WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

EFFECTIVE AS OF JANUARY 1, 2008

TABLE OF CONTENTS

WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

EFFECTIVE AS OF JANUARY 1, 2008

THIS INVOLUNTARY SEVERANCE BENEFIT PLAN is hereby established effective the 1st day of January, 2008, by Walter Industries, Inc. (the “Company”).

1.                                       POLICY

Circumstances may make it necessary for an employee to be involuntarily separated from employment with Walter Industries, Inc. This involuntary severance benefit plan has been established to assist eligible terminating Employees of the Participating Employer affected by such circumstances to reduce the adverse financial effects of their termination of employment.  All other policies, practices, procedures and plans providing for severance payments, whether known as severance pay, separation pay, termination pay, notice, layoff allowance, supplemental unemployment benefits, or the like, on behalf of Participants (except for any Change of Control Severance Agreement or Employment Agreement between the Participant and the Service Recipient), are hereby superseded.

2.                                       DEFINITIONS

2.1                                  “ Board ” shall mean the Board of Directors of the Company.

2.2                                  “ Cause ” shall include, but is not limited to:

(a)                                   Acts or omissions constituting dishonesty, potential breach of fiduciary obligation or intentional wrongdoing or malfeasance, potential violation or negligent disregard for workplace rules and procedures, insubordination, theft, violent acts or threats of violence or possession of alcohol or controlled substances on the property of a Participating Employer;

(b)                                  Conviction of a criminal violation involving fraud or dishonesty;

(c)                                   The failure to materially satisfy the conditions and requirements of an Employee’s employment with a Participating Employer, and such failure by its nature is incapable of being cured, or such failure remains uncured for more than 30 days following receipt by the Employee of written notice from the Participating Employer specifying the nature of the failure and demanding the cure thereof.  For purposes of this Section, inattention by the Employee to his duties shall be deemed a failure capable of cure.

Cause shall be determined by the Plan Administrator in its sole discretion.

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2.3                                  “ Code ” means the Internal Revenue Code of 1986, as amended, and any successor statute.

2.4                                  “ Company ” means Walter Industries, Inc. and any successor thereto by merger, purchase or otherwise which expressly adopts the Plan.

2.5                                  “ Effective Date ” of the Plan is January 1, 2008.

2.6                                  “ Eligible Employee ” means an Employee who is employed at the corporate headquarters of Walter Industries, Inc. or any other Participating Employer as a Salaried Employee or Non-Union Hourly Employee.  No temporary, occasional or seasonal Employee, as defined within the payroll records of the Participating Employer, is an Eligible Employee under the Plan.  Further, Employees covered by a collective bargaining agreement will not be considered Eligible Employees.  An employee who is on a leave of absence covered by the Family and Medical Leave Act, or who is otherwise on a leave of absence with guaranteed reinstatement rights, shall be deemed to qualify as an Eligible Employee if, immediately prior to taking such leave of absence, he would have qualified as an Eligible Employee.

Each Eligible Employee shall be provided with notice indicating that he is eligible for the Plan and has been categorized into one of four groups (Group A, Group B, Group C or Group D)  by the Compensation Committee of the Board.  The Compensation Committee of the Board of Directors has the sole discretion to determine to which group an Eligible Employee belongs.

2.7                                  “ Employee ” means any common law employee employed by a Participating Employer.

2.8                                  “ Good Reason ” means existence of the following conditions, arising without the Eligible Employee’s consent:  the Participating Employer requiring the Eligible Employee to be based at a location in excess of fifty (50) miles from the location of the Eligible Employee’s principal job location, and/or a material reduction of the Eligible Employee’s base salary from his previous position.  Notwithstanding anything to the contrary, the existence of any of the above conditions shall not constitute Good Reason unless the Eligible Employee provides notice to the Participating Employer of the existence of the condition within 90 days after the initial existence of the condition and the Participating Employer does not remedy the condition within 30 days after it receives such notice.

2.9                                  “ Individual Employment Agreement ” means any Change of Control Severance Agreement or Employment Agreement between the Employee and a Participating Employer that provides benefits upon Separation from Service.

2.10                            “ Involuntary Separation from Service ” means a Separation form Service without Cause due to:

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(a)                                   a reduction in work force (including layoffs and consolidations of operations);

(b)                                  the transfer of work to another location; or

(c)                                   a determination that an Employee’s ability to satisfy the criteria of his position has declined through no fault of the Employee as determined in the sole discretion of the Plan Administrator.

For purposes of the Plan, an Involuntary Separation from Service includes a Separation from Service for Good Reason, provided that the Separation from Service occurs within two (2) years following the initial existence of Good Reason.  The foregoing definition is intended to meet the definition of an “involuntary separation from service” within the meaning of Treasury Regulations Section 1.409A-1(n)(1), and the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a “voluntary separation from service” as an Involuntary Separation from Service, and both shall be interpreted, construed, administered, and applied consistently therewith.

2.11                            “ Non-Union Hourly Employee ” means an Employee identified as a “Non-Union Hourly Employee” within the payroll records of the Participating Employer.

2.12                            “ Participant ” means an Eligible Employee who participates in the Plan pursuant to the provisions of Article 3.

2.13                            “ Participating Employer ” means the Company and any other Service Recipient that adopts this Plan as set forth on Appendix A, as amended from time to time.

2.14                            “ Pay ” means the annual base rate of pay of an Eligible Employee on his Severance Date at his stated rate as set forth within the payroll records of the Participating Employer.  “Pay” does not include any remuneration other than base salary.  “Week’s Pay” and “Month’s Pay” shall be calculated in accordance with a Participating Employer’s regular payroll procedures (including the division of annual base rate of pay by 52 for Week’s Pay, and 12 for Month’s Pay). For part-time Employees, the base rate of pay will be a pro-rated salary computation based on the ratio of scheduled part-time hours compared to scheduled full-time hours during the twelve (12) months immediately preceding his Severance Date.  The annual base rate of pay for Employees subject to a sales commission plan shall be based on the actual earnings during the most recent 24-month period.

2.15                            “ Plan ” means the Walter Industries, Inc. Involuntary Severance Benefit Plan as set forth herein, as amended from time to time.

2.16                            “ Plan Administrator ” means the Company.

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2.17                            “Plan Year” means the twelve (12) consecutive month period beginning on January 1 and ending on December 31.

2.18                            “ Salaried Employee ” means an Employee identified as a “Salaried Employee” within the payroll records of the Participating Employer.

2.19                            “ Separation Agreement, Waiver and General Release ” means the documentation prescribed by the Plan Administrator pursuant to which a Participant waives and/or releases any and all claims, demands or causes of action of any kind whatsoever arising out of the Participant’s employment and/or termination of employment.

2.20                            “Separation from Service” means the termination of the Employee’s employment with the Service Recipient, determined as follows:

(a)                                   The Employee’s employment will be considered terminated effective as of the date that both the Employee and the Participating Employer reasonably anticipate, based on all of the facts and circumstances, that either (A) no services will be performed by the Employee for the Service Recipient after such date, whether as an employee or as an independent contractor, or (B) the level of bona fide services that the Employee will perform for the Service Recipient after such date, whether as an employee or as an independent contractor, will be permanently reduced to no more than twenty percent (20%) of the average level of bona fide services the Employee performed over the immediately preceding thirty-six (36) month period (or, if less, the Employee’s full period of service to the Service Recipient).

(b)                                  If the Employee is on a “bona fide leave of absence” (as defined below) from the Service Recipient, the Employee’s employment will be considered terminated, notwithstanding that the Employee is reasonably expected to return to perform services for the Service Recipient (at a level such that the Employee’s employment is not terminated pursuant to subsection (a) above), on the later of: (A) the first date immediately following the end of the Six-Month Period (as defined below), or (B) the date the Employee’s right to reemployment under applicable law or contract, if any, expires. A “bona fide leave of absence” is a leave of absence, including military leave or sick leave, in which there is a reasonable expectation that the Employee will return to perform service for the Service Recipient. The “Six-Month Period” is the period that begins on the date the leave of absence commences and ends on the date that is six months thereafter.

(c)                                   The foregoing definition is intended to meet the requirements for a “separation from service” from the Service Recipient within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulations Section 1.409A-1(h), and shall be interpreted, construed, administered and applied consistently therewith. Without limiting the generality of the foregoing, for purposes of this

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definition, the definition of the term “Participating Employer” set forth below shall be modified as provided in Treasury Regulations Section 1.409A-1(h)(3).

2.21                            “ Service ” means the Employee’s periods of eligible service with the Service Recipient or any other entity that was a Service Recipient at the time the service was performed.  For purposes of determining Service for each Employee who was employed by a Participating Employer on January 1, 2008, all continuous service ending with a Severance Date will be taken into account.  In addition, non-continuous periods of service will be taken into account under the following limited circumstances:  If an Employee has terminated employment with a Participating Employer after January 1, 2008 and has been rehired within less than six (6) months, prior service as an Employee of a Participating Employer will be taken into consideration.

2.22                            “ Service Recipient ” means the Company or an affiliate of the Company for which the Employee performs services and any affiliates of the Company or a subsidiary of the Company that are required to be considered a single employer under Sections 414(b) and 414(c) of the Code.

2.23                            “ Severance Date ” means the date after the Effective Date on which an Employee involuntarily has a Separation from Service without Cause.

2.24                            “ Severance Pay ” or “ Severance Payment ” or “ Severance Payments ” means payments to eligible Employees pursuant to Section 4 hereof.

2.25                            “ Specified Employee ” means a key employee of the Service Recipient within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by the Company that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

2.26                            “ Staff Reduction Policy ” means any administrative policy adopted by the Company, as in effect from time to time, and attached hereto as Appendix B, which sets forth the policies for the Participating Employer with respect to management initiated terminations resulting from force/skills and balances, site closings, and job eliminations.

2.27                            “ Year of Service ” means each twelve (12) months of Service.  “Years of Service” shall be determined as of the Employee’s Severance Date.

3.                                       ELIGIBILITY AND PARTICIPATION

3.1                                  An Eligible Employee will become a Participant under the Plan for purposes of receiving benefits upon his Severance Date.

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The Plan Administrator shall have complete power and discretion to determine if and when an Eligible Employee shall participate in the Plan; provided, however, that the Plan Administrator’s decision shall be made in accordance with the terms of the Plan and the requirements of any Staff Reduction Policy.

3.2                                  An Employee shall not be eligible to receive a benefit from the Plan if his Separation from Service occurs by reason of death or disability, as determined in the discretion of the Board (other than any disability described in, and subject to, Section 4.8) or if the Separation from Service is for Cause or is voluntary (unless such voluntary Separation from Service is for a Good Reason).

4.                                       SEVERANCE PAY

4.1                                  Basic Severance .  Each Participant who incurs a Severance Date and is not provided severance benefits under an Individual Employment Agreement shall be entitled to receive basic Severance Pay pursuant to