Document:

Exhibit 10.2

LEASE

This Lease (the “Lease”) is made and entered into as of December
20, 2006 by and between Pinnacle Casinos and
Resorts, LLC, a Michigan limited liability company (“Pinnacle”), Colorado Casino Resorts, Inc., a Texas corporation (“CCRI”)
(except where otherwise specifically provided in this Lease, Pinnacle and CCRI
are collectively referred to as “Landlord”),
and Southwest Eagle, LLC, a Minnesota
corporation (“Southwest”) or its subsidiary (except where otherwise
specifically provided in this Lease, Southwest and its subsidiary are
collectively referred to as “Tenant”). Landlord
and Tenant are sometimes referred to in this Lease as a party or the parties.

BACKGOUND

A.            The current shareholders of CCRI
have entered into a Securities Purchase Agreement with Pinnacle dated October
7, 2005, under which Pinnacle will acquire all of the outstanding shares of
CCRI. Simultaneous with the closing of Pinnacle’s acquisition of the CCRI
Stock, Pinnacle agrees to cause CCRI to enter into this Lease and act as
Landlord, all in accordance with the terms and conditions stated in this Lease.

WITNESSETH:

1.             Premises.
In consideration of the payment of rent and the keeping and performance of the
covenants and agreements by Tenant as stated in this Lease, Landlord hereby
leases and demises to Tenant the “Premises”, which consists of:

A.            That certain real property commonly
referred to as the Double Eagle Hotel and Casino and Gold Creek Casino at
400-442 East Bennett Avenue, Cripple Creek, Colorado, together with all improvements
thereon and all rights, easements and appurtenances thereto, comprising the
building currently known as the Double Eagle Hotel and Casino, the legal
description of which is stated on Exhibit A to this Lease (the “Double
Eagle”), together with all furniture, fixtures and equipment located therein
and owned or controlled by Landlord; and

B.            That certain additional real
property and improvements owned by Landlord or its affiliates and situated in
Cripple Creek, Colorado that is not physically connected with the Double Eagle
but is, or could be, used in connection with the Double Eagle’s operation, the
legal description of which is stated on Exhibit B to this Lease (the “Off-Site
Properties”), together with all furniture, fixtures and equipment located
therein and owned or controlled by Landlord.

2.             Term.

A.            Lease
Term/Conditions Precedent. The term of the Lease commences when each and
all of the following conditions (the “Conditions Precedent”) have been
satisfied: (i) conclusion of Tenant’s due diligence examination (as described
in section 2.B of this Lease) in manner and substance satisfactory to Tenant,
in Tenant’s 

 

sole discretion; (ii)
execution of this Lease by the parties, together with all exhibits and
appendices thereto; (iii) execution of each and all of the Transaction
Documents as defined in section 2.B below; (iv) closing on each and all of the
transactions contemplated by the Transaction Documents, including without
limitation, Pinnacle’s acquisition of CCRI and Tenant’s acquisition of the
assets (other than real property and improvements) of the Double Eagle; (v)
Pinnacle, CCRI and Tenant obtaining financing on terms and conditions
satisfactory to Pinnacle and Tenant, respectively, with which to conclude the
transactions contemplated by the Transaction Documents; (vi) approval of the
Lease and of Tenant’s operation of the Double Eagle by the Colorado Limited
Gaming Control Commission (the “Gaming Commission”); (vii) receipt of all such
other regulatory approvals and licenses, if any, as may be required for Tenant
to operate the Double Eagle as a casino hotel (including, without limitation, a
gaming license and a liquor license); (viii) Landlord’s providing Tenant with
an opinion of Landlord’s counsel, or such other assurance in form and substance
satisfactory to Tenant, that Landlord owns and has the legal right to lease the
Premises; (ix) the absence of any adverse change in the condition or use of the
Premises and the Off-Site Properties between the date the due diligence period
ends and closing on the Lease; and (x) approval of the Lease by Tenant’s Board
of Directors.

B.            Due Diligence Period. Tenant
will have full and complete access at any time to the Premises and the Off-Site
Properties commencing as of the date that each and all of (i) this Lease, (ii)
the Term sheet between Southwest and Pinnacle, (iii) the Asset Purchase
Agreement between Southwest, Pinnacle, and CCRI (and their respective
affiliates, if any, as stated in the Asset Purchase Agreement), and (iv)
documents effecting acquisition of the Premises and the Off-Site Properties by
Pinnacle (collectively, the “Transaction Documents”) are executed, which access
will continue for a period of not less than thirty (30) days thereafter (the “Due
Diligence Period”). Such access will be for the purposes of conducting such due
diligence examination of the Premises and the Off-Site Properties and public
and private records relating thereto as Tenant deems necessary and appropriate
in its sole discretion. Upon execution of this Lease, Landlord will deliver to
Tenant copies of all soil tests, design or engineering studies, drawings,
plans, and other documents and materials relating to the Premises and the
Off-Site Properties in Landlord’s possession or subject to Landlord’s control. In
the event Tenant is satisfied with the results of its due diligence examination
and elect to commence the payment of rent as in this Lease described, Landlord
will assign to Tenant all Landlord’s right, title and interest in such
documents and materials, provided however, that, unless Tenant exercises
its right of first refusal to purchase the Premises or the Of-Site Property as
provided in this Lease, Tenant will, upon expiration of the Lease Term (as
defined in section 2.F below), assign back to Landlord all Tenant’s right,
title and interest in these documents and materials.

C.            Initial Term. The initial
term of the Lease commences upon the date (the “Commencement Date”) that Tenant
opens the Double Eagle as a public casino under Tenant’s management (the Conditions
Precedent stated in section 2.A above having been fully satisfied) and then
continues for a period of thirty (30) years (the “Initial Term”).

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D.            Extension Term. The term of
the Lease may be extended, at Tenant’s option, for up to an additional fifteen
(15) years in the form of three (3) five-year options (the “Extension Term”),
all or any of which Tenant may exercise by providing Landlord with written
notice of Tenant’s intention to extend the lease term no less than sixty (60)
days before expiration of the Initial Term or any Extension Term.

E.             Holding Over. Nothing in
this Lease may be deemed to permit Tenant to use or occupy the Premises after
the expiration of the Initial Term or, if applicable any Extension Term of the
Lease. If Tenant continues to occupy the Premises after such expiration, Tenant’s
occupancy will (unless the parties otherwise agree in writing) be deemed to
create a month-to-month tenancy at a monthly rental equal to one hundred ten
percent (110%) of the annual rent, prorated on a monthly basis for the month
before commencement of the holdover period, and Tenant will remain liable for
all other charges payable by Tenant under the Lease. Such holdover occupancy is
subject to all of the terms and conditions of this Lease.

F.             Definition of Lease Term. The
phrase “Lease Term” means the Initial Term together with, if applicable, any
Extension Term.

G.            Definition of Lease Year. The
term “Lease Year” means a period of twelve (12) full consecutive calendar
months. The first Lease Year commences on the Commencement Date. Each Extension
Term will commence on the anniversary of the commencement date of the first
Lease Year.

3.             Rent.

A.            During the Lease Term. Tenant
must pay annual rent in the following amounts during the Initial Term of the Lease
(annual amounts to be paid in 12 equal monthly installments during each Lease
Year):

	
  ·

  	
   

  	
  Lease Year 1

  	
   

  	
  $4 million

  
	
  ·

  	
   

  	
  Lease Year 2

  	
   

  	
  $4.1 million

  
	
  ·

  	
   

  	
  Lease Year 3

  	
   

  	
  $4.2 million

  
	
  ·

  	
   

  	
  Lease Years 4, 5, 6

  	
   

  	
  $4.3 million

  
	
  ·

  	
   

  	
  Lease Years 7, 8, 9

  	
   

  	
  $4.5 million

  
	
  ·

  	
   

  	
  Lease Years 10, 11, 12

  	
   

  	
  $4.635 million

  
	
  ·

  	
   

  	
  Lease Years 13, 14, 15

  	
   

  	
  $4.774 million

  
	
  ·

  	
   

  	
  Lease Years 16, 17, 18

  	
   

  	
  $4.887 million

  
	
  ·

  	
   

  	
  Lease Years 19, 20, 21

  	
   

  	
  $5.033 million

  
	
  ·

  	
   

  	
  Lease Years 22, 23, 24

  	
   

  	
  $5.183 million

  
	
  ·

  	
   

  	
  Lease Years 25, 26, 27

  	
   

  	
  $5.338 million

  
	
  ·

  	
   

  	
  Lease Years 28, 29, 30

  	
   

  	
  $5.498 million

  

 

If Tenant
exercises any or all of its three five-year extensions, annual rent will
increase by three percent (3%) for each three-year period of any Extension Term
(for 

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example, if Tenant
exercises the first of its three five-year options, annual rent during Lease
Years 31, 32 and 33 will be $5.663 million, which is a three percent (3%)
increase over $5.498 million, etc.).

B.            Deposit. On the Commencement
Date, Tenant must pay to Landlord, in advance, a deposit of first month’s rent
in the amount of $330,000 and last month’s rent in the amount of $330,000, an
aggregate of $660,000 (the “Deposit”). Tenant must pay the Deposit in
accordance with Section 3.D. of this Agreement.

C.            Net Lease. It is
the intent of the Landlord and Tenant that the rent to be paid during the Lease
Term will be a net return to Landlord, free of expense, charge, or reduction
with respect to the Premises. Except as otherwise provided in this Lease,
Tenant must pay all Operating Expenses of the Premises during the Lease Term. For
purposes of this Lease, “Operating Expenses” to be paid by Tenant are defined
as:

(i)            All real property taxes and
assessments levied against the Premises by any governmental authority, provided
however that the term “taxes and assessments,” as used in this Lease, does
not include any net federal or state income taxes levied or assessed on
Landlord, unless such taxes are a specific substitute for real property taxes. The
term “assessment” includes so-called special assessments imposed by any
authority having the direct power to tax, including any city, county, state or
federal government. For purposes of this Lease, any special assessment will be
deemed payable in such number of installments as is permitted by law.

(ii)           Costs incurred in connection with
providing energy for the Premises, including costs of propane, butane, natural
gas, steam, electricity, solar energy and fuel oils, coal or any other energy
sources.

(iii)          Costs of water and sanitary and storm
drainage services.

(iv)          Costs of general maintenance and
repairs occasioned by normal wear and tear on the Premises experienced during
the Lease Term, including the cost of maintaining and repairing (but not
replacing) HVAC and other mechanical systems.

(v)           Costs of maintenance and replacement
of landscaping.

(vi)          Costs of obtaining insurance insuring
the Premises, which insurance policies must name Landlord as an additional
insured, and Tenant’s personal property located on the Premises.

“Operating
Expenses” does not include the following expenses, which will be paid by
Landlord:

(i)            Costs of repair of structural
defects, including the roof, walls and floors of the Premises, or of
replacement of the HVAC, plumbing (except in 

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the event of damage
caused by freezing pipes), or sprinkler system (except in the event of damage
caused by freezing pipes). Landlord has represented to Tenant that the Premises’
structural integrity is sound and that all essential operating equipment and
components were properly installed and maintained. As such, Landlord warrants
and represents to Tenant that the Premises and all its major components are in
good working order, free from defects and deficiencies. Landlord further
warrants and represents that the Premises complies with all permits,
certificates, laws, rules building and other codes and regulations of
governmental agencies or authorities (collectively, the “Codes”) now in effect,
and that Landlord will, at its expense, cause the Premises to continue to
comply with such Codes as are now in effect during the Lease Term.

(ii)           Costs of repairs or other work
occasioned by fire, windstorm or other insured casualty to the extent of
insurance proceeds received.

(iii)          Costs of repairs or rebuilding
necessitated by condemnation.

(iv)          Any interest on borrowed money or debt
amortization.

If Landlord and
Tenant disagree as to whether a particular expense is an “Operating Expense”
for purposes of this Lease, Tenant may make and pay for the repair, and the
parties will then each select an expert who will determine the nature of the
expense and its apportionment, if any, between Landlord and Tenant. If the two
experts are unable to agree on the nature of the apportionment of the expense,
the two experts must together appoint a third expert, whose decision as to both
elements of the determination will be final and binding upon Landlord and
Tenant. Landlord and Tenant must each bear their own costs in retaining their
own experts, and they will share equally in the costs associated with the
retention and work of the third expert, if one is appointed.

D.            Place and Method of Payment. Rent
is payable at Landlord’s notice address reflected in Section 18.E below. Tenant
must issue to Tenant’s bank irrevocable instruction to pay rent due to
Landlord, as stated in Section 3.B., by wire transfer from Tenant’s primary
operating account on or before the [1st] business
day of each month.

4.             Use of
Premises.

A.            Tenant may use the Premises for any
lawful purpose, including, without limitation, hotel operations, restaurant
operations, parking, retail sales operations, and a casino as contemplated by
the Colorado Limited Gaming Act, C.R.S. §12-47.1-101, et  seq.
(the “Gaming Act”) (the Gaming Act and all amendments and gaming regulations
now existing or hereafter adopted, and all gaming-related laws of the City of
Cripple Creek and the County of Teller, are sometimes collectively referred to
in this Lease as the “Gaming Laws”), and for any other ancillary or related
use(s) as may be permitted by law. Landlord will have no control over or power
to influence decisions concerning operation of the Premises.

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B.            Landlord agrees to cooperate as
reasonably required by Tenant to assist Tenant in obtaining and maintaining
such licenses for the Premises as Tenant requires and will, in particular,
execute any and all documents necessary to obtain such licenses. Landlord will
not cause any such licenses to be denied, revoked, not renewed, or suspended,
whether through actions of Landlord prior to the issuance of such licenses or
thereafter during the Lease Term.

C.            Landlord further agrees that from
and after the date the parties execute this Lease, Landlord must not grant or
convey any easement, lease, encumbrance, license, permit, or any other legal or
beneficial interest in or to the Premises without the prior written consent of
Tenant, nor may Landlord violate, or allow the violation of, any law,
ordinance, rule or regulation affecting the Premises. Landlord will do or cause
to be done all things reasonably within its control to preserve intact and
unimpaired any and all rights of way, easements, grants, appurtenances,
privileges, and licenses in favor of or constituting any portion of the
Premises.

D.            Subject to section 3.B of this Lease,
Tenant will, at its own expense, keep the Premises in good repair and
tenantable condition and indemnify Landlord against any loss, damage or expense
arising by reason of any failure of Tenant so to keep the Premises or due to
any act of neglect of Tenant, its agents, employees, contractors, invitees,
licensees, tenants or assigns. If Tenant fails to perform, or cause to be
performed, such maintenance and repairs, then at the option of Landlord, any
such maintenance and repair may be performed or caused to be performed by
Landlord, and the reasonable cost and expense thereof charged to Tenant, and
Tenant will pay the amount thereof to Landlord on demand as additional rent.

E.             Except as otherwise provided in
this Lease, Tenant will, at its own expense, comply with all statutes,
regulations, rules, ordinances and orders of any governmental body, department
or agency thereof that apply to or result from Tenant’s use or occupancy of the
Premises.

5.             Additional
Improvements/Mechanics Liens

A.            Additional Improvements. Tenant
may, from time to time, at Tenant’s expense, construct or install other
improvements at the Double Eagle or any portion of the Premises contiguous with
or adjacent to the Double Eagle, and make such changes, alterations and
additions to the Premises as Tenant deems necessary or desirable (the “Additional
Improvements”). Where appropriate or required, Additional Improvements will be
made under the supervision of an architect or engineer licensed in the state of
Colorado and selected by Tenant in its sole discretion.

B.            Mechanic’s Liens. In
connection with the construction of any Additional Improvements, Tenant must
cause the payment of all proper and valid invoices and charges of all
contractors, subcontractors, suppliers, materialmen and similar parties who
furnish services or materials in connection with the construction 

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process. If any party
records a mechanic’s lien to enforce any claim for services or materials
alleged to have been provided in connection with the Premises, Tenant must so
advise Landlord in writing and cause the same to be released of record within
sixty (60) days after the recordation thereof, and Tenant is liable to satisfy
and cause a discharge of any such mechanic’s lien claim.

Notwithstanding
the foregoing, Tenant has the right to contest any such mechanic’s lien
provided that Tenant conducts such contest in a timely manner and with due
diligence, and that Tenant provides Landlord with either cash, a surety bond or
a letter of credit (as Tenant decides in Tenant’s sole discretion) in an amount
equal to the lien claim. If Tenant loses any such contest, and all further
rights of appeal have expired, Tenant must satisfy the mechanic’s lien claim in
full prior to any foreclosure sale or other disposition of the Premises in order
to satisfy the claim.

6.             Improvements to Off-Site Properties.

A.            Improvements by Landlord. Landlord
may, after providing Tenant with at least ninety (90) days prior written
notice, improve or permit the improvement of any portion of the Off-Site
Properties not contiguous with or adjacent to the Double Eagle for any purpose
other than in support of the Double Eagle’s operation, except:

(i)            Landlord may not use or permit the
use of the Off-Site Properties to compete with the Double Eagle in any way,
directly or indirectly, whether for a casino or ancillary casino facilities or
improvements (by way of example and not limitation, parking by or for hotels or
casinos other than the Double Eagle) or otherwise; and

(ii)           If the portion of the Off-Site
Properties to be developed is use by Tenant at the time the notice is
delivered, Landlord must provide Tenant with alternative property (which may or
may not be part of the Off-Site Properties) for Tenant’s use that is reasonably
acceptable to Tenant, at no additional cost to Tenant.

B.            Effect of Development by Landlord.
Any portion of the Off-Site Properties improved by Landlord in accordance with
Section 6.A. will no longer be subject to this Lease and Exhibit B, will be
deemed amended by deletion of the legal description of such property. Termination
of this Lease with regard to any portion of the Off-Site Properties in
accordance with Section 6.A. will not affect any other provision of this Lease.

C.            Improvements by Tenant. Tenant
is permitted, subject to Landlord’s prior written approval, to improve any
portion of the Off-Site Properties for any purpose. If Tenant improves any
portion of the Off-Site Properties as provided in this Section 6.C.:

(i)            the provisions of Section 5.B. of
this Lease will apply to any such improvement; and

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(ii)           Landlord’s right to improve such
property under Section 6.A. of this Lease terminates.

7.             Title to Assets and Improvements.

A.            As a condition precedent to Tenant
entering into this Lease, Landlord must, at Landlord’s expense, obtain a title
insurance policy insuring Tenant’s leasehold interest in the Premises, which
title insurance policy must evidence Landlord’s fee simple interest ownership
in the Premises subject only to (i) mortgage liens totaling no more than $60,000,000.00, (ii) general property
taxes for the current year, and (iii) such easements, rights of way,
restrictions and other title matters as Tenant deems, in Tenant’s sole
discretion, not to adversely affect the value of Tenant’s intended use of the
Premises (collectively, the “Permitted Exceptions”). The title insurance policy
is attached to this Lease as Exhibit 1 and incorporated in this Lease by
reference. Landlord warrants that it has fee simple title to the Premises, free
and clear of all encumbrances save for the Permitted Exceptions.

B.            Except as otherwise provided in this
Lease, Landlord is the owner of all improvements paid for and constructed by
Tenant upon the Premises, as the same may be altered, expanded and/or or
improved in accordance with this Lease, except that any gaming or other
equipment purchased by Tenant for use in operating the Double Eagle is the
property of Tenant. Except as provided in this Lease, upon the expiration or
earlier termination of this Lease, all improvements then existing upon the Premises
will revert to and become the property of Landlord without compensation to
Tenant.

C.            Tenant must surrender the Premises
at the end of the Lease Term or upon earlier termination of the Lease in good
condition and repair, reasonable wear and tear and fire and other casualty
excepted.

8.             Quiet Enjoyment.
So long as Tenant is not in material, uncured default under this Lease,
Landlord must permit Tenant to peaceably and quietly use and enjoy the Premises
during the Lease Term without hindrance or interruption by Landlord or any
other person or persons lawfully or equitably claiming by, through or under
Landlord. Notwithstanding the foregoing, Landlord may conduct reasonable
inspections of the Premises upon providing ten (10) days prior written notice
of such inspection to Tenant.

9.             Casualty and Restoration of the Premises.
If the Premises are damaged by fire or other casualty during the Lease Term,
Tenant may, at its option, (i) terminate the Lease, retain such insurance
proceeds as relate to improvements made by Tenant on the Premises before the
casualty, and permit use of whatever portion of the remaining process is
necessary to restore the Premises to their condition as of the Commencement
Date of this Lease, or (ii) retain all insurance proceeds received as a result
of the casualty, use the same to restore the Premises to their condition as of
the Commencement Date of this Lease, and continue to make rent payments during
the Lease Term. Tenant must notify Landlord in writing within thirty (30) days
following the occurrence of any 

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casualty concerning which
of these two options Tenant has chosen, and rent will abate during the thirty
(30) day period.

10.          Condemnation.
If any portion of the Premises is taken by right of eminent domain or by
condemnation, or is conveyed in lieu of any such taking, Tenant may terminate
this Lease and retain those condemnation proceeds that relate to improvements
made by Tenant on the Premises before the taking or condemnation.

11.          Right of First Refusal.
If Landlord desires to transfer, assign or otherwise convey all or any portion
of its interest in the Premises, whether initiated by Landlord or by an offer
to purchase from a third party, Landlord must so notify Tenant in writing (the “Notice”),
specifying the terms and conditions and the price at which Landlord intends to
offer its interest (collectively, the “Terms”). Tenant will have thirty (30)
days (or any longer period stated in any offer received from a third party)
after receipt of the Notice within which to notify Landlord that Tenant desires
to purchase the interest being offered on the Terms. If Tenant fails to so
notify Landlord, Landlord will be free to consummate a transaction with a third
party on the Terms at any time within the three (3) months immediately following
expiration of Tenant’s notification period without re-offering the transaction
to Tenant. If no sale occurs with that three (3) month period, then prior to
consummating any transaction, the provisions of this Section 11 must again be
complied with. If Tenant timely notifies Landlord that Tenant desires to
exercise the right to purchase contemplated by this Section 11, the closing
will occur on the Terms within ninety (90) days of the date of Tenant’s giving
such notice.

12.          Tenant’s Right to Encumber. Tenant
may at any time during the Lease Term encumber the leasehold estate by mortgage
or deed of trust. This right of Tenant to encumber the leasehold estate is a
continuing right and will not be deemed to be exhausted by the exercise of this
right on one or more occasions. Any such encumbrance must be expressly subject
to the provisions of this Lease, must not encumber Landlord’s fee simple
interest in the Premises, and must be subordinate to any loans to which
Landlord has subordinated its fee simple interest.

13.          Assignment.

A.            By Landlord. Landlord may
assign this Lease upon written notice to Tenant, provided that such
assignment is permitted by the Gaming Laws, and further provided that
any such assignment is subject to Tenant’s right of first refusal stated in
Section 11 of this Lease.

B.            By Tenant. Tenant may assign
this Lease upon written notice to Landlord, provided that such
assignment is permitted by the Gaming Laws. Notwithstanding any assignment,
Tenant will at all times remain liable for the payment of rent and all other
payment obligations in this Lease specified to be paid by Tenant, and for
compliance with all Tenant’s other obligations under this Lease.

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14.          Default by Tenant.

A.            Definition of Event of Default.
Each one of the following events constitutes an “Event of Default”:

(i)            Any failure by Tenant to pay rent or
other monetary sums required to be paid hereunder on the date such sums are due
and the continuance of such failure for a period of thirty (30) days after
written notice of such failure from Landlord.

(ii)           The filing of any petition or the
commencement of any case or proceeding by Tenant under any provision or chapter
of the federal Bankruptcy Act, the federal Bankruptcy Code, or any other
federal or state law relating to insolvency, bankruptcy, or reorganization, or
the adjudication that Tenant is insolvent or bankrupt, or the entry of an order
for relief under the federal Bankruptcy Code with respect to Tenant.

(iii)          The filing of any petition or the
commencement of any case or proceeding described in Section 14.A.(ii) above
against Tenant, unless such petition and all proceedings initiated thereby are
dismissed within sixty (60) days from the date of such filing; the filing of an
answer by Tenant admitting the allegations of any such petition; the
appointment of or taking possession by a custodian, trustee or receive for all
or any assets of Tenant, unless such appointment is vacated or dismissed within
sixty (60) days from the date of such appointment.

(iv)          Tenant fails to perform any of the
other material agreements, terms, covenants or conditions of the Lease on
Tenant’s part to be performed, and such non-performance continues for a period
of thirty (30) days after written notice thereof by Landlord to Tenant or, if
such performance cannot reasonably be attained within such thirty (30) day
period, Tenant does not in good faith commence such performance within such
thirty (30) day period and does not diligently proceed therewith to completion.

B.            Remedies of Landlord. If any
one or more Events of Default occurs, then Landlord has the right, at Landlord’s
election, either to:

(i)            Make any payment or take any action
to cure any the Event of Default by Tenant in a manner and to an extent that
the Landlord in good faith deems necessary or desirable.

(ii)           Subject to the Gaming Laws, give
Tenant written notice in accordance with the Colorado forcible entry and
detainer laws, terminate this Lease as of the date of Tenant’s default or as of
any later date specified in Landlord’s notice of default, and demand and
recover possession of the Premises from Tenant.

(iii)          Subject to the Gaming Laws, re-enter
and take possession of all or any part of the Premises and expel Tenant
therefrom. After recovering possession of the Premises, Landlord must use
reasonable efforts to re-let the Premises.

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C.            Management Agreement. Notwithstanding
the foregoing, if Landlord elects to pursue the remedies in either or both or subparagraphs
14.B(ii) or (iii) above, (1) Tenant may remove from the Premises, without
payment or liability to Landlord, all gaming-related assets, including gaming
equipment, and (2) subject to approval by the Gaming Commission, Landlord and
Tenant will enter into a management agreement pursuant to which Tenant manages
the Double Eagle on terms to be agreed upon until the date agreed upon by
Landlord and Tenant in the management agreement, or licensing by the Gaming
Commission of a new operator.

D.            Remedies Cumulative. Each of
the remedies described above, and all of the remedies available to Landlord at
law or in equity upon a default by Tenant, are cumulative with and in addition
to one another, and may be exercised simultaneously or successively, as Landlord
may deem appropriate, without any exercise of one remedy being deemed an
election of remedies or a waiver to the exclusion of any other remedy.

15.          Default by Landlord.

A.            Definition of Default. Landlord
will be in default under this Lease if Landlord fails to comply with any
material term, condition or obligation of Landlord under the Lease, and that
failure continues for a period of thirty (30) days after Tenant gives Landlord
written notice of failure, unless that failure cannot reasonably be cured with
the thirty (30) day period, in which event the cure period will extend so long
as Landlord has in good faith begun to take action to cure the default with the
thirty (30) day period and diligently proceeds to completion thereafter.

B.            Remedies of Tenant. Upon the
occurrence of any default by Landlord, Tenant has the right, at its election,
then or at any time thereafter, to exercise any one or more of the following
remedies:

(i)            Make any payment or take any action
to cure any such default by Landlord in a manner and to an extent that Tenant
in good faith deems necessary or desirable.

(ii)           Terminate this Lease as of the date
of the default by Landlord, or as of any later date specified in a written
notice of termination to Landlord.

(iii)          Commence an action to specifically
enforce any of the Landlord’s obligations under the Lease.

C.            Management Agreement. Notwithstanding
the foregoing, if Tenant elects to pursue the remedies in subparagraphs
14.B(ii) above, (1) Tenant may remove from the Premises, without payment or
liability to Landlord, all gaming-related assets, including gaming equipment,
and (2) subject to approval by the Gaming Commission, Landlord and Tenant will
enter into a management agreement under which Tenant manages the Double Eagle
on terms to be agreed upon until the dated agreed upon 

 11
 

 

by Landlord and Tenant in
the management agreement, or licensing by the Gaming Commission of a new
operator.

D.            Remedies Cumulative. Each of
the remedies described above, and all of the remedies available to Tenant at
law or in equity upon a default by Landlord, are cumulative with and in
addition to one another, and may be exercised simultaneously or successively,
as Tenant may deem appropriate, without any exercise of one remedy being deemed
an election of remedies or a waiver to the exclusion of any other remedy.

16.          Landlord’s Additional
Representations and Warranties. Landlord represents and
warrants that to the best of Landlord’s knowledge and belief as of the
Commencement Date of this Lease:

A.            There is no litigation pending or
threatened that in any manner affects the Premises.

B.            There are no violations of any
federal, state, or local law, code, ordinance, rule, regulation, or requirement
affecting the Premises.

C.            The Premises have full and free
access to and from public highways, streets, and/or roads adjacent to the
Premises, and Landlord has no knowledge of any fact or condition that would
result in the termination of such access.

D.            Landlord has not received any
notices, demands, or deficiency comments from any mortgagee of the Premises or
from any state, municipal, or county government or any agency thereof with
regard to the Premises.

E.             Landlord has not received any
notice of, and has no other knowledge or information of, any pending or
contemplated change in any applicable law, ordinance, or restriction; or of any
pending or threatened judicial or administrative action; or of any action
pending or threatened by adjacent landowners; or of any natural or artificial
condition upon the Premises, or any part thereof, any of which would result in
any material change in the condition of the Premises, or any part thereof, or
in any way limit or impede the operation of the Double Eagle.

F.             Landlord has not entered into any
agreements with the City of Cripple Creek, the County of Teller, or the State
of Colorado, or any other governmental entity with respect to the Premises that
may result in liability or expense to Tenant, and further, that there are no
special improvement assessments relating to the Premises.

G.            Each and every document, schedule,
item and other information to be delivered to Tenant by Landlord under this
Lease is true, accurate and correct, and no such document, schedule or
information contains or will contain any untrue statement of a material fact,
or omits or will omit a material fact.

 12
 

 

17.          Miscellaneous.

A.            No Implied Waiver. No failure
by either party to insist upon the strict performance of any term, covenant or
agreement in this Lease, or to exercise any right or remedy in connection with
this Lease, and no acceptance of full or partial payment during the continuance
of any default by Landlord or Tenant, will constitute a waiver of any term,
covenant or agreement or any right or remedy or any default by Landlord or
Tenant.

B.            Survival of Provisions. Notwithstanding
any termination of this Lease, the Lease will continue in full force and effect
as to any provisions of this Lease that specifically contemplate and require
observance or performance by Landlord or Tenant subsequent to termination.

C.            Binding Effect. This Lease
extends to and binds the heirs, executors, legal representatives, successors,
and permitted assign of Landlord and Tenant. The terms, covenants, agreements
and conditions in this Lease must be construed as covenants running with the
Premises.

D.            Recording, Subordination and
Attornment. This Lease and/or any Memorandum of this Lease may, at Tenant’s
sole option, be recorded in a manner and at a time selected by Tenant in its
sole discretion. In addition, upon execution of this Lease and as a condition
precedent to the commencement of the Term of this Lease, Landlord must obtain
from Landlord’s mortgage lender(s) subordination and attornment agreements in
form and substance satisfactory to Tenant.

E.             Notices. All notices required
or permitted under this Lease must be given by registered or certified mail,
return receipt requested, correctly addressed and postage prepaid, or by hand
or commercial carrier delivery, or by facsimile as follows:

	
  

  	
  If to Southwest:

  	
   

  	
  With a copy to:

  
	
   

  	
  Mr. Thomas E.
  Fox

  Southwest Casino Corporation

  2001 Killebrew Drive, Suite 350

  Minneapolis, MN 55425

  (952) 853-9990

  	
   

  	
  Thomas Snook, Esq.

  General Counsel

  Southwest Casino Corporation

  2001 Killebrew Drive, Suite 350

  Minneapolis, MN 55425

  (952) 853-9990

  

 

 13
 

 

 

	
  

  	
  If to Pinnacle:

  	
   

  	
  With a copy to:

  
	
   

  	
  Dorian N. Lange

  2127 University Park Drive

  Suite 300

  Okemos, MI 48864

  (517) 349-7200

  	
   

  	
  Richard F. Fabiano

  6629 Denham Court SE

  Grand Rapids, MI 49546

  (616) 481-2756

  

 

Any notice delivered by
mail in accordance with this section will be deemed to have been duly given on
the third business day after the same is deposited in any post office or postal
box regularly maintained by the United States Postal Service, properly
addressed, postage prepaid. Any notice delivered by facsimile will be deemed to
have been duly given upon receipt if receipt is confirmed mechanically or by
the recipient. Any notice delivered by hand or commercial carrier will be
deemed to have been given upon actual receipt. Either party, by notice given as
in this Lease provided, may change the address to which future notices may be
sent.

F.             Time of the Essence. Time is
of the essence under this Lease for the performance and observance of all
obligations of Landlord and Tenant, and all provisions of this Lease must be
strictly construed.

G.            Captions for Convenience. The
headings and captions of this Lease are for convenience only and must not be
considered in interpreting the provisions of this Lease.

H.            Severability. If any
provision of this Lease is held invalid or unenforceable by a court of
competent jurisdiction, the remainder of the Lease will not be affected by that
holding, it being the intent of the parties that the provisions of this Lease
are enforceable to the fullest extent permitted by law. There is deemed
substituted for any invalid or unenforceable provision a valid and enforceable
provision as similar as possible to the invalid provision.

I.              Venue and Governing Law. This
Lease is governed by and interpreted under the laws of Colorado without
reference to Colorado’s conflicts of law principles, and will be enforced in
the courts of Colorado.

J.             Integration/Entire Agreement.
This Lease, the Exhibits to this Lease, and the other documents expressly
referenced in this Lease constitute the entire agreement between the parties
concerning the subject matter of this Lease, and supersede all prior or
contemporaneous oral or written negotiations, understandings or agreements.

K.            Modification/Amendment. This
Lease may not be amended, changed or modified except in a writing signed by all
parties.

Signatures
on next page.

 14
 

 

IN WITNESS WHEREOF, the parties have caused this Lease to be
executed as of the day and year first written above.

	
  Landlord:

  	
   

  	
  Tenant:

  
	
   

  	
   

  	
   

  
	
  Pinnacle Casinos and Resorts, LLC

  	
   

  	
  Southwest Eagle, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Dorian N. Lange

  	
   

  	
  By:

  	
  /s/ Thomas E. Fox

  
	
   

  	
  Managing Member

  	
   

  	
   

  	
  Thomas E. Fox, President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Colorado Casino Resorts, Inc.

  	
   

  	
   

  	
   

  
	
  (to be executed upon acquisition of CCRI

  	
   

  	
   

  	
   

  
	
  by Pinnacle)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 15EXHIBIT
10.7

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

Amended
by the Board of Directors on September 27, 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 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.

(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 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 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 the maximum number of whole and
fractional 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.

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.
A Participant who
withdraws all of his or her whole Shares from the Plan shall have the Fair
Market Value of any fractional Share held under the Plan for such person paid
to him or her in cash.

(b)        The
Committee may in its discretion direct the Company to retain in a Participant’s
account for the subsequent Offering Period or return to the Participant any
amounts left over in a Participant’s account after a Purchase Date for any
reason.

(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 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 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 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.

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.

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

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.

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 Shares purchased under the Plan are to be
deposited directly with the Designated Broker (currently, Computershare
Limited, holding through one or more brokerage accounts) for my benefit as a
Plan Participant. I understand that if I withdraw all of my whole Shares from
the Plan, I shall receive cash equal to the Fair Market Value of any fractional
Share held under the Plan for my account.

9.          I understand that if I withdraw any Shares received by me
pursuant to the Plan from the account maintained for me under the Plan through
the Designated Broker 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 for such Shares, I will be deemed by the Company to
have disposed of such Shares and that, 
for US federal income tax purposes, the Company will treat me 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.

	
  SIGNATURE:

  	
   

  	
   

  
	
  EMPLOYEE ID#:

  	
   

  	
   

  
	
  DATE:

  	
   

  	
   

  
	
  SPOUSE’S
  SIGNATURE (necessary

  if beneficiary is not spouse):

  	
   

  
	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  (Print name)

  	
   

  
					

 

 

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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