Exhibit 10.3

 

TRANSITION SERVICES AGREEMENT

 

This Transition Services Agreement (this “Services Agreement”) is made as of the
26th 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.

 

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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

 

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