Document:

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 

 

7

 

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 

 

8

 

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 (15th) 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.

 

11

 

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 

 

12

 

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.

 

13

 

(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):

 

14

 

(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.

 

15

 

(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.

 

16

 

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, 

 

17

 

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 

 

18

 

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 

 

19

 

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.

 

20

 

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 (10th) 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 

 

21

 

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.

 

22Exhibit 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 

 

2

 

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.

 

3

 

(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 

 

4

 

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 

 

5

 

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.

 

6

 

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

 

7

 

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 

 

8

 

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

 

	
  New Election

  	
   

  
	
  Change of
  Election

  	
   

  

 

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.

 

13

 

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

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