8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) September 16, 2005

WALTER INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-13711	13-3429953
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)
4211 W. Boy Scout Boulevard, Tampa, Florida		33607
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (813) 871-4811

NOT APPLICABLE

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13-4(c))

Item 1.01Material Definitive Agreement

Item 5.02Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

On September 16, 2005, Gregory E. Hyland, Chairman, CEO and President of Walter Industries, Inc. (the “Company”) was awarded a grant of 35,000 restricted stock units and 35,000 non-qualified options to purchase shares of the Company’s common stock. The Restricted Stock Unit Award Agreement and the Non-Statutory Stock Option Agreement are filed herewith as Exhibits 10.24 and 10.25.

At the close of business on September 16, 2005, Don DeFosset retired as Chairman, CEO and President of the Company. At that time Mr. Hyland assumed these positions and the Board of Directors of the Company appointed him a member and Chairman of the Executive Committee of the Board and to the Non-Officer Compensation Committee of the Board.

On September 21, 2005, the Company and Don DeFosset entered into an Agreement amending the Letter Agreement dated March 2, 2005. The September 21, 2005 Agreement, incorporated herein by reference and filed herewith as Exhibit 10.26, defines Mr. DeFosset’s last day of employment with the Company as November 15, 2005.

Item 9.01	Financial Statements and Exhibits
(c)	Exhibits
The following exhibits are filed herewith:
10.24	Restricted Stock Unit Award Agreement between the Company and Gregory E. Hyland
10.25	Non-Statutory Stock Option Agreement between the Company and Gregory E. Hyland
10.26	Agreement dated as of September 21, 2005 between the Company and Don DeFosset

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WALTER INDUSTRIES, INC.
	By:	/s/ Victor P. Patrick
	Title:	Victor P. Patrick
		Sr. Vice President, General Counsel
		and Secretary
Date:  September 21, 2005

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EX-10.24

Exhibit 10.24

This document constitutes part of the prospectus covering
securities that have been registered under the Securities Act of 1933.

Walter Industries, Inc.

Long-Term Incentive Award Plan
Restricted Stock Unit Award Agreement

THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units (“RSUs”) by Walter Industries, Inc., a Delaware corporation (the “Company”), to the Participant named below, pursuant to the provisions of the Amended 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (the “Plan”). You have been selected to receive a grant of RSUs pursuant to the Plan, as specified below.

The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein.

Participant: Gregory E. Hyland

Date of Grant: September 16, 2005

Number of RSUs Granted: 35,000

Purchase Price: None

Share Price Targets:

December 31, 2006	$	53.01
December 31, 2007	$	58.31
Deceember 31, 2008	$	64.14
December 31, 2009	$	70.56
December 31, 2010	$	77.61
December 31, 2011	$	85.37
September 16, 2012	$	91.82

The parties hereto agree as follows:

1.         Employment With the Company. Except as may otherwise be provided in Section 6, the RSUs granted hereunder are granted on the condition that the Participant remains an Employee of the Company or its Subsidiaries from the Date of Grant through (and including) the vesting date, as set forth in Section 2 (referred to herein as the “Period of Restriction”).

This grant of RSUs shall not confer any right to the Participant (or any other Participant) to be granted RSUs or other Awards in the future under the Plan.

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2.         Vesting. RSUs shall vest one hundred percent (100%) at the end of the seventh anniversary following the Date of Grant; provided, however, if the predetermined Share Price Targets (as set forth on page 1) are achieved and you remain employed by the Company, vesting of the RSUs shall accelerate as follows:

(a)Twenty-five percent (25%) of the total number of RSUs granted shall vest on December 31, 2006 (i.e., you must be employed by the Company on such date and achieve the Share Price Target to vest) if the closing price of the Company’s stock is at least equal to fifty-three dollars and one cent ($53.01) for any period of sixty (60) consecutive calendar days preceding December 31, 2006.

(b)Fifty percent (50%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest on December 31, 2007 (i.e., you must be employed by the Company on such date and achieve the Share Price Target to vest) if the closing price of the Company’s stock is at least equal to fifty-eight dollars and thirty-one cents ($58.31) for any period of sixty (60) consecutive calendar days preceding December 31, 2007.

(c)Seventy-five percent (75%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest on December 31, 2008 (i.e., you must be employed by the Company on such date and achieve the Share Price Target to vest) if the closing price of the Company’s stock is at least equal to sixty-four dollars and fourteen cents ($64.14) for any period of sixty (60) consecutive calendar days preceding December 31, 2008.

(d)One hundred percent (100%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest on December 31, 2009 (i.e., you must be employed by the Company on such date and achieve the Share Price Target to vest) if the closing price of the Company’s stock is at least equal to seventy dollars and fifty-six cents ($70.56) for any period of sixty (60) consecutive calendar days preceding December 31, 2009.

(e)One hundred percent (100%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest at any time up to and including December 31, 2010 if the closing price of the Company’s stock is at least equal to seventy-seven dollars and sixty-one cents ($77.61) for any period of sixty (60) consecutive calendar days preceding December 31, 2010. Unless otherwise elected in a properly executed Deferral Election Form, payout will occur as soon as administratively feasible after fulfilling the Share Price Target goal.

(f)One hundred percent (100%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest at any time up to and including December 31, 2011 if the closing price of the Company’s stock is at least equal to eighty-five dollars and thirty-seven cents ($85.37) for any period of sixty (60) consecutive calendar days preceding December 31, 2011. Unless otherwise elected in a properly executed Deferral Election Form, payout will occur as soon as administratively feasible after fulfilling the Share Price Target goal.

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(g)One hundred percent (100%) of the total number of RSUs granted, less the number of any RSUs previously vested, shall vest at any time up to and including September 16, 2012 if the closing price of the Company’s stock is at least equal to ninety-one dollars and eighty-two cents ($91.82) for any period of sixty (60) consecutive calendar days preceding September 16, 2012. Unless otherwise elected in a properly executed Deferral Election Form, payout will occur as soon as administratively feasible after fulfilling the Share Price Target goal.

The following table summarizes the vesting treatment of a hypothetical grant of 1,000 RSUs, based upon whether or not Share Price Targets are achieved.

	Number of RSUs That Vest
Earliest Date on Which RSUs Vest	If Share Price Targets Achieved	If Share Price Targets Not Achieved
December 31, 2006	250	0
December 31, 2007	500 less RSUs previously vested	0
December 31, 2008	750 less RSUs previously vested	0
December 31, 2009	1,000 less RSUs previously vested	0
December 31, 2010	1,000 less RSUs previously vested	0
December 31, 2011	1,000 less RSUs previously vested	0
September 16, 2012	1,000 less RSUs previously vested	1,000

3.         Timing of Payout. Payout of all RSUs shall occur as soon as administratively feasible after vesting, but not sooner than three business days following vesting, unless a Participant elects to defer the payout of RSUs upon vesting by completing in writing and returning to the Company an irrevocable deferral election form within six (6) months of the Date of Grant.

4.         Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company.

5.         Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs.

6.         Termination of Employment. In the event of the Participant’s termination of employment with the Company or its Subsidiaries for any reason during the Period of Restriction, all RSUs held by the Participant at the time of employment termination and still subject to the Period of Restriction shall be forfeited by the Participant to the Company. However, the Committee may, in its sole discretion, vest all or any portion of the RSUs held by the Participant. For all previously vested RSUs that have been properly deferred, payout shall occur upon the earlier to occur of the elected deferred vesting date or the date of your employment termination for any reason.

7.         RESERVED

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8.         Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a “Transfer”), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant’s right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse.

9.         Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement may be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

10.       Beneficiary Designation. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

11.       Continuation of Employment. This Agreement shall not confer upon the Participant any right to continue employment with the Company or its Subsidiaries, nor shall this Agreement interfere in any way with the Company’s or its Subsidiaries’ right to terminate the Participant’s employment at any time.

12.       Miscellaneous.

(a)This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant.

(b)The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant’s rights under this Agreement, without the written consent of the Participant.

(c)The Participant may elect, subject to any procedural rules adopted by the Committee, to satisfy the withholding requirement, in whole or in part, by having

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the Company withhold and sell shares having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld.

The Company shall have the power and the right to deduct or withhold from the Participant’s compensation, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement.

(d)The Participant agrees to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising his or her rights under this Agreement.

(e)This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

(f)All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

(g)To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant.

	Walter Industries, Inc.
	By:	/s/ Donald N. Boyce
		Chairman, Compensation and Human Resources
		Committee
ATTEST:
/s/ Victor P. Patrick		/s/ GE Hyland
		Participant

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EX-10.25

Exhibit 10.25

NON-STATUTORY STOCK OPTION AGREEMENT

AGREEMENT dated September 16, 2005 (hereinafter sometimes called the Grant Date) between Walter Industries, Inc., a Delaware corporation having its principal executive offices at 4211 W. Boy Scout Blvd., Tampa, Florida 33607 (hereinafter called the Company), and Gregory E. Hyland (hereinafter called the Employee).

WHEREAS, the Employee is a key employee of the Company and the Company, in consideration of the Employee’s employment by the Company or a subsidiary corporation, desires to grant the Employee the right and option to purchase shares of common stock, par value $.01 per share, of the Company (hereinafter called Common Stock) on the terms and conditions set forth in this Agreement;

NOW, THEREFORE, it is agreed hereby as follows:

1.(a)The Company hereby grants to the Employee the right and option (hereinafter called the Option) to purchase from the Company at a price of $47.12 per share an aggregate number of 35,000 shares of Common Stock (hereinafter called the Option Shares).  The Option shall be exercisable only in accordance with the terms and conditions set forth in this Agreement.

(b)The Option may not be exercised at any time for a fractional share nor for fewer than 100 shares, unless fewer than 100 shares remain subject to the Option at such time, in which case the Option may be exercised for the full balance of the shares which remain subject to the Option at such time.

2.(a)In no event shall the Option be exercisable after the tenth anniversary of the Grant Date (the ten year period extending from the Grant Date to (and including) the tenth anniversary of the Grant Date being hereinafter called the Option Term).

(b)Subject to subparagraph 2(a) and the other provisions of this Agreement, the Option may be exercised at any time or from time to time during the Option Term, provided that (i) the Employee shall have been in the continuous employ of the Company or a subsidiary during the entire period extending from the Grant Date to (and including) the date of exercise, and (ii) the Option may not be exercised with respect to (A) any of the Option Shares until the first anniversary of the Grant Date, nor (B) more than one-third of the Option Shares prior to the second anniversary of the Grant Date, nor (C) more than two-thirds of the Option Shares prior to the third anniversary of the Grant Date.

3.(a)If the Employee’s employment with the Company and its subsidiaries shall terminate within the Option Term for cause, the Option shall terminate in all respects coincident with such termination of employment.

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(b)  (i)  If the Employee’s employment with the Company and its subsidiaries shall terminate during the Option Term as a result of the Employee’s “Retirement” (as defined in subparagraph 3(d) hereof), death or disability, then (A) the Employee or the person or persons to whom the Option shall have been transferred by will or the laws of descent and distribution, or the Employee’s legal representative, shall have the right, subject to the provisions of subparagraph 3(e) below, within three years from the date on which the Employee’s employment with the Company and its subsidiaries terminated as a result of Retirement, death or disability, to exercise the unexercised portion of the Option, but only to the extent, if any, that the Employee was entitled to exercise it pursuant to subparagraph 2(b) above immediately prior to such termination of employment, and (B) the Option shall terminate in all respects at the expiration of such three year period or, if sooner, at the expiration of the Option Term.

(ii)  If the Employee shall die during the three year period following the termination of the Employee’s employment as a result of Retirement or disability, or during the three-months’ period following the termination of the Employee’s employment for any reason other than cause, Retirement, death or disability, then (A) the person or persons to whom the Option shall have been transferred by will or the laws of descent and distribution, or the legal representative of the Employee’s estate, shall have the right, subject to the provisions of subparagraph 3(e) below, within three years from the date of the Employee’s death, to exercise the unexercised portion of the Option, but only to the extent, if any, that the Employee was entitled to exercise it pursuant to subparagraph 3(b)(i) above or subparagraph 3(c) below immediately prior to the Employee’s death, and (B) the Option shall terminate in all respects at the expiration of such three year period or, if sooner, at the expiration of the Option Term.

(c)  If the Employee’s employment with the Company and its subsidiaries shall terminate during the Option Term for any reason not covered by the preceding provisions of this paragraph 3 (i.e., for any reason other than cause, Retirement, death or disability), (i) the Employee, subject to the provisions of subparagraphs 2(a) and 3(b)(ii), shall have the right, at any time during the three months’ period ending at the close of the 90th day after the Employee’s last day of employment with the Company and its subsidiaries, to exercise the unexercised portion of the Option to the extent, if any, that the Employee was entitled to do so pursuant to subparagraph 2(b) above immediately prior to such termination of employment, and (ii) the Option shall terminate in all respects at the expiration of such three months’ period or, if sooner, at the expiration of the Option Term.

(d)  Whether the Employee’s absence from employment by reason of illness, military or government service or other causes shall constitute termination of employment, and whether the termination of Employee’s employment shall be for cause or disability, shall be determined by, and in the sole discretion of, the Compensation Committee (as defined in subparagraph 13(b) hereof), whose determination shall be final, binding and conclusive on the Employee, on any person or entity claiming under or through the Employee, and on all other interested parties, including the Company.  For all purposes of this paragraph 3, “Retirement” shall mean termination of the Employee’s employment with the Company and its subsidiaries (i) other than for cause,

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and (ii) either (A) on or after the date on which the Employee attains the age of sixty (60), or (B) on a date on which the sum of the Employee’s age and completed years of employment with the Company and its subsidiaries is at least eighty (80).

(e)  No provision of this Agreement, including but not limited to this paragraph 3, shall be deemed to extend the Option Term.  Any provision of this Agreement to the contrary notwithstanding, (i) in no event shall the Option be exercisable after the expiration of the Option Term, and (ii) in no event shall the Option be exercisable more than three months after termination of the Employee’s employment with the Company and its subsidiaries, except in the event of the Retirement, death or disability of the Employee, as provided in subparagraph 3(b) above.

4.Any provision of this Agreement to the contrary notwithstanding, in no event (whether before or after termination of employment) shall the Employee be entitled to exercise the Option unless the Employee shall have refrained, at all times prior to such exercise, from conduct which the Compensation Committee determines in its sole discretion is contrary to the best interests of the Company, including but not limited to competition with the Company.

5.The Option may be exercised by written notice signed by the Employee or, in the event of the Employee’s death, by the person or persons entitled to exercise the same under this Agreement, and delivered to the Secretary of the Company at the Company’s principal executive offices at the address set forth above, specifying the number of Option Shares in respect of which the Option is being exercised.  Upon such exercise, payment of the full purchase price for the shares so specified shall be made by tendering to the Company cash, certified check, bank draft, postal or express money order, personal check (subject to collection), whole shares of Common Stock already owned by the Employee, or a combination of the foregoing forms of payment, or by delivering to the Company a properly executed exercise notice together with irrevocable instructions to a stockbroker that the Company determines satisfies the provisions of section 220.3(e)(4) (or a successor provision) of Regulation T promulgated by the Board of Governors of the Federal Reserve System (hereinafter referred to as Regulation T) and such other criteria as the Company may in it sole discretion establish, provided that (a) in no event shall the sum of the cash, certified check, bank draft, postal or express money order, personal check (subject to collection) and the fair market value on the date of such exercise of any shares with which such purchase price is paid be less than the full purchase price, and (b) the Committee may, but need not, at any time or from time to time, without advance notice to the Employee, direct (or rescind any direction) that shares of Common Stock tendered in payment of all or part of the purchase price of the Option shall have been owned by the Employee for a specified period of time prior to such tender.  Neither the Employee nor the Employee’s legal representative, legatee(s) or distributee(s), as the case may be, will be, or will be deemed to be a holder of any shares pursuant to the exercise of an Option until the date of the issuance of a stock certificate for such shares.  Notice of exercise shall be deemed to have been delivered and the Option duly exercised in respect of the shares specified in the notice if and when such notice is received by the Secretary of the Company and payment in cash or in the form of a certified check, bank draft or postal

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or express money order, or in the form of a personal check subject to collection, or in the form of a certificate or certificates, properly endorsed, for whole shares of Common Stock that have been held for such period of time, if any, prior to the delivery as the Committee may direct, or in a combination of the foregoing forms of payment, shall have been mailed by registered or certified mail to the executive offices of the Company, attention of the Secretary of the Company, or shall have been received by the Secretary of the Company, or when the properly executed exercise notice and irrevocable instructions to a stockbroker that the Company determines satisfies the provisions of Regulation T and such other criteria as the Company may establish have been received by the Secretary of the Company.  It shall be a condition of the delivery by the Company of the certificate for the shares in respect of which the Option shall have been exercised that provision shall have been made for payment of any taxes that the Company determines are required to be withheld.

6.The Employee agrees that if, in the opinion of counsel for the Company, such representation(s), or evidence may be required by law, there shall be delivered to the Company (a) a representation in writing signed by the person or persons who shall exercise the Option, and such other evidence as may reasonably be required by counsel for the Company, that such shares of stock are being acquired for investment and not for resale or distribution, and (b) such other representation(s) or evidence as in the opinion of counsel is necessary to satisfy the requirements of any federal or state law at the time in effect relating to the acquisition of shares to which the Option relates.

7.The Option is not transferable by the Employee otherwise than by will or the laws of descent and distribution and is exercisable, during the Employee’s lifetime, only by the Employee.  Once transferred by will or by the laws of descent and distribution, the Option shall not be further transferable.  Any transferee of the Option must take the Option subject to the terms and conditions of this Agreement.  No such transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof, if by will, with a copy of the Employee’s will, and with such evidence as counsel for the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee(s) of the terms and conditions of this Agreement.  No sale, assignment, transfer or other disposition of the Option, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Employee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right hereunder whatsoever.

8.The Employee shall have no rights as a stockholder with respect to any share subject to the Option until the Employee shall have become the holder of record of such share and, subject to the provisions of paragraph 10 hereof, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash or securities or other property) or other distributions or other rights in respect of such share as to which the record date therefor is prior to the date upon which the Employee shall become the holder of record of such share.

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9.The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

10.If all or any portion of the Option shall be exercised subsequent to any stock dividend, split-up, spin-off, recapitalization, merger, consolidation, combination or exchange of shares, reorganization or liquidation occurring after the date hereof, as a result of which shares of any class or other property shall be issued in respect of outstanding shares of Common Stock, or shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes, the person(s) so exercising the Option shall receive, for the aggregate price paid upon such exercise, the aggregate number and class of shares and amount of property which, if shares of Common Stock (as authorized at the date hereof) had been purchased at the date hereof for the same aggregate price (on the basis of the price per share set forth in paragraph 1(a) hereof) and had not been disposed of, such person(s) would be holding, at the time of such exercise, as a result of such purchase and all such stock dividends, split-ups, spin-offs, recapitalizations, mergers, consolidations, combinations or exchanges of shares, reorganizations or liquidations; provided, however, that no fractional shares shall be issued upon any such exercise, and the aggregate price paid shall be appropriately reduced on account of any fractional share not issued.  No adjustment shall be made in the minimum number of shares which may be purchased at any one time, as fixed by paragraph 1(b) hereof.

11.Neither this Agreement nor any provision hereof shall be deemed to create any limitation or restriction upon the right of the Company to terminate the employment of the Employee at any time with or without cause.

12.The exercise of the Option shall be subject to all requirements as to (a) the listing, registration or qualification of the Option Shares for trading on any securities exchange or securities trading system on which shares of the Common Stock are listed or traded or under any applicable federal or state law, and (b) the consent or approval of any governmental regulatory body determined by the Compensation Committee, in its sole discretion, to be necessary or desirable, and anything in this Agreement to the contrary notwithstanding, the Option may not be exercised in whole or in part unless and until the Company has been able to comply with all such requirements free of any conditions not acceptable to the Committee.  The Company shall make reasonable efforts at its own cost to comply with all such requirements.

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13.As used in this Agreement:

(a)With reference to employment with the Company, the term “Company” shall be deemed to include any successor to the Company, whether by merger, consolidation or otherwise, including any entity which acquires all or substantially all of the assets of the Company, and any corporation now or hereafter a subsidiary corporation of the Company, as that term is used in Section 424 of the Internal Revenue Code of 1986, as amended, as well as any entity in which the Company or its subsidiaries owns 50% or more of the equity; and

(b)The term “Compensation Committee” shall mean the Compensation Committee of the Board of Directors of the Company or such other committee as such Board may appoint to administer the plan under which the Option was granted.

14.Any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Compensation Committee in its sole discretion.  The Compensation Committee shall have the power to administer, interpret and construe all the provisions of this Agreement.  Any such determination by the Compensation Committee, and any administration, interpretation or construction of the provisions of this Agreement by the Compensation Committee shall be final, binding and conclusive on all interested parties.

15.This Agreement shall be binding upon and inure to the benefit of any successor(s) of the Company and the person(s) to whom the Option may have been transferred by will or the laws of descent and distribution.  All agreements by the Employee hereunder shall, in the event of the Employee’s death, be deemed to refer to, and be binding upon, such last-mentioned person(s).

16.The Option has been granted pursuant to and subject to the provisions of the Amended 1995 Long-Term Incentive Stock Plan of the Company (the Plan), which is enclosed with this Agreement and hereby incorporated herein by this reference.  Any provision of this Agreement to the contrary notwithstanding, each and every provision of this Agreement shall be subject to the terms and conditions of the Plan.

17.The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.  Each and every provision of this Agreement shall be administered, construed and interpreted so that the Option shall not be treated for Federal income tax purposes as such an incentive stock option, and any provision of this Agreement that cannot be so administered, construed and interpreted shall be disregarded.

18.This Agreement may only be amended in writing signed by the Employee and an officer of the Company duly authorized to do so.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name by one of its officers thereunto duly authorized and its seal to be hereunto affixed and to be duly attested, and the Employee has executed this Agreement as of the day and year first above written.

			WALTER INDUSTRIES, INC.
			/s/ Donald N. Boyce
			Chairman, Compensation and Human Resources
			Committee
	/s/ GE Hyland
		Employee
Plan enclosed

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EX-10.26

Exhibit 10.26

September 21, 2005

Dear Don,

We refer to the letter agreement dated March 2, 2005 between you and Walter Industries, Inc. (
47;the Company”) regarding your retirement from the positions of Chairman, Chief Executive Officer and President of the Company (the “Letter Agreement”).  Notwithstanding any contrary provision of that agreement, your final date of employment with the Company will be November 15, 2005, inclusive of all accrued vacation days, whether used or unused.  While it is not expected that you will be required to be present at the company beyond a few days following the start date of your successor, you have agreed that you will be available until November 15 to assist in the transition of your responsibilities to Mr. Hyland and his introduction to the Company’s constituencies.

You also agree, for a period of 12 months following November 15, to rema in available at reasonable times and on reasonable notice to consult with Mr. Hyland regarding the history and strategy of the Company, and on other company matters.

We have agreed to amend the Letter Agreement by deleting paragraph 5(a) thereof.  As a result, per the terms of the 1995 Long-Term Incentive Stock Plan and the applicable option agreement, you will have 90 days from November 15, 2005 to exercise any vested options you hold as of your retirement date.

We have further agreed as follows:

Non-competition.  For a period of twelve (12) months from the date hereof, you shall not: (i) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which you know (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity which you know (or reasonably should have known) to be directly competitive with the business of the Compan y as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, you may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934).

Non-Solicitation; Non-Interference.  For a period of twelve (12) months from the date hereof, you shall not, whether on your own behalf or on behalf of any other person, directly or indirectly

(i) solicit or encourage any employee of the Company to leave the employment of the Company; or hire any employee currently employed by the Company; or

(ii) attempt to interfere with business relationships (whether formed before, on or after the date hereof) between the Company, on the one hand, and any customers or suppliers of the Company, on the other hand.

Non-Disparagement.  You shall not utter or issue any disparaging or derogatory remarks, or make any untruthful statements, including pursuant to any press release or public statement, about the Company, together with its successors, subsidiaries, officers and directors (the “Beneficiaries”) regarding any of the Beneficiaries’ financial status, business, compliance with laws, ethics, personnel, directors, officers, employees, consultants, agents, services, business methods or otherwise, or utter or issue any other statements that are reasonably likely to disparage any of the Beneficiaries or are otherwise degrading to any of the Beneficiaries’ reputation in the business, industry or community in which any such member operates; provided that statements made by you to directors of the Company shall not be subject to this paragraph and you shall be permitted to make any statement that is required by applicable laws or necessary to respond in a legal or regulatory proceeding.  The Beneficiaries agree not to utter or issue any disparaging or derogatory remarks, or make any untruthful statements, including pursuant to any press release or public statement, about you regarding any of your financial status, business, compliance with laws, ethics, services, business methods or otherwise, or utter or issue any other statements that are reasonably likely to disparage you or are otherwise degrading to your reputation in the business, industry or community in which you participate; provided that statements made by directors of the Corporation to you shall not be subject to this paragraph and the Beneficiaries shall be permitted to make any statement that is required by applicable laws or necessary to respond in a legal or regulatory proceeding.

Cooperation.  On and after the date hereof, you shall provide your reasonable cooperation to the Company or any of its affiliates, or any of their respective shareholders, officers, employees, representatives or agents, upon reasonable advance notice to you that such cooperation is required, in connection with any action, proceeding or investigation (or any appeal from any action, proceeding or investigation) that relates to events occurring during your employment with the Company.  The Company shall reimburse you for all travel, lodging and other related costs incurred by you in connection with the provision of such cooperation, in accordance with the Company’s business expense reimbursement policy maintained for its executives from time to time.

Release.  You have agreed to provide the Release attached as Exhibit A to this letter.

No Litigation.  You agree that you will not hereafter pursue any charges, complaints, claims, promises, agreements, causes of action, damages, and debts that relate in any manner to your employment with or services for the Company, known or unknown (other than any Excluded Claims, as such term is hereinafter defined), against any of the Company or its related or affiliated entities, predecessors, successors, assigns, subsidiaries, parents, or current or former owners, officers, directors, shareholders, employees, partners, attorneys, insurers, or agents (collectively, the “Employer Group”), by filing a lawsuit in any local, state or federal court, or filing a demand for arbitration, for or on account of anything which has occurred up to the present time, and you shall not seek reinstatement with, or damages of any nature, severance, incentive or retention pay, attorneys’ fees, or costs from the Company or any member of the Employer Group.  For purposes of this paragraph, the term “Excluded Claims” shall mean, collectively (i) any rights to insurance coverage or indemnification you may have by reason of your employment with or service on the Board of Directors of the Company or its affiliates, (ii) your vested rights under any defined benefit, defined contribution or other Company retirement plan or (iii) the Letter Agreement.

To acknowledge this understanding of our agreement, please sign where indicated below and return a copy of this letter to me.

On behalf of the Board,

/s/ Donald N. Boyce

Donald N. Boyce

Accepted and Agreed:

/s/ Don DeFosset

Don DeFosset

EXHIBIT A

RELEASE

(a)For and in consideration of the continuation of his employment with Walter Industries, Inc. (the “Company”) through November 15, 2005, Don DeFosset (the “Executive”) hereby agrees on behalf of the Executive, the Executive’s agents, assignees, attorneys, successors, assigns, heirs and executors, to, and the Executive does hereby, fully and completely forever release the Company and its affiliates, predecessors and successors and all of their respective past and/or present officers, directors, partners, members, managing members, managers, employees, agents, representatives, administrators, attorneys, insurers and fiduciaries in their individual and/or representative capacities (hereinafter collectively referred to as the “Releasees”), from any and all causes of action, suits, agreements, promises, damages, disputes, controversies, contentions, differences, judgments, claims, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, variances, trespasses, extents, executions and demands of any kind whatsoever, which the Executive or the Executive’s heirs, executors, administrators, successors and assigns ever had, now has or may have against the Releasees or any of them, in law, admiralty or equity, whether known or unknown to the Executive, for, upon, or by reason of, any matter, action, omission, course or thing whatsoever occurring up to the date this Release is signed by the Executive, including, without limitation, in connection with or in relationship to the Executive’s employment or other service relationship with the Company or its affiliates, the termination of any such employment or service relationship and any applicable employment, compensatory or equity arrangement with the Company or its respective affiliates; provided that such released claims shall not include any claims to enforce the Executive’s rights under, or with respect to, insurance coverage or indemnification the Executive may have by reason of the Executive’s employment with or service on the Board of Directors of the Company or its affiliates, the letter agreements between the Company and the Executive dated March 2, 2005 and September 21, 2005 or any vested benefits of the Executive under any retirement plan maintained by the Company or its affiliates (such released claims are collectively referred to herein as the “Released Claims”).

(b)Notwithstanding the generality of clause (a) above, the Released Claims include, without limitation, (i) any and all claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1971, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and any and all other federal, state or local laws, statutes, rules and regulations pertaining to employment or otherwise, and (ii) any claims for wrongful discharge, breach of contract, fraud, misrepresentation or any compensation claims, or any other claims under any statute, rule or regulation or under the common law, including compensatory damages, punitive damages, attorney’s fees, costs, expenses and all claims for any other type of damage or relief.

(c)The Executive represents that the Executive has read carefully and fully understands the terms of this Release, and that the Executive has been advised to consult with an attorney and has had the opportunity to consult with an attorney prior to signing this Release.  The Executive acknowledges that the Executive is executing this Release voluntarily and knowingly and that the Executive has not relied on any representations, promises or agreements of any kind made to the Executive in connection with the Executive’s decision to accept the terms of this Release.  The Executive acknowledges that the Executive has been given at least twenty-one (21) days to consider whether the Executive wants to sign this Release and that the Age Discrimination in Employment Act gives the Executive the right to revoke this Release within seven (7) days after it is signed, and the Executive understands that the Executive will not receive any payments due the Executive under this Release until such seven (7) day revocation period has passed and then, only if the Executive has not revoked this Release.  To the extent the Executive has executed this Release within less than twenty-one (21) days after its delivery to the Executive, the Executive hereby acknowledges that the Executive’s decision to execute this Release prior to the expiration of such twenty-one (21) day period was entirely voluntary.

Signed this 21st day of September, 2005,
by	/s/ Don DeFosset
Don DeFosset