or regulations, and the applicable laws of any other country or jurisdiction, as such laws, rules, regulations and requirements shall be in place from time to time.

 

(b)                                  “ Board ” means the board of directors of the Company.

 

(c)                                   “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

(d)                                  “ Committee ” means the Board or a committee named by the Board.

 

(e)                                   “ Common Stock ” means the Series A common stock of the Company, par value $0.01 per Share, or any securities into which such stock may be converted.

 

(f)                                     “ Company ” means Mueller Water Products, Inc., a Delaware corporation.

 

(g)                                  “ Compensation ” means base cash compensation and commissions earned by an Employee from the Company or a Designated Subsidiary, but excluding overtime, shift differentials, bonuses, incentive compensation, relocation, expense reimbursements, tuition and other reimbursements and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Designated Subsidiary.

 

(h)                                  “ Continuous Status as an Employee ” means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall

 

 

not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other bona fide leave of absence approved by the Administrator, provided that such leave is for a period of not more than three months, unless reemployment upon the expiration of such leave is guaranteed by contract (including Company policy) or statute; or (iv) transfers between the Company and its Designated Subsidiaries.

 

(i)                                      “ Contributions ” means all amounts credited to the account of a Participant pursuant to the Plan.

 

(j)                                      “ Corporate Transaction ” means a sale of all or substantially all of the Company’s assets, a merger, a consolidation, a tender offer, or other capital reorganization of the Company with or into another corporation, including but not limited to:

 

(i)                                      The sale, exchange, lease or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to a person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act;

 

(ii)                                   A merger or consolidation or similar transaction involving the Company if the stockholders of the Common Stock of the Company immediately prior to such transaction do not own a majority of the outstanding common stock of the surviving company or its parent immediately after the transaction in substantially the same proportions relative to each other as immediately prior to such transaction;

 

(iii)                                Any person or group becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company, including by way of merger, consolidation or otherwise (for the purposes of this clause (iii), a member of a group will not be considered to be the “beneficial owner” of the securities owned by other members of the group other than in response to a contested proxy or other control battle); or

 

(iv)                               During any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office.

 

(k)                                   “ Designated Subsidiary ” means a Subsidiary that has been designated by the Committee in its sole discretion, from time to time, as eligible to participate in the Plan with respect to its Employees.

 

(l)                                      “ Effective Date ” means the date on which the registration statement on Form S-1 filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act for the initial public offering of the Company’s Common Stock (the “ Registration Statement ”) becomes effective; provided, however, except as otherwise determined by the

 

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Committee to the extent permitted under the Plan, that no Offering Period shall commence under the Plan until, and the first Offering Date under the Plan shall be, August 1, 2006.

 

(m)                                “ Employee ” means any person, including an Officer, who is an employee of the Company or its Designated Subsidiaries for tax purposes and who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries; provided, however, that the Committee may establish administrative rules requiring that employment commence some minimum period (not to exceed 30 days) prior to an Offering Date in order to be eligible to participate in the Offering Period beginning on that Offering Date.

 

(n)                                  “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

 

(o)                                  “ Fair Market Value ” means, as of a given date, the value of the Common Stock determined as follows:  (1) if the Common Stock is listed on any established stock exchange or national market system, the Fair Market Value shall be the closing sales price per Share of the Common Stock (or the closing bid, if no sales were reported) on the date of determination as quoted on such exchange or system on which the Common Stock has the highest average trading volume, as reported in the The Wall Street Journal or such other source as the Committee deems reliable, (2) if the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable, or (3) in the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee.

 

(p)                                  “ Offering Date ” means the first Trading Day of each Offering Period of the Plan, except as further described in Section 4.

 

(q)                                  “ Offering Period ” means a period of approximately three (3) months generally commencing on February 1, May 1, August 1 and November 1 of each year and generally ending on the following April 30, July 31, October 31 and January 31, respectively, except as further described in Section 4.

 

(r)                                     “ 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.

 

(s)                                   “ Participant ” shall mean an Employee who is eligible to, and elects to, be a participant in the Plan as provided in Section 5 and whose participation has not terminated in accordance with the terms of the Plan.

 

(t)                                     “ Plan ” means this 2006 Employee Stock Purchase Plan.

 

(u)                                  “ Purchase Date ” means the last Trading Day of each Offering Period of the Plan.

 

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(v)                                  “ Purchase Price ” means, with respect to an Offering Period, an amount equal to a percentage (not less than 85%) established by the Committee (the “ Designated Percentage ”) of the lesser of (i) the Fair Market Value of a Share of Common Stock on the Offering Date or (ii) the Fair Market Value of a Share of Common Stock on the Purchase Date, as adjusted by the Committee pursuant to Section 18 in accordance with Section 424(a) of the Code. The Committee may change the Designated Percentage with respect to any future Offering Period, and the Committee may determine with respect to any prospective Offering Period that the option price shall be the Designated Percentage of the Fair Market Value of a Share of the Common Stock on the Purchase Date (without reference to the Fair Market Value of a Share of Common Stock on the Offering Date).

 

(w)                                “ Securities Act ” shall mean the U.S. Securities Act of 1933, as amended from time to time.

 

(x)                                    “ Share ” means a share of Common Stock, as adjusted in accordance with Section 18 of the Plan.

 

(y)                                  “ Subsidiary ” means any entity treated as a corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, within the meaning of Code Section 424(f), whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

 

(z)                                    “ Trading Day ” shall mean a day on which U.S. national stock exchanges and the National Market System are open for trading and the Common Stock is being publicly traded on one or more of such markets.

 

3.                                        Eligibility .

 

(a)                                   Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of this Section 3, Section 5(a) and the limitations imposed by Section 423(b) of the Code.

 

(b)                                  Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary, or (ii) if such option would permit his or her rights to purchase Common Stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value of such Common Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

 

(c)                                   All Employees who participate in the Plan shall have the same rights and privileges under the Plan, except for differences that may be mandated by local law and that are consistent with Code Section 423(b)(5); provided that individuals participations in a sub-plan

 

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adopted pursuant to Section 24 which is not designed to qualify under Code Section 423 need not have the same rights and privileges as Employees participating in the Code Section 423 Plan.

 

4.                                        Offering Periods . The Plan shall be implemented by a series of Offering Periods of approximately three (3) months’ duration, with new Offering Periods commencing on February 1, May 1, August 1 and November 1 of each year and ending on the following April 30, July 31, October 31 and January 31, respectively. Except as otherwise determined by the Committee to the extent permitted under the Plan, the first Offering Period shall commence on August 1, 2006. The Committee shall have the power to change the duration and/or the frequency of Offering Periods with respect to future Offering Periods if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected, subject to compliance with Applicable Laws.

 

5.                                        Participation .

 

(a)                                   An eligible Employee may become a Participant in the Plan by completing a subscription agreement and any other required documents (“ Enrollment Documents ”) provided by the Company and submitting them to the Company or, as applicable, the stock brokerage or other financial services firm designated by the Company (“ Designated Broker ”) within the period set by the Committee with respect to a given Offering Period. The Enrollment Documents and their submission may be electronic, as directed by the Company.

 

(b)                                  Payroll deductions shall commence on the date of the first paycheck paid on or after the Offering Date and shall end on the date of the last paycheck paid on or prior to the Purchase Date of the Offering Period to which the Enrollment Documents are applicable, unless sooner terminated by the Participant as provided in Section 10.

 

(c)                                   Once an eligible Employee becomes a Participant in the Plan, he or she will automatically participate in all subsequent Offering Periods at the same Contribution rate, unless he or she (i) submits new Enrollment Documents or (ii) withdraws from participation in the Plan as provided in Section 10 of the Plan.

 

6.                                        Method of Payment of Contributions .

 

(a)                                   A Participant shall elect to have payroll deductions made on each payday during the Offering Period at the rate of any whole percentage of the Participant’s Compensation not less than one percent (1%) and not more than ten percent (10%) (or such greater percentage as the Committee may establish from time to time before an Offering Date). All Contributions made by a Participant will be credited to a bookkeeping account in his or her name under the Plan. A Participant may not make any additional payments into the Plan. Notwithstanding the foregoing, in locations in which Applicable Law prohibits payroll deductions, an eligible Employee may elect to participate through contributions to his or her account under the Plan in a form acceptable to the Committee, and such Employees shall be deemed to be participating in a sub-plan, unless the Committee otherwise expressly provides that such Employees shall be treated as participating in the Plan.

 

(b)                                  The Committee may establish rules pertaining to the changes to the rate of a Participant’s Contributions, limiting the frequency with which Participants may change his or

 

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her rate of participation, the timing of the elections for such changes, and whether or not changes may effectuate an increase in Contributions or only a decrease in Contributions. A Participant may change his or her rate of Contributions with respect to current or future Offering Periods by filing new Enrollment Documents at such times and on such terms as specified by the Committee.

 

(c)                                   To the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant’s payroll deductions may be decreased by the Company to 0% during any Offering Period scheduled to end during the current calendar year. Payroll deductions shall re-commence at the rate provided in such Participant’s then-effective Enrollment Documents at the beginning of the first Offering Period that is scheduled to end in the following calendar year. In addition, a Participant’s payroll deductions may be decreased by the Company to 0% at any time during an Offering Period in order to avoid unnecessary payroll contributions as a result of application of the maximum share limit set forth in Section 8, in which case payroll deductions shall re-commence at the rate provided in such Participant’s then-effective Enrollment Documents at the beginning of the next Offering Period.

 

7.                                        Grant of Option . On the Offering Date of each Offering Period, each eligible Employee shall be granted an option to purchase on each Purchase Date a number of Shares of the Company’s Common Stock determined by dividing the accumulated Contributions credited to the Participant’s account as of the Purchase Date by the applicable Purchase Price. An option will expire upon the earliest to occur of (i) the failure of a newly eligible Employee to complete and submit the Enrollment Documents by the date determined by the Committee with respect to that Offering Period, (ii) the termination of a Participant’s participation in the Plan, (iii) the exercise of the option on the Purchase Date or (iv) the termination of the Offering Period as provided in the Plan.

 

8.                                        Exercise of Option .

 

(a)                                   Unless a Participant withdraws from the Plan as provided in Section 10, and except as otherwise provided in Sections 7, 18 or 19, the Participant’s option for the purchase of Shares will be exercised automatically on the Purchase Date of the Offering Period for the purchase of that number of whole Shares that can be purchased under the option with the accumulated Contributions credited to the Participant’s account at the applicable Purchase Price. Notwithstanding the foregoing, and in addition to any other limitations set forth in the Plan and under Applicable Law, the maximum number of Shares a Participant may purchase during each Offering Period shall be 1,000 Shares and the maximum number of Shares that all Participant may purchase in the aggregate during each Offering Period shall be 100,000 Shares, in each case subject to any adjustment pursuant to Section 18 below. The Company shall retain the full amount of Contributions used to purchase Common Stock as payment for the Common Stock.

 

(b)                                  For tax purposes, the Shares purchased upon exercise of an option hereunder shall be deemed to be sold to the Participant on the Purchase Date. The Company or its designee may make such provisions and take such action as it deems necessary or appropriate for the withholding of taxes and/or social insurance as required by Applicable Law. Each Participant is responsible for the payment of all individual tax liabilities arising under the Plan, including with respect to the sale or other disposition of Shares acquired under the Plan.

 

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9.                                        Delivery .

 

(a)                                   The Company will deliver Shares purchased under the Plan (or a record thereof) as promptly as possible. The Committee may permit or require that Shares purchased under the Plan be deposited directly with the Designated Broker, and the Committee may utilize electronic or automated methods of Share transfer. The Committee may require that Shares be retained with the Designated Broker for a designated period of time and/or may establish other procedures to permit tracking of “disqualifying dispositions” of such Shares. A “disqualifying disposition” is any sale or other disposition which is made within two years after the Offering Date or within one year after the Purchase Date. A “qualifying disposition” will occur if the sale or other disposition of the Shares is made after the Shares have been held for more than two years after the Offering Date and more than one year after the Purchase Date. Participants are urged to consult their personal tax advisors regarding the specific U.S. federal, state, local and foreign income and other tax consequences applicable to dispositions.

 

(b)                                  The Committee may in its discretion direct the Company to retain in a Participant’s account for the subsequent Offering Period any payroll deductions which are not sufficient to purchase a whole Share of Common Stock or return such amount to the Participant. Any other amounts left over in a Participant’s account after a Purchase Date shall be returned to the Participant.

 

(c)                                   No Participant shall have any voting, dividend, or other stockholder rights with respect to Shares subject to any option granted under the Plan until the Shares subject to the option have been purchased and delivered to the Participant as provided in this Section 9.

 

10.                                  Voluntary Withdrawal; Termination of Employment .

 

(a)                                   A Participant may terminate his or her participation in the Plan and withdraw all of the Contributions credited to his or her account under the Plan prior to a Purchase Date by submitting a completed “Notice of Withdrawal” form to the Company (or, as applicable, the Designated Broker). As soon as practicable following the Company’s receipt of the Notice of Withdrawal, all of the Participant’s Contributions credited to his or her account will be returned without any interest thereon, and no further Contributions for the purchase of Shares will be made during the Offering Period. The Committee may establish rules (i) pertaining to the timing of withdrawals, (ii) limiting the frequency with which Participants may withdraw and re-enroll and (iii) imposing a waiting period on Participants wishing to re-enroll following withdrawal.

 

(b)                                  Upon termination of the Participant’s Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto, and his or her option will be automatically terminated.

 

(c)                                   The Committee may establish rules regarding when leaves of absence or changes of employment status will be considered to be a termination of employment, and the Committee may establish termination-of-employment procedures for this Plan that are independent of similar rules established under other benefit plans of the Company and its

 

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Designated Subsidiaries; provided that such procedures are not in conflict with the requirements of Section 423 of the Code.

 

11.                                  Interest . No interest shall accrue on the Contributions of a Participant in the Plan.

 

12.                                  Stock .

 

(a)                                   Subject to adjustment as provided in Section 18, the maximum number of Shares that may be made available for sale and which may be issued under the Plan shall be 4,000,000 Shares. The Shares may consist, in whole or in part, of unissued Shares, treasury Shares, or Shares purchased by the Company on the open market. The issuance of Shares pursuant to the Plan shall reduce the total number of Shares that may be made available for sale and which may be issued under the Plan.

 

(b)                                  If the Committee determines that, on a given Purchase Date, the number of Shares with respect to which options are to be exercised may exceed (1) the number of Shares of Common Stock that were available for sale under the Plan as of the Offering Date, or (2) the number of Shares available for sale under the Plan with respect to that Offering Period, the Committee may in its sole discretion provide for a pro rata allocation of the Shares of Common Stock available for purchase in that Offering Period in as uniform a manner as shall be practicable and equitable among all Participants in that Offering Period and either (i) continue the Plan or (ii) terminate the Plan pursuant to Section 19 below.

 

13.                                  Administration .

 

(a)                                   The Committee will have the authority and responsibility for the day-to-day administration of the Plan as well as the authority and responsibility specifically provided in this Plan, in addition to any other duties, responsibilities and authority delegated to the Committee by the Board. The Committee may delegate to one or more individuals the day-to-day administration of the Plan. The Committee shall have full power and authority to (i) adopt, amend and rescind any Plan rules which it deems desirable and appropriate for the proper administration of the Plan, (ii) construe and interpret the provisions of the Plan, (iii) supervise the administration of the Plan, (iv) make factual determinations relevant to Plan entitlements and (v) take all other actions in connection with administration of the Plan as it deems necessary or advisable, consistent with any delegation from the Board. Decisions of the Board and the Committee shall be final and binding upon all participants.

 

(b)                                  Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Committee shall be entitled to change the timing of future Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond

 

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with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable that are consistent with the Plan.

 

14.                                  Designation of Beneficiary . The Committee may establish rules pertaining to the designation by the Participant of a beneficiary who is to receive any Shares and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to the end of an Offering Period.

 

15.                                  Transferability . During his or her lifetime, a Participant’s option to purchase Shares hereunder is exercisable only by him or her. Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or the receipt of Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw from the Plan in accordance with Section 10.

 

16.                                  Use of Funds . All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.

 

17.                                  Reports . Individual accounts will be maintained for each Participant in the Plan. Statements of account will be provided to Participants by the Company or the Designated Broker at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any.

 

18.                                  Adjustments Upon Changes in Capitalization; Corporate Transactions .

 

(a)                                   Adjustment . Subject to any required action by the stockholders of the Company, in the event of any change in the Common Stock subject to the Plan or subject to or underlying any outstanding option, by reason of any stock dividend, stock split, reverse stock split, reorganization, recapitalization, merger, consolidation, spin-off, combination, exchange of Shares of Common Stock or other corporate exchange, or any distribution or dividend to stockholders of Common Stock (whether paid in cash or otherwise) or any transaction similar to the foregoing, the Board in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable to (i) the number and kind of Shares or other securities that have been authorized for issuance under the Plan but have not yet been placed under option, including the number of Shares of Common Stock set forth in Section 12(a) above (collectively, the “ Reserves ”), (ii) the maximum number of Shares of Common Stock that may be purchased by a Participant and/or by all Participants in an Offering Period as set forth in Section 8, (iii) the number and kind of Shares or other securities covered by each option under the Plan that has not yet been exercised, (iv) the Purchase Price per Share of Common Stock covered by each option under the Plan that has not yet been exercised and (v) any other affected terms of the Plan or any outstanding option. 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 issue by the Company of shares of stock of any class, or securities

 

9

 

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 subject to an option.

 

(b)                                  Corporate Transactions .

 

(i)                                      In the event of a dissolution or liquidation of the Company, and unless otherwise provided by the Board, (i) any Offering Period then in progress, and any options outstanding thereunder will terminate prior to the consummation of such transaction and (ii) all Contributions will be refunded to the Participants.

 

(ii)                                   In the event of a Corporate Transaction, then in the sole discretion of the Board, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor entity, (2) a date established by the Board on or before the date of consummation of such Corporate Transaction shall be treated as a Purchase Date, and all outstanding options shall be exercised on such date, (3) all outstanding options shall terminate and all Contributions will be refunded to the Participants, or (4) all outstanding options shall continue unchanged.

 

19.                                  Amendment or Termination . The Board may, at any time and for any reason, terminate, suspend or amend the Plan; provided, however, that no such actions may adversely affect outstanding options except as provided in Section 18 and this Section 19. Notwithstanding the foregoing, the Board may terminate or suspend the Plan and/or an on-going Offering Period if the Board determines that such action is in the best interests of the Company and the stockholders. Upon a termination or suspension of the Plan, the Board may in its discretion (i) return without interest, the Contributions credited to Participants’ accounts to such Participants or (ii) set an earlier Purchase Date with respect to an Offering Period then in progress. The Company shall obtain stockholder approval of any amendments or terminations in such a manner and to such a degree as required by Applicable Law.

 

20.                                  Notices . All notices or other communications by an Employee to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

 

21.                                  Conditions Upon Issuance of Shares . Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. In connection with the granting or exercise of an option, the Company may require a Participant to make such representations and warranties which, in the opinion of counsel for the Company, are required by Applicable Law.

 

22.                                  Term of Plan; Effective Date . This Plan shall be effective on the Effective Date, subject to approval of the stockholders of the Company within twelve (12) months before or after its date of adoption by the Board. It shall continue in effect for a term of ten (10) years from the Effective Date unless sooner terminated under Section 19.

 

10

 

23.                                  Additional Restrictions of Rule 16b-3 . The terms and conditions of options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

 

24.                                  Rules for Foreign Jurisdictions . The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of Applicable Laws. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions or other contributions by Participants, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements; however, if such varying provisions are not in accordance with the provisions of Section 423(b) of the Code, including but not limited to the requirement of Section 423(b)(5) of the Code that all options granted under the Plan shall have the same rights and privileges unless otherwise provided under the Code and the regulations promulgated thereunder, then the individuals affected by such varying provisions shall be deemed to be participating under a sub-plan and not the Plan. The Committee may also adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Code section 423. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 12, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.

 

25.                                  No Enlargement of Rights . Nothing contained in this Plan shall be deemed to give any Employee or other individual the right to be retained in the employ or service of the Company or any Subsidiary or to interfere with the right of the Company or any Subsidiary to discharge any Employee or other individual at any time, for any reason or no reason, with or without notice.

 

26.                                  Lock-Up . By electing to participate in the Plan, the Participant agrees that the Company (or a representative of the underwriter(s)) may, in connection with any underwritten registration of the offering of any securities of the Company under the Securities Act, require that the Participant not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by the Participant (including but not limited to any Shares purchased under the Plan), for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. The Participant further agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to Shares of Common Stock until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

 

11

 

27.                                  Governing Law . This Plan shall be governed by applicable laws of the State of Delaware.

 

12

 

MUELLER WATER PRODUCTS, INC.

 

2006 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

 

 

1.                                        I,                          , hereby elect to participate in the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan (the “ Plan ”) effective as of the Offering Period commencing on                     ,        , and subscribe to purchase Shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan.

 

2.                                        I elect to have Contributions in the amount of      % of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 10% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted).

 

3.                                        I hereby authorize payroll deductions from each paycheck during each Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all Contributions made by me shall be accumulated for the purchase of Shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, Shares will be purchased for me automatically on the Purchase Date of each Offering Period unless my employment is terminated prior to the Purchase Date or I otherwise withdraw from the Plan by giving written notice to the Company for such purpose.

 

4.                                        I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can decrease the rate of my Contributions on one occasion only during any Offering Period by completing and filing a new Subscription Agreement with such decrease taking effect as of the beginning of the payroll period following the date of filing of the new Subscription Agreement, if filed at least five (5) business days prior to the beginning of such payroll period. Further, I may change the rate of deductions for future Offering Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period.

 

5.                                        I have received a copy of the Company’s most recent Plan summary and prospectus and a copy of the complete “Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan.”  I understand that my participation in the Plan is in all respects subject to the terms of the Plan.

 

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6.                                        Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only):

 

                                                                                      

 

                                                                                      

 

7.                                        In the event of my death, and to the extent permitted by Applicable Law, I hereby designate the following as my beneficiary(ies) to receive all payments and Shares due to me under the Plan:

 

(First)          (Middle)          (Last)
(Relationship)
(Address)

 

8.                                        I understand that if I dispose of any Shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such Shares) or within 1 year after the Purchase Date, I will be treated for US federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the Shares on the Purchase Date over the price that I paid for the Shares, regardless of whether I disposed of the Shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss.

 

I hereby agree to notify the Company in writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, that arise upon the disposition of the Common Stock . The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including with respect to taxes attributable to the sale or early disposition of Common Stock by me.

 

I understand that this tax summary is only a summary and is subject to change . I acknowledge that I have received a copy of the Plan prospectus, and that additional information regarding the tax consequences of my participation in the Plan can be found in the prospectus. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan.

 

10.                                  I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.

 

14

 

SIGNATURE:
EMPLOYEE ID#:
DATE:
SPOUSE’S SIGNATURE (necessary
if beneficiary is not spouse):
(Signature)
(Print name)

 

15

 

MUELLER WATER PRODUCTS, INC.

 

2006 EMPLOYEE STOCK PURCHASE PLAN

 

NOTICE OF WITHDRAWAL

 

I,                            , hereby elect to:

 

o WITHDRAWAL AS OF CURRENT OFFERING PERIOD :  Withdraw my participation in the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan for the Offering Period that began on               ,       . This withdrawal covers all Contributions credited to my account for this Offering Period and is effective on the date designated below. I understand that all Contributions credited to my account for this Offering Period will be paid to me as soon as practicable following the Company’s receipt of this Notice of Withdrawal and that my option for this Offering Period will automatically terminate, and that no further Contributions for the purchase of Shares can be made by me during the Offering Period.

 

o WITHDRAWAL AS OF NEXT OFFERING PERIOD :  Withdraw my participation in the Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan as of the Offering Period that will begin on               ,       . I understand that no further Contributions will be credited to my account after the Purchase Date of the Offering Period immediately preceding this Offering Period.

 

 

The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.

 

Dated:
			Signature of Employee
			Employee ID Number

 

 

EXHIBIT 10.6

 

 

Executive Incentive Plan

 

Mueller Water Products, Inc.

 

 

Contents

 

Article 1. Establishment, Objectives, and Duration		A-3
Article 2. Definitions		A-3
Article 3. Administration		A-4
Article 4. Eligibility and Participation		A-5
Article 5. Awards		A-5
Article 6. Beneficiary Designation		A-6
Article 7. Deferrals		A-6
Article 8. No Right to Employment or Participation		A-6
Article 9. Amendment, Modification, and Termination		A-6
Article 10. Withholding		A-6
Article 11. Successors		A-7
Article 12. Legal Construction		A-7

 

A-2