<Page>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
WALTER INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
</Table>
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) And 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[LOGO]
March 25, 2002
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Walter Industries, Inc. (the "Company") to be held at 10:00 A.M. local time, on
Thursday, April 25, 2002 at the Tampa Marriott Waterside Hotel, 700 S. Florida
Ave., Tampa, Florida 33602.
As discussed in the accompanying Proxy Statement, stockholders will be asked
to consider and approve proposals to (1) elect nine directors to the Board of
Directors, (2) ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the Company for the year ending
December 31, 2002, and (3) approve the 2002 Long-Term Incentive Award Plan of
Walter Industries, Inc.
The Board of Directors urges you to sign, date and return your proxy in the
addressed envelope enclosed for your convenience so that as many shares as
possible may be represented at the Annual Meeting. The giving of the proxy will
not affect your right to attend the meeting or, if you choose to revoke the
proxy, your right to vote in person.
Sincerely,
/s/ Don DeFosset
Don DeFosset
Chairman, President and Chief
Executive Officer
<Page>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 25, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Walter
Industries, Inc. (the "Company"), a Delaware corporation, will be held on
Thursday, April 25, 2002 at 10:00 A.M., local time, at the Tampa Marriott
Waterside Hotel, 700 S. Florida Ave., Tampa, Florida 33602, for the following
purposes:
1. to elect nine members to the Board of Directors to serve for the ensuing
year;
2. to ratify the appointment of PricewaterhouseCoopers LLP as independent
certified public accountants for the Company for the year ending
December 31, 2002;
3. to approve the 2002 Long-Term Incentive Award Plan of Walter
Industries, Inc.; and
4. to transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 5, 2002 are
entitled to notice of and to vote at the Annual Meeting. The Annual Report of
the Company for the year ended December 31, 2001 is enclosed.
The mailing address of the principal executive offices of the Company is
Post Office Box 31601, Tampa, Florida 33631-3601.
Your attention is invited to the Proxy Statement on the following pages.
By Order of the Board of Directors
/s/ EDWARD A. PORTER
EDWARD A. PORTER
Secretary
Tampa, Florida
March 25, 2002
<Page>
WALTER INDUSTRIES, INC.
4211 W. BOY SCOUT BLVD.
TAMPA, FLORIDA 33607
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Walter Industries, Inc. (the "Company") of
proxies for the Annual Meeting of Stockholders of the Company to be held on
April 25, 2002 at 10:00 a.m., local time, at the Tampa Marriott Waterside Hotel,
700 S. Florida Ave., Tampa, Florida 33602 and any adjournments thereof (the
"Annual Meeting") for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders.
THE PROXY
The cost of soliciting proxies will be borne by the Company. In addition to
soliciting stockholders by mail, the Company will request banks, brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of the stock held of record by such persons
and the Company will reimburse them for their reasonable out-of-pocket expenses
incurred in doing so. The Company may use the services of its officers and other
employees of the Company who will receive no compensation for their services,
other than their regular compensation, to solicit proxies personally, by
telephone or by facsimile transmission.
This Proxy Statement and enclosed proxy is first being mailed to
stockholders on or about March 25, 2002.
The close of business on March 5, 2002 has been fixed by the Board of
Directors as the record date (the "Record Date") for determination of
stockholders entitled to notice of and to vote at the Annual Meeting. On the
Record Date there were issued and outstanding 44,203,178 shares of common stock,
par value $.01 per share, of the Company (the "Common Stock"). Each stockholder
is entitled to one vote for each share of Common Stock held. The presence in
person or by proxy of a majority of the shares of Common Stock issued and
outstanding on the Record Date is required for a quorum. The affirmative vote of
a majority of the shares of Common Stock represented in person or by proxy at
the Annual Meeting is required to approve the proposal regarding the election of
directors. The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting is required to ratify
the appointment of PricewaterhouseCoopers LLP as independent certified public
accountants for the year ending December 31, 2002. The affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy at the
Annual Meeting is required to approve the 2002 Long-Term Incentive Award Plan of
Walter Industries, Inc.
If the enclosed proxy is properly signed and returned and not revoked, the
shares represented thereby will be voted at the Annual Meeting. If the
stockholder specifies in the proxy how the shares are to be voted, they will be
voted accordingly. If the stockholder does not specify in the proxy how the
shares are to be voted, the shares will be voted FOR the election of the
director nominees named in this Proxy Statement and FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as independent certified public
accountants for the Company for the year ending December 31, 2002 and FOR the
approval of the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc.
A stockholder giving a proxy has the power to revoke it at any time prior to
its exercise by giving written notice revoking it or by giving a later proxy, in
either case delivered by mail to the Secretary of the Company and effective upon
receipt by the Company. Attendance at the Annual Meeting will not automatically
revoke a proxy, but a stockholder in attendance may request a ballot and vote in
person, thereby revoking a prior granted proxy.
1
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The Stockholders' Agreement dated as of March 17, 1995 between the Company
and The Celotex Corporation ("Celotex"), solely in its capacity as the Celotex
Settlement Fund Recipient (the "Stockholders Agreement"), under and as defined
in the Second Amended and Restated Veil Piercing Settlement Agreement dated as
of November 22, 1994 (the "Veil Piercing Settlement Agreement"), provides that
Celotex or its successor will vote the shares of Common Stock held by said fund
for and/or against each matter in proportion to the votes cast by the other
holders of Common Stock who voted. The Common Stock held by the Celotex
Settlement Fund Recipient was transferred to the Asbestos Settlement Trust (the
"Celotex Trust") on May 30, 1997, and the rights and obligations of Celotex
under the Stockholders' Agreement were subsequently assumed by the Celotex
Trust. The Company will advise the Celotex Trust of the proportion of such votes
and the Celotex Trust shall have no responsibility for the determination
thereof. The Celotex Trust is obligated to be present in person or by proxy at
all meetings of holders of Common Stock so that all shares of Common Stock owned
by the Celotex Trust may be counted for the purpose of determining the presence
of a quorum at such meetings. See "Security Ownership of Management and
Principal Stockholders--Ownership of Principal Stockholders" herein for
information concerning the Celotex Trust's ownership of Common Stock.
IN ORDER THAT YOUR SHARES OF COMMON STOCK MAY BE REPRESENTED AT THIS MEETING
IN CASE YOU ARE NOT PERSONALLY PRESENT, YOU ARE REQUESTED TO PLEASE SIGN, DATE
AND MAIL THE PROXY PROMPTLY.
2
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Nine (9) directors are to be elected at the Annual Meeting. The nine
(9) nominees for election as directors are named below. In the event that any
such nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who is designated by
the present Board of Directors to fill the vacancy. The Company is not aware of
any nominee who will be unable or will decline to serve as a director. The term
of office for each person elected as a director will continue until the next
Annual Meeting of Stockholders or until his successor has been elected and
qualified.
The names of the nominees and certain information about them are set forth
below:
<Table>
<Caption>
SERVED AS DIRECTOR
NAME AGE OF THE COMPANY FROM
- ---- -------- -------------------
Donald N. Boyce............................................. 63 1998
Howard L. Clark, Jr......................................... 58 1995
Don DeFosset................................................ 53 2000
Perry Golkin................................................ 48 1987
Scott C. Nuttall............................................ 29 2000
Bernard G. Rethore.......................................... 60 2002
Wayne W. Robinson........................................... 41 2000
Neil A. Springer............................................ 63 2000
Michael T. Tokarz........................................... 52 1987
</Table>
DONALD N. BOYCE has been a director of the Company since August 1998.
Mr. Boyce was appointed Interim Chairman of the Board, President and Chief
Executive Officer of the Company on August 3, 2000 and resigned as President and
Chief Executive Officer on November 2, 2000. He resigned from the position of
Chairman of the Board as of March 1, 2002. Mr. Boyce was Chairman of the Board
of Directors of IDEX Corporation from April 1, 1999 until March 31, 2000 and was
Chairman of the Board of Directors, President and Chief Executive Officer of
IDEX Corporation from January 1988 until March 31, 1999.
HOWARD L. CLARK, JR. has been a director of the Company since March 1995.
Mr. Clark has been Vice Chairman of Lehman Brothers Inc., an investment-banking
firm, since February 1993; prior thereto Mr. Clark served as Chairman and Chief
Executive Officer of Shearson Lehman Brothers Inc. Mr. Clark also is a director
of Lehman Brothers Inc., Maytag Corporation, H Power Corp. and White Mountains
Insurance Group, Ltd.
DON DEFOSSET was appointed to the Board effective November 6, 2000. He was
appointed President and Chief Executive Officer on November 2, 2000 and was
appointed Chairman of the Board effective March 1, 2002. From October 1999 to
June 2000, he served as Executive Vice President and Chief Operating Officer of
Dura Automotive Systems, Inc. From October 1996 to August 1999 he was Executive
Vice President and President of the Truck Group of Navistar International
Corporation and from 1993 to 1996, he was President-Safety Restraint division of
Allied Signal, Inc. He is also a director of Terex Corporation and Safelite
Glass Corp.
PERRY GOLKIN was a director of the Company from 1987 to March 2, 1995. On
November 14, 1995, he was re-elected a director of the Company. Mr. Golkin has
been a member of the limited liability company which serves as the general
partner of Kohlberg Kravis Roberts & Co. L.P. since January 1996. Mr. Golkin was
a general partner of Kohlberg Kravis Roberts & Co. L.P. from January 1995 to
January 1996. Mr. Golkin also is a director of PRIMEDIA Inc.
3
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SCOTT C. NUTTALL was appointed to the Board on August 3, 2000. Mr. Nuttall
has been an associate of Kohlberg Kravis Roberts & Co. L.P. since 1996. From
1995 to 1996, Mr. Nuttall was an executive with the Blackstone Group.
Mr. Nuttall also is a director of Kinder Care Learning Centers, Amphenol Corp.
and Willis Group Holdings Limited.
BERNARD G. RETHORE was appointed to the Board effective March 15, 2002. He
has been Chairman Emeritus of the Board of Flowserve Corporation since
April 2000. From January 2000 to April 2000 he served as Flowserve's Chairman.
He had previously served as Chairman and Chief Executive Officer of Flowserve
from July 1997 to January 2000 and held the additional title of President from
October 1998 to July 1999. Mr. Rethore was Chairman of the Board of BW/IP, Inc.
in 1997 and served as its President and Chief Executive Officer from 1995 to
1997.
WAYNE W. ROBINSON was appointed to the Board on August 3, 2000. Since
July 2001, he has been the Chief Executive Officer and a director of Evenflo
Company, Inc. Since January 2001, Mr. Robinson has been the Chairman of the
Board of Directors of United Fixtures Company, and from 1998 to 2001 he was the
Chairman and Chief Executive Officer of United Fixtures Company. From 1996 to
1998 Mr. Robinson served as President and Chief Executive Officer of Allied
Foods, Inc.
NEIL A. SPRINGER was appointed to the Board on August 3, 2000. Mr. Springer
is managing director of Springer & Associates LLC which was established in 1994.
Mr. Springer also is a director of IDEX Corporation and US Freightways.
MICHAEL T. TOKARZ has been a director of the Company since 1987. Since
February 1, 2002 he has been a member of the Tokarz Group, LLC. From
January 1996 until February 1, 2002, Mr. Tokarz was a member of the limited
liability company which serves as the general partner of Kohlberg Kravis
Roberts & Co. L.P. Mr. Tokarz was a general partner of Kohlberg Kravis
Roberts & Co. L.P. from January 1993 to January 1996. Mr. Tokarz also is a
director of Evenflo Company, Inc., IDEX Corporation, KSL Recreation Corporation,
PRIMEDIA Inc. and Spalding Holdings Corporation.
In order to be elected, a nominee must receive the vote of a majority of the
shares of Common Stock represented in person or by proxy at the Annual Meeting.
Abstentions from voting, as well as broker non-votes, will be considered as
votes cast against and therefore will have the same effect as a vote against the
election of directors. Unless otherwise instructed, the proxy holders will vote
proxies held by them FOR the election of the nominees listed above.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES SET FORTH
ABOVE.
PROPOSAL TWO
TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 2002
The Board has appointed PricewaterhouseCoopers LLP as independent certified
public accountants for the year ending December 31, 2002. A representative of
PricewaterhouseCoopers LLP will be present at the Annual Meeting. He will have
the opportunity to make a statement if he desires to do so and will be available
to respond to appropriate questions. PricewaterhouseCoopers LLP has served as
independent certified public accountants for the Company since its formation in
1987.
The appointment of PricewaterhouseCoopers LLP as independent certified
public accountants for the year ending December 31, 2002 will be ratified if
approved by the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting. Abstentions from
voting, as well as broker non-votes, will be considered as votes cast against
the proposal and, therefore, will have the same effect as a vote against the
appointment of PricewaterhouseCoopers LLP as independent certified public
accountants. Unless otherwise instructed, the proxy holders will vote proxies
held by them
4
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FOR the ratification of the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the year ending December 31, 2002.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 2002.
PROPOSAL THREE
TO APPROVE THE 2002 LONG-TERM INCENTIVE AWARD PLAN
OF WALTER INDUSTRIES, INC.
In February 2002, the Board of Directors approved the creation of the 2002
Long-Term Incentive Award Plan of Walter Industries, Inc., which is also
referred to as the "2002 Incentive Plan." A total of 3,000,000 shares of Common
Stock are reserved for issuance under this plan. The principal purposes of the
2002 Incentive Plan are to provide incentives for the Company's officers,
employees and consultants through granting of options, restricted stock and
other awards, thereby stimulating their personal and active interest in the
development and financial success of the Company and inducing them to remain in
the Company's employ (or service). The 2002 Incentive Plan is also intended to
assist in attracting and retaining qualified non-employee directors by providing
for automatic grants of options and discretionary grants of options and dividend
equivalents to non-employee directors. No options, restricted stock, or other
awards have been granted under the 2002 Incentive Plan as of the date hereof.
Under the 2002 Incentive Plan, not more than 3,000,000 shares of Common
Stock (subject to antidilution and other adjustment provisions) are authorized
for issuance upon exercise of options, stock appreciation rights (also referred
to as SARs), and other awards, or upon vesting of restricted or deferred stock
awards. Furthermore, the maximum number of shares which may be subject to
options, SARs, restricted stock or other awards granted under the 2002 Incentive
Plan to any individual in any calendar year cannot exceed 1,000,000 (subject to
antidilution and other adjustment provisions).
The principal features of the 2002 Incentive Plan are summarized below, but
the summary is qualified in its entirety by reference to the 2002 Incentive
Plan, which is attached as Exhibit A to this Proxy Statement.
ADMINISTRATION
The Compensation Committee of the Board or one or more other committees or
subcommittees of the Board appointed under the terms of the 2002 Incentive Plan
(the "Committee"), which committee or subcommittee consists solely of two or
more members of the Board, each of whom is both a "non-employee director" for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and an "outside director" for the purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
will administer the 2002 Incentive Plan with respect to grants to employees or
consultants, and the full Board will administer the 2002 Incentive Plan with
respect to grants to non-employee directors.
Notwithstanding the foregoing, the full Board may administer the 2002
Incentive Plan with respect to grants to employees or consultants, except with
respect to matters that under Rule 16b-3 under the Exchange Act or
Section 162(m) of the Code are required to be determined by the Committee.
Subject to the terms and conditions of the 2002 Incentive Plan, the
Committee has the authority to select the employees and consultants, if any, to
whom awards are to be made, to determine the number of shares to be subject
thereto and the terms and conditions thereof, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the 2002 Incentive Plan with respect to grants or awards made
to employees or consultants. The Committee (and the Board) is also authorized to
adopt, amend and rescind rules relating to the administration of the 2002
Incentive Plan. Notwithstanding the foregoing, the Board shall conduct the
general administration of the 2002 Incentive Plan with respect to options
granted to non-employee directors.
5
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ELIGIBILITY
Options, SARs, restricted stock, deferred stock and other awards under the
2002 Incentive Plan may be granted to individuals who are employees or
consultants of the Company (or employees or consultants of any current or future
subsidiaries of the Company) selected by the Committee for participation in the
2002 Incentive Plan. In addition, the 2002 Incentive Plan provides for certain
automatic grants of non-qualified stock options and discretionary grants of
non-qualified stock options and dividend equivalents to non-employee directors.
NON-EMPLOYEE DIRECTORS
The 2002 Incentive Plan provides for automatic grants of non-qualified stock
options to purchase Common Stock to each person who is or becomes a non-employee
director. On the effective date of the 2002 Incentive Plan, each person who is a
non-employee director on such effective date shall receive a non-qualified stock
option to purchase 4,000 shares of Common Stock, and each non-employee director
who is initially elected after such effective date shall receive a non-qualified
stock option to purchase 4,000 shares of Common Stock on the date of the
non-employee director's initial election. Additionally, commencing in the first
calendar year which begins after such effective date or such initial election,
as applicable, each non-employee director shall receive, on the date of each
annual meeting of the Company's stockholders at which the non-employee director
is reelected to the Board, an additional non-qualified stock option to purchase
4,000 shares of common stock. These automatic options will have a per share
exercise price equal to the fair market value per share of the Common Stock at
the date of grant and will become exercisable in cumulative annual installments
of one-third each on each of the first three anniversaries of the date of the
grant, so long as the non-employee director continues to serve as a director of
the Company; PROVIDED, HOWEVER, to the extent permitted by Rule 16b-3 of the
Exchange Act, the Board may accelerate the exercisability of options upon the
occurrence of certain specified extraordinary corporate transactions or events;
AND PROVIDED, FURTHER, that options granted to non-employee directors shall
become exercisable in full upon the retirement of the non-employee director from
the Board at age 65 with at least five years of service as a director of the
Company. The maximum term of each option granted to a non-employee director
shall be ten years from the date the option is granted. The 2002 Incentive Plan
also provides that the Board may, in its discretion, make additional option and
dividend equivalent grants to non-employee directors from time to time. The
terms of each option or dividend equivalent granted to an non-employee director
will be set forth in a written agreement between the Company and the
non-employee director consistent with the terms of the 2002 Incentive Plan.
AWARDS UNDER THE 2002 INCENTIVE PLAN
The 2002 Incentive Plan provides that the Committee may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof, to any eligible employee or consultant. In addition, the
Board may grant non-qualified stock options and dividend equivalents to
non-employee directors under the Plan. Each such award will be set forth in a
separate agreement with the person receiving the award and will indicate the
type, terms and conditions of the award.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than par
value) and usually will become exercisable (in the discretion of the Committee
or, with respect to non-employee directors, the Board) in one or more
installments after the grant date, subject to the participant's continued
employment or other service with the Company and/or subject to the satisfaction
of individual performance targets established by the Committee (or the Board
with respect to non-employee directors). NQSOs may be granted for any term
specified by the Committee (or the Board with respect to non-employee
directors). Notwithstanding the foregoing, automatic grants of NQSOs to
6
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non-employee directors shall be subject to the terms described in the above
paragraph entitled "Non-Employee Directors."
Incentive Stock Options ("ISOs") will be designed to comply with certain
restrictions contained in the Code. Among such restrictions, ISOs (1) must have
an exercise price not less than the fair market value of a share of Common Stock
on the date of grant, (2) may only be granted to employees, (3) must expire
within a specified period of time following the optionee's termination of
employment and (4) must be exercised within ten years after the date of grant,
but may be subsequently modified to disqualify them for treatment as ISOs. In
the case of an ISO granted to an individual who owns (or is deemed to own) at
least 10% of the total combined voting power of all of classes of stock of the
Company, the 2002 Incentive Plan provides that the exercise price must be at
least 110% of the fair market value of a share of Common Stock on the date of
grant and the ISO must expire upon the fifth anniversary of the date of its
grant.
Restricted Stock ("Restricted Stock") may be sold to participants at various
prices (but not below par value) and made subject to such conditions and
restrictions as may be determined by the Committee. Typically, Restricted Stock
may be repurchased by the Company at the original purchase price if the
conditions or restrictions are not met. In general, Restricted Stock may not be
sold or otherwise transferred until restrictions are removed or expire.
Purchasers of Restricted Stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions lapse.
Deferred Stock ("Deferred Stock") may be awarded to participants subject to
vesting conditions based on continued employment or other service or on
performance criteria established by the Committee. Like Restricted Stock,
Deferred Stock may not be sold or otherwise transferred until vesting conditions
are removed or expire. Unlike Restricted Stock, however, Deferred Stock will not
be issued until the Deferred Stock award has vested, and recipients of Deferred
Stock generally will have no voting or dividend rights prior to the time when
vesting conditions are satisfied.
Stock Appreciation Rights ("SARs") may be granted in connection with stock
options or other awards or separately. SARs granted by the Committee in
connection with stock options or other awards typically will provide for
payments to the participant based upon increases in the price of Common Stock
over the exercise price of the related option or other award. Except as required
by Section 162(m) of the Code with respect to any SAR intended to qualify as
performance-based compensation as described in Section 162(m) of the Code, there
are no restrictions specified in the 2002 Incentive Plan on the amount of gain
realizable from the exercise of SARs, although restrictions may be imposed by
the Committee in the SAR agreements. The Committee may elect to pay SARs in cash
or in Common Stock or in a combination of both.
Dividend Equivalents ("Dividend Equivalents") represent the value of the
dividends per share paid by the Company, calculated with reference to the number
of shares covered by the stock options, SARs or other awards held by the
participant. These Dividend Equivalents may be paid in cash or in shares of
Common Stock or in a combination of both.
Performance Awards ("Performance Awards") may be granted by the Committee on
an individual or group basis. Generally, these awards will be based upon
specific performance targets and may be paid in cash or in shares of Common
Stock or in a combination of both. Performance Awards may include "phantom"
stock awards that provide for payments based upon increases in the price of the
Company's Common Stock over a predetermined period. Performance Awards may also
include incentive awards which may be granted by the Committee on an individual
or group basis and which may be payable in cash or in Common Stock or in a
combination of both. Performance Awards in the form of a cash bonus which are
intended to qualify as performance-based compensation as described in
Section 162(m) of the Code may not exceed $2 million to any individual in any
calendar year.
Stock Payments may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement or
7
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otherwise in lieu of or in addition to all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the employee or
consultant.
SECURITIES LAWS AND FEDERAL INCOME TAXES
The 2002 Incentive Plan is intended to conform to the extent necessary with
all provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission (the
"SEC") thereunder, including, without limitation, Rule 16b-3 under the Exchange
Act. To the extent permitted by applicable law, the 2002 Incentive Plan and
options or other awards granted thereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards and stock payments under the 2002 Incentive Plan are
generally not taxed at the time of grant but are taxed under Section 83 of the
Code upon their receipt of Common Stock or cash with respect to the exercise or
vesting of such awards or grants, and, subject to Section 162(m) of the Code,
the Company will be entitled to an income tax deduction with respect to the
amounts taxable to these recipients. Under Sections 421 and 422 of the Code,
recipients of ISOs are generally not taxed at the time of grant or on their
receipt of Common Stock upon their exercises of ISOs if the ISOs and Common
Stock issued on the exercise of the ISO are held for certain minimum holding
periods, and, in such event, the Company is not entitled to income tax
deductions with respect to such exercises.
SECTION 162(M) LIMITATION. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds
$1 million in any one year. However, under Section 162(m) of the Code, the
deduction limit does not apply to certain "performance-based compensation"
established by an independent compensation committee which is adequately
disclosed to, and approved by, shareholders. In particular, stock options and
stock appreciation rights will satisfy the "performance-based compensation"
exception if the awards are made by a qualifying compensation committee, the
plan sets the maximum number of shares that can be granted to any person within
a specified period and the compensation is based solely on an increase in the
stock price after the grant date (that is, the option exercise price is equal to
or greater than the fair market value of the stock subject to the award on the
grant date). Additionally, under Section 162(m) of the Code, certain rights and
awards granted under the 2002 Incentive Plan will qualify as "performance-based
compensation" for purposes of Section 162(m) of the Code if the awards and
rights meet certain requirements set forth under Section 162(m) of the Code,
including a requirement that such rights and awards are based upon
preestablished objective performance goals, the material terms of which are
disclosed to and approved by shareholders. The Company has attempted to
structure the 2002 Incentive Plan, and intends to structure all awards granted
thereunder, in such a manner that, subject to obtaining shareholder approval of
the 2002 Incentive Plan, the remuneration attributable to stock options, SARs
and other rights and awards which meet the other requirements of Section 162(m)
of the Code will not be subject to the $1 million limitation.
The Company intends that shareholder approval of the 2002 Incentive Plan
hereunder will satisfy the shareholder approval requirements of Section 162(m)
of the Code with respect to all applicable awards made under the 2002 Incentive
Plan. Accordingly, certain rights and awards under the 2002 Incentive Plan which
are intended to qualify as "performance-based compensation" shall be based on
one or more of the following objective business criteria with respect to the
Company, any subsidiary of the Company, or any division or operating unit, as
determined by the Committee: (a) net income, (b) pre-tax income, (c) operating
income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return
on invested capital or assets, (h) cost reductions or savings, (i) funds from
operations, (j) appreciation in the fair market value of Common Stock,
(k) earnings before any one or more of the following terms: interest,
8
<Page>
taxes, depreciation or amortization and (l) consummations of acquisitions or
sales of certain of the Company's assets, subsidiaries or other businesses
(which criteria shall be applied only to the extent permissible with respect to
such qualification under Section 162(m) of the Code). Additional terms of the
2002 Incentive Plan that apply to "performance-based compensation" include:
employees, officers and consultants of the Company will be eligible to receive
rights and awards under the 2002 Incentive Plan; the maximum number of shares
which may be subject to rights and awards granted under the 2002 Incentive Plan
to any individual in any calendar year may not exceed one million shares; and
Performance Awards in the form of a cash bonus which are intended to qualify as
"performance-based compensation" may not exceed $2 million to any individual in
any calendar year. The Company has not, however, requested a ruling from the IRS
or an opinion of counsel regarding the applicability of Section 162(m) of the
Code with respect to the 2002 Incentive Plan.
The approval of the 2002 Incentive Plan requires the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy at the
Annual Meeting. Abstentions from voting, as well as broker non-votes, will be
considered as votes cast against the proposal and, therefore, will have the same
effect as a vote against the approval of the 2002 Incentive Plan. Unless
otherwise instructed, the proxy holders will vote proxies held by them FOR the
approval of the 2002 Incentive Plan.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2002 LONG-TERM INCENTIVE
AWARD PLAN OF WALTER INDUSTRIES, INC.
FEES BILLED BY INDEPENDENT AUDITOR
The fees billed by PricewaterhouseCoopers LLP, the Company's independent
auditor, during the fiscal year ended December 31, 2001 are as follows:
<Table>
<Caption>
FEES BILLED
-----------
Audit Fees(1)............................................... $ 953,000
Financial Information Systems Design and Implementation
Fees(2)................................................... 0
All Other Fees(3)........................................... $1,444,500
</Table>
- ------------------------
(1) Includes the aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2001 and the reviews of
the financial statements included in the Company's Quarterly Reports on
Form 10-Q for 2001. Of such amount, $629,000 has been paid to date.
(2) Includes the aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the provision of information technology
services of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X
during the fiscal year ended December 31, 2001.
(3) Includes the aggregate fees billed for all services, including tax
consultation services, rendered by PricewaterhouseCoopers LLP, other than
fees for the services which must be reported under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," during the
fiscal year ended December 31, 2001.
In discussing the independence of the Company's independent auditor, the
Audit Committee considered whether the provision of information technology
services and other non-audit services is compatible with maintaining the
auditor's independence.
9
<Page>
CORPORATE GOVERNANCE
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 2001, the Board consisted of:
Robert F. Amter, Donald N. Boyce, Howard L. Clark, Jr., Don DeFosset, Perry
Golkin, James L. Johnson, Scott C. Nuttall, Wayne W. Robinson, Neil A. Springer
and Michael T. Tokarz. Mr. Amter is not standing for re-election to the Board at
the Annual Meeting and Mr. Johnson will retire from the Board effective
April 24, 2002. Mr. Rethore was appointed a director effective March 15, 2002.
After the election of directors at the Annual Meeting, the Board intends to
reduce the size of the Board to nine (9) members.
During the fiscal year ended December 31, 2001, there were ten
(10) meetings of the Board, two (2) meetings of the Audit Committee, five
(5) meetings of the Compensation Committee and three (3) meetings of the
Nominating and Corporate Governance Committee.
All of the directors attended at least 75% of the combined number of Board
meetings and meetings of Committees of which they were members that were held
during the fiscal year ended December 31, 2001.
On May 26, 2000, the Audit Committee adopted a written charter which was
attached to the Proxy Statement for the Company's annual meeting held on
April 26, 2001. The primary purpose of the Audit Committee is to assist the
Board in fulfilling its responsibility to the Company's stockholders relating to
the Company's financial reporting process and systems of internal control. The
Audit Committee is also responsible for determining whether the Company's
financial systems and reporting practices are in accordance with applicable
requirements. The Audit Committee has the authority to institute special
investigations and to retain special counsel or experts as it deems appropriate.
The Audit Committee consists solely of directors who are "independent" within
the meaning of Section 303 of the New York Stock Exchange listing standards. The
present members of the Audit Committee are Neil A. Springer, Chairman, Robert F.
Amter and James L. Johnson.
The Compensation Committee is responsible for reviewing and approving
salaries of senior executives of the Company and the presidents of its
significant subsidiaries and for reviewing and recommending for approval by the
Board executive and key employee compensation plans, including incentive
compensation, stock incentives and other benefits. The present members of the
Compensation Committee are James L. Johnson, Chairman, Donald N. Boyce, Perry
Golkin, Wayne W. Robinson and Neil A. Springer.
The Nominating and Corporate Governance Committee is responsible for
establishing the criteria for and the qualifications of persons suitable for
nomination as directors and reporting its recommendations to the Board. The
Nominating and Corporate Governance Committee will consider candidates for
nominees for election as directors of the Company submitted by stockholders. Any
stockholder who wishes to have the Nominating and Corporate Governance Committee
consider a candidate is required to give written notice of the stockholder's
intention to make such a nomination. Notices of nomination for the 2003 annual
meeting must be received by the Company's Secretary at the address on the first
page of this Proxy Statement no earlier than January 5, 2003 and no later than
January 25, 2003. The notice of nomination is required to contain certain
information about both the nominee and the stockholder making the nomination, as
set forth in the Company's by-laws. A proposed nomination which does not comply
with the above requirements will not be considered. The present members of the
Nominating and Corporate Governance Committee are Howard L. Clark, Jr.,
Chairman, Donald N. Boyce, Perry Golkin and Michael T. Tokarz.
DIRECTORS' COMPENSATION
No directors' fees are paid to directors who are full-time employees of the
Company or any of its subsidiaries. For the fiscal year ended December 31, 2001,
non-employee directors of the Company were paid retainer fees of $7,500 per
quarter. Each non-employee director also received a fee of $1,500 for each Board
or Committee meeting attended and was reimbursed for travel and lodging
expenses. Mr. Boyce,
10
<Page>
while non-executive Chairman of the Board, received an annual retainer fee for
2001 of $237,500. No additional fees were paid to Mr. Boyce for attendance at
Board or Committee meetings.
On April 11, 1995, the Board approved and adopted the Walter
Industries, Inc. Directors' Deferred Fee Plan under which non-employee directors
may elect to defer all or a portion of their director's fees. The deferred fees,
at each electing director's option, are credited to either an income account or
a stock equivalent account or are divided between the two accounts. If a
director elects the income account, the director's fees otherwise payable are
credited as a dollar amount to the director's income account on the date such
fees would otherwise have been paid. If a director elects the stock equivalent
account, director's fees otherwise payable are converted to stock equivalent
shares equal in number to the maximum number of shares of Common Stock, or
fraction thereof (to the nearest one hundredth (1/100) of one share), which
could be purchased with the dollar amount of such fees at the closing market
price of the Common Stock on the date such fees would otherwise have been paid,
or if that date is not a trading date, on the next trading date. The income
account is credited quarterly with interest at the prime rate, and the stock
equivalent account is credited with stock equivalent shares equal in number to
the maximum number of shares of Common Stock, or fraction thereof (to the
nearest one hundredth (1/100) of one share), which could have been purchased
with the cash dividend, if any, which would have been payable had the
participant been the actual owner of the number of shares of Common Stock
credited to his account immediately prior to such dividend. Payments under the
Deferred Fee Plan begin upon the later of the termination of the director's
services as a director or date of retirement from the director's principal
occupation or employment in such number of annual installments as shall be
determined by the Company. Payments from the income account are made in cash and
payments from the stock equivalent account are made in cash at the Common
Stock's then current market value, or, at the Company's option, in shares of
Common Stock. As of March 5, 2002, Mr. Tokarz and Mr. Nuttall had elected to
participate in the Directors' Deferred Fee Plan.
CERTAIN RELATIONSHIPS AND CERTAIN RELATED TRANSACTIONS
In August 2001, Mr. Johnson, a director of the Company, entered into a
building contract with Jim Walter Homes, Inc., a subsidiary of the Company, for
the construction of a home in Granbury, Texas, for cost (estimated to be
$310,000) plus 5%. Construction on the home began in late August 2001 and is
expected to be completed in July 2002.
11
<Page>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
or accrued by the Company for the account of (i) the Chief Executive Officer of
the Company and (ii) each of the next four most highly compensated executive
officers of the Company.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($)(2)
- --------------------------- -------- ---------- --------- ------------ ------------------
Don DeFosset (3)...................... 2001 658,333 1,050,000(4) 0 $ 115,489(a)
Chairman, Chief Executive 2000.7 105,871 110,175 500,000 (3)
Officer and President 2000 (3) (3) (3) (3)
1999 (3) (3) (3) (3)
William F. Ohrt....................... 2001 273,889 290,692 75,000 $ 76,036(b)
Executive Vice President and Chief 2000.7 (5) (5) (5) (5)
Financial Officer 2000 (5) (5) (5) (5)
1999 (5) (5) (5) (5)
Anthony L. Hines...................... 2001 284,508 268,331 50,000 $ 47,217(c)
Senior Vice President-Operations 2000.7 (6) (6) (6) (6)
2000 (6) (6) (6) (6)
1999 (6) (6) (6) (6)
Edward A. Porter...................... 2001 255,833 279,402 0 $ 30,194(d)
Senior Vice President, General 2000.7 139,167 103,819 50,000 --
Counsel and Secretary 2000 213,000 136,000 15,000 34,465(d)
1999 204,000 140,000 15,000 32,011(d)
Ralph E. Fifield...................... 2001 358,167 114,985 0 (e)
Executive Vice President of the 2000.7 200,303 125,000 50,000 (e)
Company and President of 2000 262,946 275,000 35,500 (e)
United States Pipe 1999 239,493 240,000 50,000 (e)
and Foundry Company, Inc.,
a subsidiary of the Company
</Table>
- --------------------------
(1) The seven-month period (June 1, 2000 to December 31, 2000) representing a
seven-month fiscal year is identified as fiscal year 2000.7 for purposes of
this table. All prior fiscal years represent a 12-month period ending
May 31 and the 2001 fiscal year represents the 12-month period ended
December 31, 2001. As a result, the amounts shown for such seven-month
period are not comparable to the amounts shown for the other fiscal years.
(2) This column consists of the following:
(a) Relocation expenses of $109,009, including moving costs, temporary
housing rental and travel, and reimbursement for income tax preparation
services of $6,480.
(b) Relocation expenses, including moving costs, temporary housing rental
and travel.
(c) Relocation expenses, including moving costs, temporary housing rental
and travel.
(d) The Company's contribution for the account of Mr. Porter in the Walter
Industries, Inc. Profit Sharing Plan (the "Profit Sharing Plan") and
accruals for the related Supplemental Profit Sharing Plan (the
"Supplemental Profit Sharing Plan") which provides benefits which would
have been provided under the tax-qualified Profit Sharing Plan but for
restrictions on such benefits imposed by the Code. The Profit Sharing
Plan and the Supplemental Profit Sharing Plan amounts included in this
table are for the plan years ended August 31, 1999, August 31, 2000 and
August 31, 2001.
(e) Mr. Fifield participates in the Pension Plan for Salaried Employees of
Subsidiaries, Divisions and/or Affiliates of Walter Industries, Inc. and
the Company's unfunded, non-qualified Supplemental Pension Plan, both of
which are defined benefit plans described herein under "Executive
Compensation-Annual Benefits Payable Under Pension Plans."
(3) Mr. DeFosset was elected Chief Executive Officer and President on
November 2, 2000 and a Director effective November 6, 2000. He was appointed
Chairman of the Board effective March 1, 2002.
(4) Under the Walter Industries Executive Deferred Compensation Plan,
Mr. DeFosset deferred $250,000 of his bonus.
(5) Mr. Ohrt was elected Executive Vice President and Chief Financial Officer
effective January 22, 2001.
(6) Mr. Hines was elected Senior Vice President--Operations effective
January 8, 2001.
12
<Page>
The following table contains information regarding the grant of stock
options to the executives named in the Summary Compensation Table during the
fiscal year ended December 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS GRANTED ANNUAL RATES OF STOCK
SECURITIES TO EMPLOYEES EXERCISE PRICE APPRECIATION FOR
UNDERLYING IN FISCAL OR BASE OPTION TERM($)
OPTIONS YEAR ENDED PRICE EXPIRATION ----------------------
NAME GRANTED DECEMBER 31, 2001 ($/SH) DATE(1) 5%(2) 10%(2)
- ---- ---------- ----------------- -------- ---------- --------- ----------
Don DeFosset.................. 0 -- -- -- -- --
William F. Ohrt............... 75,000 32.6 8.15625 1/22/2011 769,991 1,588,423
Anthony L. Hines.............. 50,000 21.7 7.1875 1/08/2011 561,765 1,107,386
Edward A. Porter.............. 0 -- -- -- -- --
Ralph E. Fifield.............. 0 -- -- -- -- --
</Table>
- ------------------------
(1) The right to exercise these options expires no later than the tenth
anniversary of the date on which they were granted. These options vest at
the rate of 20% per annum, beginning on the first anniversary of the grant.
(2) The amounts of hypothetical potential appreciation shown in these columns
reflect required calculations at annual appreciation rates of 5% and 10% set
by the SEC and, therefore, are not intended to represent either historical
appreciation or anticipated future appreciation in the price of Common
Stock.
The following table contains information covering the exercise of options by
the executives named in the Summary Compensation Table during the fiscal year
ended December 31, 2001 and unexercised options held as of the end of the fiscal
year ended December 31, 2001.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED DECEMBER 31, 2001
AND FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 2001 DECEMBER 31, 2001 ($)(1)
NAME EXERCISE (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ------------ ------------ --------------------------- ---------------------------
Don DeFosset.............. 0 0 100,000/400,000 384,125/1,536,500
William F. Ohrt........... 0 0 0/75,000 0/236,531
Anthony L. Hines.......... 0 0 0/50,000 0/206,125
Edward A. Porter.......... 0 0 125,000/45,000 127,138/158,013
Ralph E. Fifield.......... 0 0 133,666/51,834 59,061/163,975
</Table>
- ------------------------
(1) Represents the fair market value as of December 31, 2001, $11.31 per share
(the closing stock price on such date), of the option shares less the
exercise price of the options.
PROFIT SHARING PLANS
Under the Profit Sharing Plan and the Supplemental Profit Sharing Plan,
amounts contributed by the Company for the benefit of the participants become
payable upon termination of employment. In the case of the Supplemental Profit
Sharing Plan, accrued amounts are payable, at the discretion of the Company, in
either a lump sum or in sixty equal monthly installments. While the Profit
Sharing Plan provides
13
<Page>
retirement benefits for all salaried employees of the Company and certain of its
subsidiaries, the Company makes accruals for the Supplemental Profit Sharing
Plan only for such employees as to whom the full contribution under the Profit
Sharing Plan has been limited by the Code. Of the named executives, only
Mr. Porter was eligible to receive contributions under the Profit Sharing Plan.
Messrs. DeFosset, Ohrt and Hines will be eligible to receive contributions
beginning with the plan year ending August 2002.
ANNUAL BENEFITS PAYABLE UNDER PENSION PLANS
The table below sets forth the aggregate estimated annual retirement
benefits payable under the Pension Plan for Salaried Employees of Walter
Industries, Inc., its Subsidiaries, Divisions and Affiliates (the "Pension
Plan") and under the Company's unfunded, non-qualified Supplemental Pension Plan
(the "Supplemental Pension Plan" and, together with the Pension Plan, the
"Pension Plans") for employees of certain subsidiaries of the Company retiring
at normal retirement age (65) on January 1, 2002, and is based on social
security covered compensation in effect on January 1, 2002:
<Table>
<Caption>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$250,000....................................... 52,354 69,806 87,257 104,708 122,160
300,000....................................... 63,417 84,556 105,695 126,833 147,972
350,000....................................... 74,479 99,306 124,132 148,958 173,785
400,000....................................... 85,542 114,056 142,570 171,083 199,597
450,000....................................... 96,604 128,806 161,007 193,208 225,410
500,000....................................... 107,667 143,556 179,445 215,333 251,222
550,000....................................... 118,729 158,306 197,882 237,458 277,035
600,000....................................... 129,792 173,056 216,320 259,583 302,847
650,000....................................... 140,854 187,806 234,757 281,708 328,660
700,000....................................... 151,917 202,556 253,195 303,833 354,472
750,000....................................... 162,979 217,306 271,632 325,958 380,285
800,000....................................... 174,042 232,056 290,070 348,083 406,097
</Table>
Benefit payments under the Pension Plans are based on final average annual
compensation (including overtime pay, incentive compensation and certain other
forms of compensation reportable as wages taxable for Federal income tax
purposes) for the five consecutive years within the final ten years of
employment prior to normal retirement age (65) which produce the highest
average. This is generally equivalent to the sum of the amounts included under
the Salary and Bonus column headings in the Summary Compensation Table above.
Benefit amounts are shown on a straight-line annuity basis, payable annually
upon retirement at age 65. No offsets are made for the value of any social
security benefits earned. The Company makes accruals for the Supplemental
Pension Plan only for such employees as to whom the pension benefits under the
Pension Plan have been limited by the Code. In the case of the Supplemental
Pension Plan, the employer may, in its sole discretion, elect to furnish any and
all benefits due by purchasing annuities, or by other means at its disposal,
including payment of the present value of such benefits.
Of the named executive officers, only Mr. Fifield is a participant in the
Pension Plans, with four credited years of service.
14
<Page>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Boyce, a member of the Compensation Committee, served as Interim Chief
Executive Officer and President of the Company from August 3, 2000 to
November 2, 2000.
EMPLOYMENT, SEVERANCE AND CHANGE-OF-CONTROL ARRANGEMENTS
The Company has employment agreements with Messrs. DeFosset, Porter, Ohrt
and Hines. Under Mr. DeFosset's agreement dated November 4, 2000, his base
salary upon commencement of his employment was $650,000 per annum and his target
bonus level is 100% of base salary. Mr. DeFosset's agreement also provides that
if he is terminated, other than for cause (as defined in the agreement), he is
entitled to (a) guaranteed continuation of base salary for 24 months, (b) a pro
rata bonus for the portion of the year actually worked and (c) 12 months of
additional bonus computed in accordance with the plan terms in effect at the
date of termination.
Under Mr. Porter's agreement dated August 23, 2000, Mr. Porter receives a
base salary of $250,000 per annum and a target bonus of 70% of base salary.
Mr. Porter's agreement also provides that in the event of involuntary
termination, other than for cause (as defined in the agreement), he is entitled
to (a) 18 months of continuing salary and bonus at the rate in effect at the
time of termination, (b) 18 months of continuing benefits and (c) three years
from date of termination to exercise all vested stock options or awards.
Under Mr. Ohrt's agreement dated December 28, 2000, Mr. Ohrt receives a base
salary of $290,000 per annum and a target bonus level of 65% of base salary.
Mr. Ohrt's agreement also provides that in the event of involuntary termination,
other than for cause (as defined in the agreement), he is entitled to
(a) 18 months of salary continuance, including base salary and target bonus at
the applicable rate in effect at the time of termination, and (b) 18 months of
continuing benefits.
Under Mr. Hines' agreement dated December 28, 2000, Mr. Hines receives a
base salary of $290,000 per annum and a target bonus of 60% of base salary.
Mr. Hines' agreement also provides that in the event of involuntary termination,
other than for cause (as defined in the agreement), he is entitled to
(a) 12 months of salary continuance, including base salary and target bonus at
the applicable rate in effect at the time of termination, and (b) 12 months of
continuing benefits.
15
<Page>
PERFORMANCE GRAPH
The following line graph compares the Company's cumulative stock market
performance with the Russell 2000 Stock Index ("Russell 2000") and the Dow Jones
Industrial-Diversified Index ("Dow Jones Industrial-Diversified").
Total return values were calculated based on cumulative total return
assuming (i) the investment of $100 in the Company's Common Stock, the Russell
2000 and the Dow Jones Industrial-Diversified on June 1, 1996 and
(ii) reinvestment of all dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG WALTER INDUSTRIES, INC., RUSSELL 2000 AND DOW JONES INDUSTRIAL-DIVERSIFIED
[PERFORMANCE GRAPH]
INDEXED RETURNS
YEARS ENDING
<Table>
<Caption>
BASE
PERIOD
COMPANY/INDEX MAY 96 MAY 97 MAY 98 MAY 99 MAY 00 DEC 00 DEC 01
- ------------- -------- -------- -------- -------- -------- -------- --------
WALTER INDUSTRIES, INC............................... 100 110.68 148.54 101.94 84.74 59.18 90.37
RUSSELL 2000......................................... 100 106.97 129.69 126.21 138.72 141.94 145.47
DOW JONES INDUSTRIAL-DIVERSIFIED..................... 100 126.87 161.30 213.37 275.44 243.96 239.43
</Table>
16
<Page>
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") consists entirely
of non-employee directors and is responsible for reviewing and approving
executive compensation philosophy and policies, as well as the application of
such policies to the compensation of the Company's Chief Executive Officer and
other executive officers. The Committee is also responsible for the
administration of and awards under the Amended 1995 Long-Term Incentive Stock
Plan of Walter Industries, Inc. (the "1995 Stock Plan") and will be responsible
for the administration of the 2002 Long-Term Incentive Award Plan (the "2002
Incentive Plan") upon its approval by stockholders.
GENERAL COMPENSATION POLICY
The purpose of the Company's executive compensation program is to
(i) attract, motivate and retain qualified key executives who are responsible
for the success of the Company as a whole, (ii) provide incentives to management
to increase stockholder value, (iii) increase the overall performance of the
Company and (iv) increase the performance of individual executives.
PRINCIPAL COMPENSATION ELEMENTS
The principal elements of the Company's executive compensation for the year
ended December 31, 2001 were base pay, short-term cash incentive compensation
and stock-based incentives. To determine guidelines for each of these elements
of compensation, the Company has, for many years, maintained specific salary
grade levels and corresponding pay ranges for every salaried position in the
Company. Such salary ranges are periodically benchmarked against external salary
survey data, including comparable compensation data for numerous diversified
manufacturing and residential construction companies. The Committee believes
that such surveys provide a reliable standard for measuring the Company's
compensation practices. As part of this benchmarking process, the Company
reviews and evaluates its executive pay structure with outside compensation
consultants to confirm the validity of the executive salary ranges and to
conform such structure with competitive market levels for several key positions,
including the Chief Executive Officer.
BASE SALARY
The Committee annually reviews and approves the base salary of each
executive officer. In determining salary adjustments, the Committee considers
the responsibilities associated with the position, individual contribution and
performance and applicable external salary survey data.
EXECUTIVE BONUSES
The Company's executive officers are eligible for annual cash bonuses under
the Company's Executive Incentive Plan (the "Incentive Plan"). The Incentive
Plan utilizes targets based on objective annual financial and individual goals
to determine bonus funding pools for key corporate and subsidiary employees. The
financial goals account for 75% of an individual's potential incentive award.
Each plan participant also has specific individual goals which account for 25%
of the potential incentive award. The maximum any participant can receive is an
amount equal to 200% of the participant's salary. These individual and financial
goals are established at the beginning of the plan year. Incentive awards paid
to employees of the Company's operating subsidiaries are based on the
performance of the respective subsidiaries and the performance of the Company as
a whole, and incentive awards paid to corporate employees are based on the
performance of the Company as a whole. Financial goals for corporate officers
are based on the net income of the Company and its return on net assets
("RONA"). Financial targets for subsidiary presidents are based on operating
income and RONA of their respective subsidiaries, as well as the Company's net
income.
17
<Page>
Mr. DeFosset received an award under the Incentive Plan reflecting his
individual performance as rated by the Board and the Company's financial
performance which exceeded the predetermined targets.
STOCK-BASED COMPENSATION
The Committee believes that equity ownership by management is beneficial in
aligning the interests of management and the Company's stockholders for the
purpose of enhancing stockholder value. To this end, in July 1995 the Company
adopted the 1995 Stock Plan and in September 1997 amended the 1995 Stock Plan to
provide for additional shares of Common Stock. Substantially all of the shares
authorized by the 1995 Stock Plan have been awarded. Consequently, the Company
is proposing the adoption of the 2002 Incentive Plan pursuant to which three
million shares of Common Stock would be subject to future grants.
One of the purposes of the 1995 Stock Plan and the 2002 Incentive Plan is to
provide stock based awards as components of executive compensation to assure
external competitiveness of total compensation, encourage equity ownership by
key executives, motivate executives to improve long-term stock performance and
align executives' interests with the enhancement of stockholder value.
Under both the 1995 Stock Plan and 2002 Incentive Plan (upon its adoption),
grants of awards are made periodically by the Committee based on recommendations
of the Chief Executive Officer (with the exception of grants to the Chief
Executive Officer) and the advice of the Committee's outside consultant, taking
into consideration the respective responsibilities of each position, external
stock-based compensation survey data, and the strategic and operational goals
and performance of each participant. Awards to the Chief Executive Officer are
determined separately by the Committee and are based upon, among other things,
the Committee's perception of expected future contributions by the Chief
Executive Officer to the Company's long-term performance.
The exercise prices for all options granted during the year ended
December 31, 2001 were at the then market value of the Common Stock based on an
average of the high and low prices on the date of the grant, or a price higher
than market value. The exercise price of awards granted, the life of such
awards, vesting of awards and other terms and conditions of awards granted under
the 1995 Stock Plan and the 2002 Incentive Plan are determined by the Committee,
in its discretion. Options must expire not more than ten years from their date
of grant, subject to certain conditions and restrictions as required by law
and/or as set forth in the 2002 Incentive Plan.
COMPLIANCE WITH CODE SECTION 162(M)
Section 162(m) of the Code limits the tax deductibility by a company of
compensation in excess of $1 million paid to any of its five most highly
compensated executive officers. However, performance-based compensation that has
been approved by stockholders is excluded from the $1 million limit if, among
other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" as defined in
Section 162(m) of the Code. All of the members of the Committee qualify as
"outside directors." The Committee intends to maximize the extent of tax
deductibility of executive compensation under the provisions of Section 162(m)
of the Code so long as doing so is compatible with its determinations as to the
most appropriate methods and approaches for the design and delivery of
compensation. In September 1997, the stockholders approved the Incentive Plan
which is intended to ensure that amounts paid under such plan are deductible for
federal income tax purposes.
COMPENSATION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Mr. DeFosset joined the Company as President and Chief Executive Officer on
November 2, 2000. The Board, after due consideration, increased Mr. DeFosset's
base compensation to $700,000 per annum effective November 1, 2001. In setting
Mr. DeFosset's compensation the Board considered factors it deemed appropriate.
These included Mr. DeFosset's level of responsibility, his contribution to the
18
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Company, and pay practices in effect for chief executive officers generally, as
well as overall performance of the Company. Effective March 1, 2002,
Mr. DeFosset was promoted to Chairman of the Board. While serving as
non-executive Chairman of the Board, Mr. Boyce received $237,500 during 2001
without any additional compensation for attendance at Board or Committee
meetings. Subsequent to March 1, 2002, Mr. Boyce will receive only the same fees
as other directors.
SUMMARY
The Committee believes that the mix of market-based salaries, significant
variable cash incentives for short-term performance and long-term incentives in
the form of cash and stock-based awards which provide the potential for equity
ownership in the Company represents a balance that will enable the Company to
attract and retain key executive talent necessary for long-term growth. The
Committee further believes that this program strikes an appropriate balance
between the interests of stockholders and needs of the Company in operating its
businesses.
COMPENSATION COMMITTEE
James L. Johnson, Chairman
Perry Golkin
Wayne W. Robinson
Neil A. Springer
Donald N. Boyce
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The Audit Committee reports as follows with respect to the audit of the
Company's audited financial statements for the fiscal year ended December 31,
2001:
Management of the Company is responsible for the Company's internal controls
and the financial reporting process. The Company's independent auditor is
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and for issuing a report thereon. The Audit Committee's responsibility is to
monitor and oversee the processes.
The Audit Committee has met and held discussions with management and the
Company's independent auditor. Management has represented to the Audit Committee
that the Company's consolidated financial statements were prepared in accordance
with generally accepted accounting principles and the Audit Committee has
reviewed and discussed the audited consolidated financial statements with
management and the independent auditor. The Audit Committee also discussed with
the independent auditor matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent auditor also provided to the Audit Committee the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussion with Audit Committees), and the Audit
Committee discussed with the independent auditor that firm's independence from
the Company. Based on the Audit Committee's discussions with management and the
independent auditor of the Company's consolidated audited financial statements
and the Audit Committee's review of the representations of management and the
report of the independent auditor to the Audit Committee, the Audit Committee
recommended to the Board that the audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 filed with the SEC.
This report by the Audit Committee shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or the Exchange Act, and
shall not otherwise be deemed filed under such Acts.
AUDIT COMMITTEE
Neil A. Springer, Chairman
Robert F. Amter
James L. Johnson
20
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and directors,
and persons who beneficially own more than ten percent (10%) of the Company's
Common Stock, to file initial reports of ownership and reports of changes in
ownership with the SEC. Executive officers, directors and greater than ten
percent (10%) beneficial owners are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with during the fiscal year
ended December 31, 2001. The Company has not been furnished with any such
reports from any greater than ten percent (10%) beneficial owners.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following tables furnish information, as of March 15, 2002, as to:
(i) shares of Common Stock beneficially owned by each current director, each
nominee for director and each executive officer of the Company named in the
Summary Compensation Table herein; (ii) shares of Common Stock beneficially
owned by all current directors and executive officers of the Company as a group;
and (iii) the name and address of each person known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Common Stock. Except as indicated below, to the knowledge of the Company, each
person indicated in the following tables has sole voting and investment power as
to the shares shown.
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<Table>
<Caption>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
- ------------------------ ------------------ -----------------
Robert F. Amter............................................. 0 *
Director
Donald N. Boyce............................................. 95,000(1) *
Director
Howard L. Clark, Jr......................................... (2) (2)
Director
Don DeFosset................................................ 128,581(3) *
Chairman of the Board, President and Chief Executive Officer
Perry Golkin................................................ 13,958,589(4)(5) 31.6(4)(5)
Director
James L. Johnson............................................ 10,000 *
Director
Scott C. Nuttall............................................ 0 *
Director
Bernard G. Rethore.......................................... 2,000 *
Director
Wayne W. Robinson........................................... 0 *
Director
</Table>
21
<Page>
<Table>
Neil A. Springer............................................ 500 *
Director
Michael T. Tokarz........................................... 13,958,589(4)(5) 31.6(4)(5)
Director
William F. Ohrt............................................. 32,956(6) *
Executive Vice President and Chief Financial Officer
Anthony L. Hines............................................ 24,635(7) *
Senior Vice President--Operations
Edward A. Porter............................................ 140,896(8) *
Senior Vice President, General Counsel and Secretary
Ralph E. Fifield............................................ 133,666(9) *
Executive Vice President of the Company and President of
United States Pipe and Foundry Company, Inc., a subsidiary
of the Company
All current directors and executive officers as a group (21 14,765,776(5)(10) 32.9
individuals)..............................................
</Table>
- ------------------------
* LESS THAN 1% OF OUTSTANDING COMMON STOCK
(1) Includes 10,000 shares owned by Mr. Boyce's wife and options to purchase
75,000 shares exercisable currently or within 60 days of March 15, 2002.
(2) Mr. Clark is Vice Chairman of Lehman Brothers, Inc. See "Ownership of
Principal Stockholders" below for information concerning ownership of shares
by Lehman Brothers, Inc.'s affiliate, Lehman Brothers Holdings, Inc.
(3) Includes options to purchase 100,000 shares exercisable currently or within
60 days of March 15, 2002.
(4) Messrs. Tokarz and Golkin are general partners of KKR Associates, L.P.,
which is the sole general partner of each of JWC Associates, L.P., JWC
Associates II, L.P. and KKR Partners II, L.P. (the "KKR Investors") and
Channel One Associates, L.P. ("Channel One"), and thus Messrs. Tokarz and
Golkin may be deemed to be beneficial owners of the shares owned by the KKR
Investors and Channel One (see "Ownership of Principal Stockholders" below).
Messrs. Tokarz and Golkin disclaim beneficial ownership of such shares. The
number of shares of Common Stock includes 3,553,380 shares of Common Stock
held in an escrow account established on September 13, 1995 for the benefit
of the KKR Investors pursuant to the Company's Amended Joint Plan of
Reorganization, dated as of December 9, 1994, as modified on March 1, 1995
and confirmed on March 15, 1995 ("Plan of Reorganization"). Each of the KKR
Investors currently has the power to vote a portion of such shares. See
Footnote (5) below and Footnote (1) under "Ownership of Principal
Stockholders" below. For so long as the KKR Investors have the power to
exercise voting rights with respect to such escrowed shares, or if all such
escrowed shares were distributed to the KKR Investors, Messrs. Tokarz and
Golkin may be deemed to be beneficial owners of such 3,553,380 escrowed
shares of Common Stock. Messrs. Tokarz and Golkin disclaim beneficial
ownership of such shares.
(5) Includes 3,553,380 shares of Common Stock held in an escrow account for the
benefit of the KKR Investors, established on September 13, 1995 pursuant to
the Plan of Reorganization. To the extent that certain contingencies
regarding Federal income tax claims of the Company are resolved
satisfactorily, such escrowed shares will be distributed to the KKR
Investors under the Plan of Reorganization. To the extent such matters are
not settled satisfactorily, some or all of the escrowed shares may be
returned to the Company and canceled. Until such matters are finally
determined, the
22
<Page>
KKR Investors will have the power to exercise voting rights with respect to
such respective escrowed shares of Common Stock. For so long as the KKR
Investors have the power to exercise voting rights with respect to such
escrowed shares, or if all such escrowed shares are distributed to the KKR
Investors, the KKR Investors will be deemed to beneficially own such
escrowed shares of Common Stock.
(6) Includes options to purchase 15,000 shares exercisable currently or within
60 days of March 15, 2002.
(7) Includes options to purchase 10,000 shares exercisable currently or within
60 days of March 15, 2002.
(8) Includes options to purchase 125,000 shares exercisable currently or within
60 days of March 15, 2002.
(9) Includes options to purchase 133,666 shares exercisable currently or within
60 days of March 15, 2002.
(10) Includes 13,958,589 shares of Common Stock owned of record by the KKR
Investors and Channel One, which may be deemed to be beneficially owned by
Messrs. Tokarz and Golkin. See Footnotes (4) and (5) above. Does not include
shares of Common Stock owned by Lehman Brothers Holdings, Inc. See Footnote
(2) above. Also includes 659,865 shares purchasable by all current directors
and executive officers under stock options exercisable currently or within
60 days of March 15, 2002.
23
<Page>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 15, 2002 (except where otherwise
indicated), information as to those holders (other than officers and directors
of the Company), known to the Company to be the beneficial owners of more than
5% of the outstanding shares of the Company's Common Stock. Except as indicated
below, to the knowledge of the Company, each stockholder indicated in the
following table has sole voting and investment power as to the shares shown.
<Table>
<Caption>
PERCENT OF
NUMBER OF COMMON STOCK
NAME AND COMPLETE MAILING ADDRESS SHARES OUTSTANDING
- --------------------------------- ---------- ------------
The KKR Investors(1) ....................................... 13,958,589 31.6
(JWC Associates, L.P., JWC Associates II, L.P.
and KKR Partners II, L.P.) and
Channel One Associates, L.P.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10009
Asbestos Settlement Trust(2) ............................... 5,026,662 11.4
Mellon Bank Center
919 Market Center
8th Floor
Wilmington, DE 19801
Lehman Brothers Holdings, Inc. ............................. 2,849,321 6.4
3 World Financial Center
New York, NY 10285
Samuel R. Shapiro .......................................... 4,959,207 11.2
Shapiro Capital Management Company, Inc.(3)
The Kaleidoscope Fund, L.P.
3060 Peachtree Road, N.W.
Atlanta, GA 30305
</Table>
- ------------------------
(1) The shares of Common Stock are owned of record by the KKR Investors as
follows: 9,309,427 shares are owned of record by JWC Associates, L.P.;
61,687 shares are owned of record by JWC Associates II, L.P.; and 225,675
shares are owned of record by KKR Partners II, L.P., including 3,446,979,
22,841, and 83,560 shares, respectively, held in an escrow account
established on September 13, 1995 pursuant to the Plan of Reorganization. To
the extent that certain contingencies regarding Federal income tax claims of
the Company are resolved satisfactorily, up to 3,553,380 of the escrowed
shares will be distributed to the KKR Investors under the Plan of
Reorganization. To the extent such matters are not settled satisfactorily,
some or all of the escrowed shares may be returned to the Company and
canceled. Until such matters are fully determined, the KKR Investors will
have the power to exercise voting rights with respect to such shares of
Common Stock. For so long as the KKR Investors have the power to exercise
voting rights with respect to all such escrowed shares, or if all such
escrowed shares were distributed to the KKR Investors, the KKR Investors
will beneficially own such 3,553,380 shares of Common Stock. The Company has
been advised that as of March 15, 2002 Channel One owned of record 4,361,800
shares of Common Stock.
KKR Associates, L.P. is the sole general partner of each of the KKR
Investors and Channel One. The general partners of KKR Associates, L.P. are
Henry R. Kravis, George R. Roberts, Robert I. MacDonnell,
Michael W. Michelson, Paul E. Raether, Michael T. Tokarz,
24
<Page>
James H. Greene, Jr., Perry Golkin, Scott M. Stuart and Edward A. Gilhuly,
each of whom disclaims beneficial ownership of such shares. See "Ownership
of Directors and Executive Officers" above.
(2) The Celotex Trust is subject to an agreement with the Company pursuant to
which it is obligated to vote and execute written consents with respect to
the shares of Common Stock held by it in proportion to the votes cast or
consents executed and delivered by all other holders of Common Stock on each
matter voted on by stockholders. Identical restrictions on the voting of
Common Stock by the Celotex Trust are contained in the Company's Amended and
Restated Certificate of Incorporation and the Plan of Reorganization.
According to the Schedule 13D filed with the SEC on February 11, 2002, the
Celotex Trust owns 5,026,662 shares of Common Stock.
(3) According to the Schedule 13G filed by Shapiro Capital Management
Company, Inc., Samuel R. Shapiro and The Kaleidoscope Fund, LP with the SEC
on February 14, 2002 (the "Shapiro 13G"), Mr. Shapiro, advisory clients of
Shapiro Capital Management Company, Inc. and The Kaleidoscope Fund, LP own
an aggregate of 4,959,207 shares of Common Stock. According to the Shapiro
13G, Mr. Shapiro is the president and majority shareholder of Shapiro
Capital Management Company, Inc. and The Kaleidoscope Fund, LP and exercises
dispositive power over such shares.
OTHER BUSINESS
The Board and management do not now intend to bring before the Annual
Meeting any matters other than those disclosed in the Notice of Annual Meeting
of Stockholders, nor do they know of any business which other persons intend to
present at the Annual Meeting. Should any other matter or business requiring a
vote of stockholders arise, the persons named in the enclosed proxy intend to
exercise the authority conferred by the proxy and vote the shares represented
thereby in respect of any such other matter or business in accordance with their
best judgment in the interest of the Company.
25
<Page>
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Stockholder proposals must conform to the Company's by-laws and the
requirements of the SEC. If a stockholder intends to present a proposal at the
2003 Annual Meeting, SEC rules require that the Company receive the proposal by
November 26, 2002, for possible inclusion in the Proxy Statement. If the date of
the 2003 Annual Meeting changes by more than 30 days from April 25, 2003, then
the deadline is a reasonable time before the Company begins to print and mail
its proxy materials for the 2003 Annual Meeting. The Company will determine
whether to include a proposal in the Proxy Statement in accordance with SEC
rules governing the solicitation of proxies.
If a stockholder intends to nominate a candidate for director, the Company's
by-laws require that the Company receive timely notice of the nomination. A
nomination for the 2003 Annual Meeting will be considered timely if it is
received no earlier than January 5, 2003 and no later than January 25, 2003. The
notice of nomination must describe various matters specified in the Company's
by-laws, including the name and address of the stockholder making the
nomination, the number of shares held by the stockholder, each proposed nominee,
each of their occupations and certain other information.
Each notice must be given to the Secretary of the Company, whose address is
4211 W. Boy Scout Blvd., Tampa, Florida 33607. The mailing address of the
Company is P.O. Box 31601, Tampa, Florida 33631.
By Order of the Board
/s/ EDWARD A. PORTER
EDWARD A. PORTER
SECRETARY
WALTER INDUSTRIES, INC.
Tampa, Florida
March 25, 2002
26
<Page>
EXHIBIT A
THE 2002 LONG-TERM INCENTIVE AWARD PLAN
OF
WALTER INDUSTRIES, INC.
Walter Industries, Inc., a Delaware corporation, has adopted the 2002
Long-Term Incentive Award Plan of Walter Industries, Inc., (the "Plan"),
effective February 21, 2002, for the benefit of its eligible employees,
consultants and directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, Employees and
Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and
financial success of the Company.
ARTICLE I.
DEFINITIONS
Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.
1.1. "ADMINISTRATOR" shall mean the entity that conducts the general
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 10.1.
1.2. "AWARD" shall mean an Option, a Restricted Stock award, a Performance
Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment
award or a Stock Appreciation Right which may be awarded or granted under the
Plan (collectively, "Awards").
1.3. "AWARD AGREEMENT" shall mean a written agreement executed by an
authorized officer of the Company and the Holder which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.
1.4. "AWARD LIMIT" shall mean 1,000,000 shares of Common Stock, as adjusted
pursuant to Section 11.3; PROVIDED, HOWEVER, that solely with respect to
Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean
$2,000,000.
1.5. "BOARD" shall mean the Board of Directors of the Company.
1.6. "CHANGE IN CONTROL" shall mean a change in ownership or control of the
Company effected through any of the following transactions:
(a) (i) Any person or related group of persons (other than the Company
or a person that, prior to such transaction, directly or indirectly
controls, is controlled by, or is under common control with, the Company or
any person which as of the date of adoption of this Plan by the Board, has
"beneficial
A-1
<Page>
ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of
securities possessing more than 30% of the total combined voting power of
the Company's outstanding securities) directly or indirectly acquires
beneficial ownership of securities possessing more than 40% of the total
combined voting power of the Company's outstanding securities, or
(ii) Any person or related group of persons (other than the Company or a
person that, prior to such transaction, directly or indirectly controls, is
controlled by, or is under common control with, the Company) who is not, as
of the date of adoption of this Plan by the Board, a beneficial owner of 1%
or more of the total combined voting power of the Company's outstanding
securities, directly or indirectly acquires beneficial ownership of
securities possessing more than 25% of the total combined voting power of
the Company's outstanding securities and is, upon the consummation of such
acquisition, the beneficial owner of the largest percentage of the total
combined voting power of the Company's outstanding securities; or
(b) There is a change in the composition of the Board over a period of
36 consecutive months (or less) such that a majority of the Board members
(rounded up to the nearest whole number) ceases to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period, or (ii) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (i) who were still in office at the time
such election or nomination was approved by the Board; or
(c) The stockholders of the Company approve a merger or consolidation of
the Company with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66 2/3% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; provided,
however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 25% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control; or
(d) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale, lease or other
disposition by the Company of all or substantially all of the Company's
assets.
1.7. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.8. "COMMITTEE" shall mean the Compensation Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in
Section 10.1.
1.9. "COMMON STOCK" shall mean the common stock of the Company, par value
$.01 per share.
1.10. "COMPANY" shall mean Walter Industries, Inc., a Delaware corporation.
1.11. "CONSULTANT" shall mean any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the Company;
(b) The services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) The consultant or adviser is a natural person who has contracted
directly with the Company to render such services.
1.12. "DEFERRED STOCK" shall mean Common Stock awarded under Article VIII of
the Plan.
1.13. "DIRECTOR" shall mean a member of the Board.
A-2
<Page>
1.14. "DIVIDEND EQUIVALENT" shall mean a right to receive the equivalent
value (in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VIII of the Plan.
1.15. "DRO" shall mean a domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
1.16. "EMPLOYEE" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
1.17. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1.18. "FAIR MARKET VALUE" of a share of Common Stock as of a given date
shall be (a) the mean of the high and low sales prices (rounded to the nearest
$0.01) of a share of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any (or as reported on any composite index
which includes such principal exchange), on the trading day immediately
preceding such date, or if shares were not traded on the trading day immediately
preceding such date, then on the next preceding date on which a trade occurred,
or (b) if Common Stock is not traded on an exchange but is quoted on Nasdaq or a
successor quotation system, the mean between the closing representative bid and
asked prices for the Common Stock on the trading day immediately preceding such
date as reported by Nasdaq or such successor quotation system, or (c) if Common
Stock is not publicly traded on an exchange and not quoted on Nasdaq or a
successor quotation system, the Fair Market Value of a share of Common Stock as
established by the Administrator acting in good faith.
1.19. "HOLDER" shall mean a person who has been granted or awarded an Award.
1.20. "INCENTIVE STOCK OPTION" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.
1.21. "INDEPENDENT DIRECTOR" shall mean a member of the Board who is not an
Employee of the Company.
1.22. "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
designated as an Incentive Stock Option by the Administrator.
1.23. "OPTION" shall mean a stock option granted under Article IV of the
Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; PROVIDED, HOWEVER, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.
1.24. "PERFORMANCE AWARD" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.
1.25. "PERFORMANCE CRITERIA" shall mean any objective business criterion
with respect to the Company, any Subsidiary or any division or operating unit,
as determined by the Administrator. Such performance criteria may include,
without limitation, one or more of: (a) net income, (b) pre-tax income,
(c) operating income, (d) cash flow, (e) earnings per share, (f) return on
equity, (g) return on invested capital or assets, (h) cost reductions or
savings, (i) funds from operations, (j) appreciation in the fair market value of
Common Stock, (k) earnings before any one or more of the following items:
interest, taxes, depreciation or amortization and (l) consummations of
acquisitions or sales of certain of the Company's assets, subsidiaries or other
businesses. With respect to Awards intended to qualify as "performance-based
compensation" under Section 162(m)(4)(C) of the Code, "Performance Criteria"
shall be limited to the criteria set forth in Section 1.25(a)-(l) above, and
such criteria shall be applied only to the extent permissible with respect to
such qualification under Section 162(m)(4)(C).
1.26. "PLAN" shall mean the 2002 Long-Term Incentive Award Plan of Walter
Industries, Inc.
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1.27. "RESTRICTED STOCK" shall mean Common Stock awarded under Article VII
of the Plan.
1.28. "RULE 16B-3" shall mean Rule 16b-3 promulgated under the Exchange Act,
as such Rule may be amended from time to time.
1.29. "SECTION 162(M) PARTICIPANT" shall mean any Employee whose
compensation for a given fiscal year may be subject to the limit on deductible
compensation imposed by Section 162(m) of the Code.
1.30. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
1.31. "STOCK APPRECIATION RIGHT" shall mean a stock appreciation right
granted under Article IX of the Plan.
1.32. "STOCK PAYMENT" shall mean (a) a payment in the form of shares of
Common Stock, or (b) an option or other right to purchase shares of Common
Stock, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including without limitation, salary, bonuses
and commissions, that would otherwise become payable to an Employee or
Consultant in cash, awarded under Article VIII of the Plan.
1.33. "SUBSIDIARY" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
1.34. "SUBSTITUTE AWARD" shall mean an Option granted under this Plan upon
the assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock; PROVIDED, HOWEVER, that in no event shall the term "Substitute Award" be
construed to refer to an award made in connection with the cancellation and
repricing of an Option.
1.35. "TERMINATION OF CONSULTANCY" shall mean the time when the engagement
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its discretion, shall determine the effect of
all matters and questions relating to Termination of Consultancy, including, but
not by way of limitation, the question of whether a Termination of Consultancy
resulted from a discharge for good cause, and all questions of whether a
particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.36. "TERMINATION OF DIRECTORSHIP" shall mean the time when a Holder who is
an Independent Director ceases to be a Director for any reason, including, but
not by way of limitation, a termination by resignation, failure to be elected,
death or retirement. The Administrator, in its discretion, shall determine the
effect of all matters and questions relating to Termination of Directorship with
respect to Independent Directors.
1.37. "TERMINATION OF EMPLOYMENT" shall mean the time when the
employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and
(c) at the discretion of the Administrator, terminations which are followed by
the simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in
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its discretion, shall determine the effect of all matters and questions relating
to Termination of Employment, including, but not by way of limitation, the
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; PROVIDED, HOWEVER, that, with respect
to Incentive Stock Options, unless otherwise determined by the Administrator in
its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Awards shall be Common Stock. Subject
to adjustment as provided in Section 11.3, the aggregate number of such
shares which may be issued upon exercise of such Options or rights or upon
any such Awards under the Plan shall not exceed 3,000,000. The shares of
Common Stock issuable upon exercise of such Options or rights or upon any
such awards may be either previously authorized but unissued shares or
treasury shares.
(b) The maximum number of shares which may be subject to Awards granted
under the Plan to any individual in any calendar year shall not exceed the
Award Limit. To the extent required by Section 162(m) of the Code, shares
subject to Options which are canceled continue to be counted against the
Award Limit.
2.2. ADD-BACK OF OPTIONS AND OTHER RIGHTS; CERTAIN ACQUIRED ENTITIES.
(a) If any Option, or other right to acquire shares of Common Stock
under any other Award under the Plan, expires or is canceled without having
been fully exercised, or is exercised in whole or in part for cash as
permitted by the Plan, the number of shares subject to such Option or other
right but as to which such Option or other right was not exercised prior to
its expiration, cancellation or exercise may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Furthermore,
any shares subject to Awards which are adjusted pursuant to Section 11.3 and
become exercisable with respect to shares of stock of another corporation
shall be considered cancelled and may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. Shares of Common Stock
which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price
thereof or tax withholding thereon, may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. If any shares
of Restricted Stock are surrendered by the Holder or repurchased by the
Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be
optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares
of Common Stock may again be optioned, granted or awarded if such action
would cause an Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Code.
(b) Subject to Sections 3.2(d) and 3.3, any shares of Common Stock that
are issued by the Company, and any Awards that are granted as a result of
the assumption of, or in substitution for, outstanding awards previously
granted by an acquired entity shall not be counted against the limitations
set forth in Section 2.1.
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ARTICLE III.
GRANTING OF AWARDS
3.1. AWARD AGREEMENT. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
3.2. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) The Committee, in its discretion, may determine whether an Award is
to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the Committee
may grant any Award to a Section 162(m) Participant, including Restricted
Stock the restrictions with respect to which lapse upon the attainment of
performance goals which are related to one or more of the Performance
Criteria, and any performance or incentive award described in Article VIII
that vests or becomes exercisable or payable upon the attainment of
performance goals which are related to one or more of the Performance
Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to one
or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall,
in writing, (i) designate one or more Section 162(m) Participants,
(ii) select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service, and
(iv) specify the relationship between Performance Criteria and the
performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service, the
Committee shall certify in writing whether the applicable performance
targets have been achieved for such fiscal year or other designated fiscal
period or period of service. In determining the amount earned by a
Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to
take into account additional factors that the Committee may deem relevant to
the assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan, any
Award which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any amendment
to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and the Plan
shall be deemed amended to the extent necessary to conform to such
requirements.
3.3. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS. Notwithstanding any other
provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that
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are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule.
3.4. CONSIDERATION. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Award Agreement or by action of the Administrator
following grant of the Award) after the Award is granted (or, in the case of an
Independent Director, until the next annual meeting of stockholders of the
Company).
3.5. AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. ELIGIBILITY. Any Employee or Consultant selected by the Administrator
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 4.5.
4.2. DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
4.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.
4.4. GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS.
(a) The Administrator shall from time to time, in its discretion, and
subject to applicable limitations of the Plan:
(i) Select from among the Employees or Consultants (including
Employees or Consultants who have previously received Awards under the
Plan) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such Options are to
be Incentive Stock Options or Non-Qualified Stock Options and whether
such Options are to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with the Plan; PROVIDED, HOWEVER, that the terms and conditions of
Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
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(b) Upon the selection of an Employee or Consultant to be granted an
Option, the Administrator shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option
as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be modified by
the Administrator, with the consent of the Holder, to disqualify such Option
from treatment as an "incentive stock option" under Section 422 of the Code.
4.5. GRANTS OF OPTIONS TO INDEPENDENT DIRECTORS.
(a) AUTOMATIC GRANTS. Each person who is an Independent Director as of
the effective date hereof automatically shall be granted (i) an Option to
purchase 4,000 shares of Common Stock (subject to adjustment as provided in
Section 11.3) on such effective date and (ii) commencing in the first
calendar year which begins after the effective date hereof, an Option to
purchase 4,000 shares of Common Stock (subject to adjustment as provided in
Section 11.3) on the date of each annual meeting of the Company's
stockholders at which the Independent Director is reelected to the Board.
During the term of the Plan, a person who is initially elected to the Board
after the effective date hereof and who is an Independent Director at the
time of such initial election automatically shall be granted (i) an Option
to purchase 4,000 shares of Common Stock (subject to adjustment as provided
in Section 11.3) on the date of such initial election and (ii) commencing in
the first calendar year which begins after the date of such election, an
Option to purchase 4,000 shares of Common Stock (subject to adjustment as
provided in Section 11.3) on the date of each annual meeting of the
Company's stockholders at which the Independent Director is reelected to the
Board. Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not
receive an Option grant pursuant to this Section 4.5(a).
(b) DISCRETIONARY GRANTS. In addition to the grants set forth in
Section 4.5(a) hereof, the Administrator may from time to time, in its
discretion, and subject to applicable limitations of the Plan:
(i) Select from among the Independent Directors (including
Independent Directors who have previously received Options under the
Plan) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Independent Directors;
(iii) Subject to the provisions of Article 5, determine the terms and
conditions of such Options, consistent with the Plan.
The foregoing Option grants authorized by this Section 4.5 are subject to
stockholder approval of the Plan.
4.6. OPTIONS IN LIEU OF CASH COMPENSATION. Options may be granted under the
Plan to Employees and Consultants in lieu of cash bonuses which would otherwise
be payable to such Employees and Consultants and to Independent Directors in
lieu of directors' fees which would otherwise be payable to such Independent
Directors, pursuant to such policies which may be adopted by the Administrator
from time to time.
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ARTICLE V.
TERMS OF OPTIONS
5.1. OPTION PRICE. The price per share of the shares subject to each Option
granted to Employees and Consultants shall be set by the Administrator;
PROVIDED, HOWEVER, that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and:
(a) In the case of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price
shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date the Option is granted;
(b) In the case of Incentive Stock Options such price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code);
(c) In the case of Incentive Stock Options granted to an individual then
owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or
any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code), such price shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the Option is granted
(or the date the Option is modified, extended or renewed for purposes of
Section 424(h) of the Code).
5.2. OPTION TERM. The term of an Option granted to an Employee or Consultant
shall be set by the Administrator in its discretion; PROVIDED, HOWEVER, that, in
the case of Incentive Stock Options, the term shall not be more than 10 years
from the date the Incentive Stock Option is granted, or five years from the date
the Incentive Stock Option is granted if the Incentive Stock Option is granted
to an individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Administrator may in its discretion (a) extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Holder, or amend any other term or condition
of such Option relating to such a termination or (b) grant an Option for a term
of less than 10 years and subsequently extend the term of such Option to
10 years without consideration.
5.3. OPTION VESTING.
(a) The period during which the right to exercise, in whole or in part,
an Option granted to an Employee or a Consultant vests in the Holder shall
be set by the Administrator and the Administrator may determine that an
Option may not be exercised in whole or in part for a specified period after
it is granted. At any time after grant of an Option, the Administrator may,
in its discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option granted to an Employee or
Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant which
is unexercisable at Termination of Employment or Termination of Consultancy,
as applicable, shall thereafter become exercisable, except as may be
otherwise provided by the Administrator either in the Award Agreement or by
action of the Administrator following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code)
are exercisable for the first time by a Holder during any calendar year
(under the Plan and all other incentive stock option plans of the Company
and any parent or subsidiary corporation,
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within the meaning of Section 422 of the Code) of the Company, exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options to
the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 5.3(c), the
Fair Market Value of stock shall be determined as of the time the Option
with respect to such stock is granted.
5.4. TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The price per share
of the shares subject to each Option granted to an Independent Director shall
equal 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted. Options granted to Independent Directors pursuant to
Section 4.5(a) hereof shall become exercisable in cumulative annual installments
of one-third each on each of the first, second and third anniversaries of the
date of Option grant and, subject to Section 6.6, the term of each Option
granted to an Independent Director shall be a maximum of 10 years from the date
the Option is granted, except that any Option granted to an Independent Director
shall by its terms become immediately exercisable in full upon the retirement of
the Independent Director at age 65 with 5 years of service as an Independent
Director. Unless otherwise provided for by the Administrator, no portion of an
Option which is unexercisable at Termination of Directorship shall thereafter
become exercisable.
5.5. SUBSTITUTE AWARDS. Notwithstanding the foregoing provisions of this
Article V to the contrary, in the case of an Option that is a Substitute Award,
the price per share of the shares subject to such Option may be less than the
Fair Market Value per share on the date of grant, PROVIDED, that the excess of:
(a) The aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over
(b) The aggregate exercise price thereof;
does not exceed the excess of:
(c) The aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Administrator) of the shares of the
predecessor entity that were subject to the grant assumed or substituted for
by the Company; over
(d) The aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. PARTIAL EXERCISE. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
6.2. MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his or her office:
(a) A written notice complying with the applicable rules established by
the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Administrator may, in its discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without
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limitation, placing legends on share certificates and issuing stop-transfer
notices to agents and registrars;
(c) Any form or forms of identification requested by the Administrator
and, in the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised. However,
the Administrator may, in its discretion, (i) allow a delay in payment up to
30 days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock which have been owned by the Holder for at least six months,
duly endorsed for transfer to the Company with a Fair Market Value on the
date of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof; (iii) allow payment, in whole or in part, through
the surrender of shares of Common Stock then issuable upon exercise of the
Option having a Fair Market Value on the date of Option exercise equal to
the aggregate exercise price of the Option or exercised portion thereof;
(iv) allow payment, in whole or in part, through the delivery of property of
any kind which constitutes good and valuable consideration; (v) allow
payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such
terms as may be prescribed by the Administrator; (vi) allow payment, in
whole or in part, through the delivery of a notice that the Holder has
placed a market sell order with a broker with respect to shares of Common
Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale to
the Company in satisfaction of the Option exercise price, PROVIDED that
payment of such proceeds is then made to the Company upon settlement of such
sale; or (vii) allow payment through any combination of the consideration
provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In
the case of a promissory note, the Administrator may also prescribe the form
of such note and the security to be given for such note. The Option may not
be exercised, however, by delivery of a promissory note or by a loan from
the Company when or where such loan or other extension of credit is
prohibited by law.
6.3. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the discretion
of the Administrator may be in the form of consideration used by the Holder
to pay for such shares under Section 6.2(d).
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6.4. RIGHTS AS STOCKHOLDERS. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. OWNERSHIP AND TRANSFER RESTRICTIONS. The Administrator, in its
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Award Agreement and
may be referred to on the certificates evidencing such shares. The Holder shall
give the Company prompt notice of any disposition of shares of Common Stock
acquired by exercise of an Incentive Stock Option within (a) two years from the
date of granting (including the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code) such Option to such Holder, or
(b) one year after the transfer of such shares to such Holder.
6.6. ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Holders may be required
to comply with any timing or other restrictions with respect to the settlement
or exercise of an Option, including a window-period limitation, as may be
imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. ELIGIBILITY. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee or Consultant who the Administrator determines should
receive such an Award.
7.2. AWARD OF RESTRICTED STOCK.
(a) The Administrator may from time to time, in its discretion:
(i) Select from among the Employees or Consultants (including
Employees or Consultants who have previously received other Awards under
the Plan) such of them as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the Plan.
(b) The Administrator shall establish the purchase price, if any, and
form of payment for Restricted Stock; PROVIDED, HOWEVER, that such purchase
price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all cases,
legal consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of an Employee or Consultant to be awarded
Restricted Stock, the Administrator shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
7.3. RIGHTS AS STOCKHOLDERS. Subject to Section 7.4, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided by the Administrator, all the
rights of a stockholder with respect to said shares, subject to the restrictions
in his or her Award Agreement, including the right to receive all dividends and
other distributions paid or made with respect to the shares; PROVIDED, HOWEVER,
that in the discretion of the Administrator, any extraordinary distributions
with respect to the Common Stock shall be subject to the restrictions set forth
in Section 7.10.
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7.4. RESTRICTION. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Administrator shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, except with respect to shares of Restricted Stock granted to
Section 162(m) Participants, by action taken after the Restricted Stock is
issued, the Administrator may, on such terms and conditions as it may determine
to be appropriate, remove any or all of the restrictions imposed by the terms of
the Award Agreement. Restricted Stock may not be sold or encumbered until all
restrictions are terminated or expire. If no consideration was paid by the
Holder upon issuance, a Holder's rights in unvested Restricted Stock shall
lapse, and such Restricted Stock shall be surrendered to the Company without
consideration, upon Termination of Employment or, if applicable, upon
Termination of Consultancy with the Company; PROVIDED, HOWEVER, that the
Administrator in its discretion may provide that such rights shall not lapse in
the event of a Termination of Employment following a "change of ownership or
control" (within the meaning of Treasury Regulation
Section 7.162-27(e)(2)(v) or any successor regulation thereto) of the Company or
because of the Holder's death or disability; PROVIDED, FURTHER, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants,
the Administrator in its discretion may provide that no such lapse or surrender
shall occur in the event of a Termination of Employment, or a Termination of
Consultancy, without cause or following any Change in Control of the Company or
because of the Holder's retirement, or otherwise.
7.5. REPURCHASE OF RESTRICTED STOCK. The Administrator shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement immediately upon a Termination of Employment or, if
applicable, upon a Termination of Consultancy between the Holder and the
Company, at a cash price per share equal to the price paid by the Holder for
such Restricted Stock; PROVIDED, HOWEVER, that the Administrator in its
discretion may provide that no such right of repurchase shall exist in the event
of a Termination of Employment following a "change of ownership or control"
(within the meaning of Treasury Regulation Section 7.162-27(e)(2)(v) or any
successor regulation thereto) of the Company or because of the Holder's death or
disability; PROVIDED, FURTHER, that, except with respect to shares of Restricted
Stock granted to Section 162(m) Participants, the Administrator in its
discretion may provide that no such right of repurchase shall exist in the event
of a Termination of Employment or a Termination of Consultancy without cause or
following any Change in Control of the Company or because of the Holder's
retirement, or otherwise.
7.6. ESCROW. The Secretary of the Company or such other escrow holder as the
Administrator may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
7.7. LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Administrator shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.
7.8. SECTION 83(B) ELECTION. If a Holder makes an election under
Section 83(b) of the Code, or any successor section thereto, to be taxed with
respect to the Restricted Stock as of the date of transfer of the Restricted
Stock rather than as of the date or dates upon which the Holder would otherwise
be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service.
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ARTICLE VIII.
DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. ELIGIBILITY. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may
be granted to any Employee or any Consultant whom the Administrator determines
should receive such an Award.
8.2. PERFORMANCE AWARDS.
(a) Any Employee or Consultant selected by the Administrator may be
granted one or more Performance Awards. The value of such Performance Awards
may be linked to any one or more of the Performance Criteria or other
specific performance criteria determined appropriate by the Administrator,
in each case on a specified date or dates or over any period or periods
determined by the Administrator. In making such determinations, the
Administrator shall consider (among such other factors as it deems relevant
in light of the specific type of award) the contributions, responsibilities
and other compensation of the particular Employee or Consultant.
(b) Without limiting Section 8.2(a), the Administrator may grant
Performance Awards to any 162(m) Participant in the form of a cash bonus
payable upon the attainment of objective performance goals which are
established by the Administrator and relate to one or more of the
Performance Criteria, in each case on a specified date or dates or over any
period or periods determined by the Administrator. Any such bonuses paid to
Section 162(m) Participants shall be based upon objectively determinable
bonus formulas established in accordance with the provisions of
Section 9.8. The maximum amount of any Performance Award payable to a
Section 162(m) Participant under this Section 8.2(b) shall not exceed the
Award Limit with respect to any calendar year of the Company.
8.3. DIVIDEND EQUIVALENTS.
(a) Any Employee or Consultant selected by the Administrator may be
granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period
between the date a Stock Appreciation Right, award of Deferred Stock, or
Performance Award is granted, and the date such Stock Appreciation Right,
award of Deferred Stock, or Performance Award is exercised, vests or
expires, as determined by the Administrator. Such Dividend Equivalents shall
be converted to cash or additional shares of Common Stock by such formula
and at such time and subject to such limitations as may be determined by the
Administrator.
(b) Any Holder of an Option who is an Employee or Consultant selected by
the Administrator may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date an Option is granted, and the date such
Option is exercised, vests or expires, as determined by the Administrator.
Such Dividend Equivalents shall be converted to cash or additional shares of
Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Administrator.
(c) Any Holder of an Option who is an Independent Director selected by
the Administrator may be granted Dividend Equivalents based on the dividends
declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date an Option is granted and the date such
Option is exercised, vests or expires, as determined by the Administrator.
Such Dividend Equivalents shall be converted to cash or additional shares of
Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Administrator.
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(d) Dividend Equivalents granted with respect to Options intended to be
qualified performance-based compensation for purposes of Section 162(m) of
the Code shall be payable, with respect to pre-exercise periods, regardless
of whether such Option is subsequently exercised.
8.4. STOCK PAYMENTS. Any Employee or Consultant selected by the
Administrator may receive Stock Payments in the manner determined from time to
time by the Administrator. The number of shares shall be determined by the
Administrator and may be based upon the Performance Criteria or other specific
performance criteria determined appropriate by the Administrator, determined on
the date such Stock Payment is made or on any date thereafter.
8.5. DEFERRED STOCK. Any Employee or Consultant selected by the
Administrator may be granted an award of Deferred Stock in the manner determined
from time to time by the Administrator. The number of shares of Deferred Stock
shall be determined by the Administrator and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Administrator, in each case on a specified date or dates or over any period
or periods determined by the Administrator. Common Stock underlying a Deferred
Stock award will not be issued until the Deferred Stock award has vested,
pursuant to a vesting schedule or performance criteria set by the Administrator.
Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall
have no rights as a Company stockholder with respect to such Deferred Stock
until such time as the Award has vested and the Common Stock underlying the
Award has been issued.
8.6. TERM. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Administrator in its
discretion.
8.7. EXERCISE OR PURCHASE PRICE. The Administrator may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock or
shares received as a Stock Payment; PROVIDED, HOWEVER, that such price shall not
be less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law.
8.8. EXERCISE UPON TERMINATION OF EMPLOYMENT, TERMINATION OF CONSULTANCY OR
TERMINATION OF DIRECTORSHIP. A Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment is exercisable or payable only while the
Holder is an Employee, Consultant or Independent Director, as applicable;
PROVIDED, HOWEVER, that the Administrator in its discretion may provide that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to a Termination of Employment
following a "change of control or ownership" (within the meaning of
Section 7.162-27(e)(2)(v) or any successor regulation thereto) of the Company;
PROVIDED, FURTHER, that except with respect to Performance Awards granted to
Section 162(m) Participants, the Administrator in its discretion may provide
that Performance Awards may be exercised or paid following a Termination of
Employment or a Termination of Consultancy without cause, or following a Change
in Control of the Company, or because of the Holder's retirement, death or
disability, or otherwise.
8.9. FORM OF PAYMENT. Payment of the amount determined under Section 8.2 or
8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Administrator. To the extent any payment under this
Article VIII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 6.9.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may be
granted to any Employee or Consultant selected by the Administrator. A Stock
Appreciation Right may be granted (a) in connection and simultaneously with the
grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions
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not inconsistent with the Plan as the Administrator shall impose and shall be
evidenced by an Award Agreement.
9.2. COUPLED STOCK APPRECIATION RIGHTS.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of
shares subject to the simultaneously or previously granted Option to which
it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference
obtained by subtracting the Option exercise price from the Fair Market Value
of a share of Common Stock on the date of exercise of the CSAR by the number
of shares of Common Stock with respect to which the CSAR shall have been
exercised, subject to any limitations the Administrator may impose.
9.3. INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated
to any Option and shall have a term set by the Administrator. An ISAR shall
be exercisable in such installments as the Administrator may determine. An
ISAR shall cover such number of shares of Common Stock as the Administrator
may determine. The exercise price per share of Common Stock subject to each
ISAR shall be set by the Administrator. An ISAR is exercisable only while
the Holder is an Employee or Consultant; provided, that the Administrator
may determine that the ISAR may be exercised subsequent to Termination of
Employment or Termination of Consultancy without cause, or following a
Change in Control of the Company, or because of the Holder's retirement,
death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect to
which the ISAR shall have been exercised, subject to any limitations the
Administrator may impose.
9.4. PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as
of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Administrator. To the extent such payment is
effected in Common Stock it shall be made subject to satisfaction of all
provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to comply with
any timing or other restrictions with respect to the settlement or exercise
of a Stock Appreciation Right, including a window-period limitation, as may
be imposed in the discretion of the Administrator.
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ARTICLE X.
ADMINISTRATION
10.1. COMPENSATION COMMITTEE. The Compensation Committee (or one or more
other committees or subcommittees of the Board assuming the functions of the
Committee under the Plan) shall consist solely of two or more Independent
Directors appointed by and holding office at the pleasure of the Board, each of
whom is both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
10.2. DUTIES AND POWERS OF ADMINISTRATOR. It shall be the duty of the
Administrator to conduct the general administration of the Plan in accordance
with its provisions. The Administrator shall have the power to interpret the
Plan and the Award Agreements, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its discretion,
the Board may at any time and from time to time exercise any and all rights and
duties of the Administrator under the Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the discretion of the
Committee. Notwithstanding the foregoing, the full Board, acting by a majority
of its members in office, shall conduct the general administration of the Plan
with respect to Options and Dividend Equivalents granted to Independent
Directors.
10.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
10.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions shall be taken and all interpretations and determinations
shall be made by the Administrator reasonably and in good faith. No member of
the Administrator shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Administrator shall be fully protected by the Company in respect
of any such action, determination or interpretation.
10.5. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Committee may, but need
not, delegate from time to time some or all of its authority to grant Awards
under the Plan to a committee consisting of one or more members of the Committee
or of one or more officers of the Company; PROVIDED, HOWEVER, that the Committee
may not delegate its authority to grant Awards to individuals (a) who are
subject on the date of the grant to the reporting rules under Section 16(a) of
the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.
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ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. TRANSFERABILITY OF AWARDS.
(a) Except as otherwise provided in Section 17.1(b):
(i) No Award under the Plan may be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent and
distribution or, subject to the consent of the Administrator, pursuant to
a DRO, unless and until such Award has been exercised, or the shares
underlying such Award have been issued, and all restrictions applicable
to such shares have lapsed;
(ii) No Award or interest or right therein shall be liable for the
debts, contracts or engagements of the Holder or his or her successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether
such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect, except to the extent that such
disposition is permitted by the preceding sentence; and
(iii) During the lifetime of the Holder, only he or she may exercise
an Option or other Award (or any portion thereof) granted to him or her
under the Plan, unless it has been disposed of pursuant to a DRO; after
the death of the Holder, any exercisable portion of an Option or other
Award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Award Agreement, be exercised by his or
her personal representative or by any person empowered to do so under the
deceased Holder's will or under the then applicable laws of descent and
distribution.
(b) Notwithstanding Section 17.1(a), the Administrator, in its
discretion, may determine to permit a Holder to transfer a Non-Qualified
Stock Option to any one or more Permitted Transferees (as defined below),
subject to the following terms and conditions: (i) a Non-Qualified Stock
Option transferred to a Permitted Transferee shall not be assignable or
transferable by the Permitted Transferee other than by will or the laws of
descent and distribution; (ii) any Non-Qualified Stock Option which is
transferred to a Permitted Transferee shall continue to be subject to all
the terms and conditions of the Non-Qualified Stock Option as applicable to
the original Holder (other than the ability to further transfer the
Non-Qualified Stock Option); and (iii) the Holder and the Permitted
Transferee shall execute any and all documents requested by the
Administrator, including, without limitation documents to (A) confirm the
status of the transferee as a Permitted Transferee, (B) satisfy any
requirements for an exemption for the transfer under applicable federal and
state securities laws and (C) evidence the transfer. For purposes of this
Section 17.1(b), "Permitted Transferee" shall mean, with respect to a
Holder, any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, any person sharing the Holder's household (other
than a tenant or employee), a trust in which these persons (or the Holder)
control the management of assets, and any other entity in which these
persons (or the Holder) own more than fifty percent of the voting interests,
or any other transferee specifically approved by the Administrator after
taking into account any state or federal tax or securities laws applicable
to transferable Non-Qualified Stock Options.
11.2. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as otherwise
provided in this Section 17.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Administrator. However, without approval of the Company's stockholders given
within 12 months before or after the action by the Administrator, no action of
the
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Administrator may, except as provided in Section 17.3, increase the limits
imposed in Section 8.1 on the maximum number of shares which may be issued under
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Incentive Stock Option be
granted under the Plan after the first to occur of the following events:
(a) The expiration of 10 years from the date the Plan is adopted by the
Board; or
(b) The expiration of 10 years from the date the Plan is approved by the
Company's stockholders under Section 17.10.
11.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 17.3(d), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock
or other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's discretion, affects
the Common Stock such that an adjustment is determined by the Administrator
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan
or with respect to an Award, then the Administrator shall, in such manner as
it may deem equitable, adjust any or all of:
(i) The number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations in
Section 8.1 on the maximum number and kind of shares which may be issued
and adjustments of the Award Limit);
(ii) The number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Awards; and
(iii) The grant or exercise price with respect to any Award.
(b) Subject to Sections 17.3(b)(vii) and 17.3(d), in the event of any
transaction or event described in Section 17.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate, or
of changes in applicable laws, regulations or accounting principles, the
Administrator, in its discretion, and on such terms and conditions as it
deems appropriate, either by the terms of the Award or by action taken prior
to the occurrence of such transaction or event and either automatically or
upon the Holder's request, is hereby authorized to take any one or more of
the following actions whenever the Administrator determines that such action
is appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or with
respect to any Award under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award for an
amount of cash equal to the amount that could have been attained upon the
exercise of such Award or realization of the Holder's rights had such
Award been currently exercisable or payable or fully vested or the
replacement of such Award with other rights or property selected by the
Administrator in its discretion;
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(ii) To provide that the Award cannot vest, be exercised or become
payable after such event;
(iii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in
Section 5.3 or 5.4 or the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock
of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares
and prices; and
(v) To make adjustments in the number and type of shares of Common
Stock (or other securities or property) subject to outstanding Awards,
and in the number and kind of outstanding Restricted Stock or Deferred
Stock and/or in the terms and conditions of (including the grant or
exercise price), and the criteria included in, outstanding options,
rights and awards and options, rights and awards which may be granted in
the future.
(vi) To provide that, for a specified period of time prior to such
event, the restrictions imposed under an Award Agreement upon some or all
shares of Restricted Stock or Deferred Stock may be terminated, and, in
the case of Restricted Stock, some or all shares of such Restricted Stock
may cease to be subject to repurchase under Section 7.5 or forfeiture
under Section 7.4 after such event.
(vii) Notwithstanding any other provision of the Plan, in the event
of a Change in Control, each outstanding Award shall, immediately prior
to the effective date of the Change in Control, automatically become
fully exercisable for all of the shares of Common Stock at the time
subject to such rights and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
(c) Subject to Sections 17.3(d), 9.2 and 9.3, the Administrator may, in
its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) No adjustment or action described in this Section 17.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 or violate the exemptive conditions of
Rule 16b-3 unless the Administrator determines that the Award is not to
comply with such exemptive conditions. The number of shares of Common Stock
subject to any Award shall always be rounded to the next whole number.
(e) The existence of the Plan, the Award Agreement and the Awards
granted hereunder shall not affect or restrict in any way the right or power
of the Company or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of
the Company, any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference stocks
whose rights are superior to or affect the Common Stock or the rights
thereof or which are convertible into or exchangeable for Common Stock, 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.
11.4. APPROVAL OF PLAN BY STOCKHOLDERS. The Plan will be submitted for the
approval of the Company's stockholders within 12 months after the date of the
Board's initial adoption of the Plan. Awards may be granted or awarded prior to
such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards
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previously granted or awarded under the Plan shall thereupon be canceled and
become null and void. In addition, if the Board determines that Awards other
than Options or Stock Appreciation Rights which may be granted to
Section 162(m) Participants should continue to be eligible to qualify as
performance-based compensation under Section 162(m)(4)(C) of the Code, the
Performance Criteria must be disclosed to and approved by the Company's
stockholders no later than the first stockholder meeting that occurs in the
fifth year following the year in which the Company's stockholders previously
approved the Performance Criteria.
11.5. TAX WITHHOLDING. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. Notwithstanding
any other provision of the Plan, the number of shares of Common Stock which may
be withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Holder of such Award within six
months after such shares of Common Stock were acquired by the Holder from the
Company) in order to satisfy the Holder's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Award shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.
11.6. LOANS. The Administrator may, in its discretion, extend one or more
loans to Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Deferred Stock awarded
under the Plan. The terms and conditions of any such loan shall be set by the
Administrator.
11.7. FORFEITURE PROVISIONS. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Administrator
shall have the right to provide, in the terms of Awards made under the Plan, or
to require a Holder to agree by separate written instrument, that (a)(i) any
proceeds, gains or other economic benefit actually or constructively received by
the Holder upon any receipt or exercise of the Award, or upon the receipt or
resale of any Common Stock underlying the Award, must be paid to the Company,
and (ii) the Award shall terminate and any unexercised portion of the Award
(whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.
11.8. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
11.9. COMPLIANCE WITH LAWS. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws,
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rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To the
extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
11.10. TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
11.11. GOVERNING LAW. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
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[LOGO FOR WALTER INDUSTRIES, INC.]
WALTER INDUSTRIES, INC.
PROXY FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
D.N.Boyce,D.DeFosset and M.T.Tokarz,or any of them,with full power of
substitution,are hereby authorized to represent and to vote the stock of the
undersigned at the Annual Meeting of Stockholders of Walter Industries,Inc.to be
held at the Tampa Marriott Waterside Hotel,700 S.Florida Avenue,Tampa,Florida,on
Thursday,April 25,2002 at 10:00 a.m.or at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER(S).IF NO DIRECTION IS MADE,THIS PROXY WILL BE VOTED
FOR ITEM 1,THE ELECTION OF ALL DIRECTOR NOMINEES,FOR ITEM 2,THE RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AND FOR ITEM 3,THE APPROVAL OF THE
2002 LONG-TERM INCENTIVE AWARD PLAN OF WALTER INDUSTRIES,INC.
WALTER INDUSTRIES, INC.
P.O. BOX 11018
NEW YORK, N.Y. 10203-0018
THIS PROXY IS CONTINUED ON THE
REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE
AND RETURN PROMPTLY.
<Page>
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
|_| (PLEASE SIGN, DATE AND RETURN |X|
THIS PROXY IN THE ENCLOSED VOTES MUST BE INDICATED
POSTAGE PREPAID ENVELOPE.) (X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
ITEM 1. ELECTION OF DIRECTORS
FOR all nominees |_| WITHHOLD AUTHORITY to vote |_| *EXCEPTIONS |_|
listed below for all nominees listed below
Nominees: D.N. BOYCE, P. GOLKIN, S.C. NUTTALL, N.A. SPRINGER, M.T. TOKARZ,
B.G. RETHORE, H.L. CLARK, W.W. ROBINSON, D. DEFOSSET
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
--------------------------------------------------------------------
ITEM 2. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 2002.
FOR AGAINST ABSTAIN
|_| |_| |_|
ITEM 3. APPROVAL OF THE 2002 LONG-TERM INCENTIVE AWARD PLAN OF WALTER
INDUSTRIES, INC.
FOR AGAINST ABSTAIN
|_| |_| |_|
ITEM 4. UPON ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
FOR AGAINST ABSTAIN
|_| |_| |_|
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK HERE. |_|
To change your address, please mark this box. |_|
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S C A N L I N E
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Please mark, sign (exactly as name(s) appears below), date and mail this proxy
card promptly in the postage paid return envelope provided. Executors, trustees,
administrators, attorneys, guardians, etc. should so indicate when signing.
Corporation proxies should be signed by authorized officers.
Date Share Owner sign here Co-Owner sign here
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