Walter Industries, Inc.
Mueller Water Products, Inc.
JOINT LITIGATION AGREEMENT
THIS JOINT LITIGATION AGREEMENT is made between Walter Industries, Inc., a Delaware corporation (“WLT”), and Mueller Water Products, Inc., a Delaware corporation (“MWA”), and by each of them for their respective subsidiaries (together with WLT and MWA, the “Corporate Entity Parties”), and their respective affiliates, advisors, and agents, all to the extent reflected in this Agreement (the “Parties”), effective as of December 14, 2006 ( the “Spin-Off Date”).
WHEREAS, WLT acquired all of the outstanding equity of MWA in October 2005;
WHEREAS, in May 2006, MWA sold shares of its Series A common stock to public stockholders in an initial public offering (the “IPO”), after which WLT, through its ownership of all of MWA’s outstanding Series B common stock, retained approximately 96% of the voting control of MWA, and approximately 75% of the economic value of MWA, so that the interests of WLT and MWA continued to be substantially aligned;
WHEREAS, WLT intends to distribute all of its Series B common stock of MWA to WLT’s shareholders of record on December 6, 2006, effective December 14, 2006 (the “Spin-Off”);
WHEREAS, the Corporate Entity Parties have been involved in pending or potential claims and litigation referred to herein and in the schedules hereto (the “Litigation”) that involve or could potentially involve Corporate Entity Parties that will not be affiliated with each other after the Spin-Off;
WHEREAS, the Parties as identified herein have developed a substantial amount of evidence and work product relating to the Litigation and have, prior to the effective date of the Spin-Off, engaged in communications that are protected by the attorney work product, attorney-client, and joint defense privileges;
WHEREAS, the parties currently share certain information that is protected as confidential, or under attorney-client privileges, or as attorney work product, and the parties agree that after the Spin-Off such information should continue to be treated as confidential, or protected by attorney work product or attorney-client privileges;
WHEREAS, the Corporate Entity Parties are willing to provide access to such evidence and work product on certain conditions; and
WHEREAS, the Corporate Entity Parties desire to allocate responsibilities for the Litigation and any future litigation and claims or potential claims (“Claims”) as provided
herein and, to share insurance coverages and indemnification from third parties that may be available to both parties;
NOW, THEREFORE , in consideration of the foregoing premises and of the mutual agreements and other good and valuable consideration hereinafter set forth, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Statement of Intent.
The Parties acknowledge that the intent of the Spin-Off will be to separate the flow control businesses of MWA from the distinct home construction and sales related businesses and coal-related businesses of WLT. The Parties note that such businesses are and have historically been, unique and separate businesses, and that it is the intent of the Parties that the Litigation and Claims referred to herein, and any subsequent litigation related to any of the businesses of any of the Corporate Entity Parties, should be allocated as much as possible to the type of business out of which the Litigation or Claim arose. Thus, it is the intent of the parties that MWA be responsible for all Litigation and Claims arising from the flow control businesses, and that WLT be responsible for all Litigation and Claims arising from the home construction and sales related businesses and coal-related businesses, and that Litigation and Claims that relate to both shall be allocated and shared as agreed to by the Parties, or as determined by the Arbitrator as set out below.
2. Allocation of Responsibility for Litigation and Claims.
(a) Schedule A Litigation. WLT shall indemnify, defend and hold harmless MWA and the Corporate Entity Parties affiliated with MWA immediately after the Spin-Off, from and against any costs, expenses and damages assessed as a result of the Litigation or Claims listed on Schedule A hereto. Such Litigation and Claims shall be referred to as the “Schedule A Litigation”.
(b) Schedule B Litigation. MWA shall indemnify, defend and hold harmless WLT and the Corporate Entity Parties affiliated with WLT immediately after the Spin-Off, from and against any costs, expenses and damages assessed as a result of the Litigation or Claims listed on Schedule B hereto. Such Litigation and Claims shall be referred to as the “Schedule B Litigation”.
(c) Schedule C Litigation. WLT and MWA shall shares the costs, expenses and damages assessed as a result of the Litigation or Claims listed on Schedule C hereto, according to the allocations set out in Schedule C hereto, or, if no allocations have been agreed between the Parties, then in such amounts as the parties may agree in the future, or as their interests in the Litigation or Claims may ultimately be decided (the “Allocated
Share”). Such Litigation and Claims shall be referred to as the “Schedule C Litigation”.
3. Future Litigation and Claims.
(a) With respect to future Litigation or Claims, as soon as practicable after the identification of such Litigation or Claims by any Party, the Parties shall consult with a view to reaching an agreement on whether they can allocate responsibility for such matters between the parties in accordance with the statement of intent set forth in Section 1 of this Agreement. It is the intent of the Parties that the Litigation and Claims provided for be assumed fully by one Party or the other, or that the parties agree to allocate responsibility for such Litigation or Claims between themselves in the same fashion as envisioned for the Schedule C Litigation.
(b) If the Parties are unable to allocate responsibility for any Litigation or Claims hereunder, then the Parties may agree that such allocations shall be as determined by any third party (such as an outside law firm) who has been granted authority by the Parties to determine such allocation, or, any party may elect to cause any allocation to be determined by an Arbitrator as set out below.
4. Fees and Expenses.
(a) Except as provided herein, the Corporate Entity Parties agree, for themselves and their affiliates, to pay their own expenses in connection with the Litigation, including attorneys fees and the fees and expenses of their affiliates and agents.
(b) WLT shall be responsible for all costs and expenses associated with the Schedule A Litigation, including the costs of depositions, testimony and discovery enforced on MWA and its affiliates, provided, however, that MWA or its affiliates shall bear the costs of its own personnel and internal legal counsel and those costs of its Corporate Entity Parties.
(c) MWA shall be responsible for all costs and expenses associated with the Schedule B Litigation, including the costs of depositions, testimony and discovery imposed on WLT and its affiliates, provided, however, that WLT or its affiliates shall bear the costs of its own personnel and internal legal counsel and those costs of its Corporate Entity Parties.
(d) Except as provided on Schedule C, WLT and MWA agree to share the expenses of the Schedule C Litigation in proportion to their Allocated Share, with each bearing their own expenses as they are incurred, sharing other more extraordinary expenses (such as expert witness fees), and then reconciling their expenses incurred for their common benefit when any
Litigation or Claim is finally concluded or at such other time as agreed by the Parties.
(e) Representatives of the Parties shall regularly discuss the need for payments hereunder, or to offset the payments incurred by the Corporate Entity Parties, it being the intent of the parties that no payments be made if the amount to be paid is less than $10,000, until the Parties agree on a final settlement of the amounts to be paid under this Agreement or until the amount owed to one party hereunder exceeds $100,000. The Parties shall have a telephonic or in-person discussion no less frequently that quarterly for the first year following the execution of this Agreement, and semi-annually thereafter, to agree on any payments to be made hereunder, to modify the terms of this Agreement as the Parties agree, or to agree on modifications to the schedules.
(f) Any amounts to be paid hereunder shall, to the extent not paid within 30 days after agreement to be paid, bear interest at the Prime Rate until such amounts are paid in full. As used herein, “Prime Rate” shall mean the fluctuating interest rate announced from time to time by the Bank of America as its prime rate.
5. Protection of Information.
(a) For purposes of this Agreement, the parties record that they have a common interest in the Litigation and the Claims referred to herein, recognizing that they were under common control and ownership in connection with prior actions and communications with respect to the Litigation and Claims.
(b) WLT and MWA agree to share evidence and work product in connection with the Litigation and Claims, including with their respective counsel, provided, however, that in the event of disagreements regarding whether to settle any Litigation or Claims, the parties shall be free to settle any such Litigation or Claim, provided that the work product, evidence, privileged materials and confidential information retained by the settling party shall not be shared with any third parties without the consent of any Corporate Entity Party that would have the right to prevent the disclosure of any such information had the Spin-Off not occurred.
(c) Each Corporate Entity Party agrees, on its own behalf and on behalf of its agents, advisors, and counsel, to protect any work product, evidence, privileged materials and confidential information related to the Litigation against disclosure as if it were their own information and to assert the joint litigation privilege as a bar to the production of any such information.
6. Prior Coverages and Indemnification.
(a) Prior WLT Coverage
(i) With respect to Litigation or Claims or other liabilities against MWA that are or may be, in the reasonable judgment of MWA, covered by insurance policies held by WLT or indemnification otherwise available to WLT on or prior to December 14, 2006 (“Prior Coverage”), MWA shall pursue, or, to the extent possible, WLT shall be authorized to pursue, such claims on behalf of MWA in the amounts and in accordance with the terms of such Prior Coverage, provided that such claims and liabilities relate to matters that arose on or prior to December 14, 2006. WLT agrees that it will not, and will not permit any affiliate, to terminate any Prior Coverage without MWA’s consent. Promptly upon receipt of the proceeds of any such Prior Coverage, WLT shall cause such proceeds to be paid to MWA.
(ii) The Corporate Entity Party pursuing the coverage will, or will cause its affiliates to, diligently pursue all claims for Prior Coverage at MWA’s expense, provided that in no event shall WLT be obliged to litigate or pursue any other extraordinary remedies against any insurer or indemnitor, except as provided in (iii) below.