Exhibit 10.4
July 1, 2008
Home Solutions of America, Inc.
1500 Dragon St.
Suite B
Dallas, TX 75207
Gentlemen:
We refer to (i) the Credit Agreement dated as of November 1, 2006, (ii) the
Forbearance Agreement dated as of February 6, 2008 (iii) Amendment No. 1 to
Forbearance Agreement dated on or about June 3, 2008 and (iv) proposed Amendment
No. 2 to Forbearance Agreement (the “Second Amendment”), each of which is among
Home Solutions of America, Inc. (“HSOA”), the guarantors named therein, the
lenders party thereto (the “Lenders”) and Texas Capital Bank, National
Association, as administrative agent (the “Agent”).
All terms used herein that are defined in the Second Amendment shall have the
same meanings herein.
In satisfaction of the requirements of paragraph 3 (i) of the Second Amendment:
(a) EvenFlow Funding, LLC (“EvenFlow”) has previously purchased for an aggregate
purchase price of $3.5 million, 350,000 shares of Series C Convertible Preferred
Stock at a purchase price of $10 per share, convertible into 3,500,000 shares of
common stock of HSOA at a conversion price of $1.00 per share, which such
Series C Convertible Preferred Stock was subsequently re-designated as Series C1
Convertible Preferred Stock (the “Initial Investment”).
(b) Subsequent to the Initial Investment, EvenFlow purchased, for an aggregate
purchase price of $1.5 million, 150,000 shares of Series C2 Convertible
Preferred Stock at a purchase price of $10 per share, convertible into 1,500,000
shares of common stock of HSOA at a conversion price of $1.00 per share (the
“Subsequent Investment”).
(c) In connection with the sale by HSOA of substantially all of the assets (the
“Asset Sale”) of P.W. Stephens, Inc., a California corporation (“PWS”), Michael
J. McGrath, Jr. (“McGrath”), has provided a certain guaranty (the “McGrath
Guaranty”) in favor of PWS, of a certain Promissory Note (the “Note”) in the
original principal amount of Five Hundred Thousand Dollars ($500,000.00), which
such Note was issued by Home Solutions Restoration of Louisiana, Inc., a
Louisiana corporation, in favor of PWS, and which such Note and McGrath Guaranty
were assigned by PWS to P.W. Stephens Environmental, Inc., a Delaware
corporation, in connection with such Asset Sale.

 

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Personal Commitment of McGrath
In satisfaction of the requirements of paragraph 3 (ii) of the Second Amendment,
by his signature below, McGrath hereby commits to fund EvenFlow (or such other
entity as shall provide the Additional Funding Commitment) in an amount no less
than $2,000,000 in the event Borrower does not satisfy all Payoff Conditions on
or before August 1, 2008 (the “McGrath Commitment”).
Commitments of HSOA
(a) In consideration of the McGrath Guaranty and the McGrath Commitment, and
irrespective of whether McGrath is required to pay or fund any amounts in
connection therewith, the Company shall, no later than September 1, 2008, at its
options either (i) pay to McGrath the sum of $250,000 in immediately available
funds, or (ii) issue to McGrath (or, at his election, to EvenFlow), the Warrant
in the form attached hereto as Annex I1 (the “Guaranty and Commitment Payment”).
(b) In addition to the Guaranty and Commitment Payment, to the extent that
McGrath pays or funds any amounts under the McGrath Guaranty and/or the McGrath
Commitment, HSOA shall, on the effective date(s) of such payment or Funding,
issue to McGrath (or, at his election, to EvenFlow), (i) additional shares of C1
Convertible Preferred Stock equal to the amounts paid or funded by McGrath
pursuant to such McGrath Guaranty and/or the McGrath Commitment, divided by ten
(10) (the “Additional Shares”), and (ii) a Warrant, in the form attached hereto
as Annex II, providing McGrath (or, at his election, EvenFlow) with the right to
purchase HSOA common stock in an amount equal to twenty times (20X) the number
of Additional Shares.2 3
The Additional Shares and the Warrant (if any) will be issued on the same or
substantially better terms as those contained in the purchase documentation
entered into by HSOA and EvenFlow in connection with its prior purchases of C1
Convertible Preferred Stock, subject to the terms of this letter and the
footnotes contained herein.
By way of example and not limitation, if McGrath pays $250,000 in support to the
McGrath Guaranty and funds $1,000,000 in connection with the McGrath Commitment,
McGrath (or, at his election, EvenFlow) would receive (y) 125,000 shares of
Series C1 Convertible Preferred Stock, and (z) a Warrant (in the form attached
hereto as Annex II) providing McGrath (or, at his election, EvenFlow) with the
right to purchase 2,500,000 shares of HSOA common stock at .01 per share.
(Signature Page Follows)
 

1   Warrant to provide for the purchase of 373,134 shares of HSOA common stock
at .01 per share, with all of such warrant shares exercisable immediately and
expiring on September 1, 2014.   2   Warrant to provide for the purchase of
shares at .01 per share, with half of such warrants exercisable immediately and
half of such shares exercisable one year thereafter.   3   The Certificate of
Designation should be modified to authorize sufficient C1 Convertible Preferred
to satisfy any obligations pursuant to this letter.

 

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The Lenders are hereby designated as third party beneficiaries to this letter.
This letter may be executed in counterparts, all of which when taken together
shall constitute but one and the same agreement.
If you are in agreement with the foregoing, kindly sign and return a copy hereof
to the undersigned, together with a copy hereof acknowledged by the Agent.

            Very truly yours,

EVENFLOW FUNDING, LLC
      BY:           Name:           Title:                       Michael J.
McGrath, Jr., an individual     

            ACCEPTED:

HOME SOLUTIONS OF AMERICA, INC.
      BY:           Name:   Frank Fradella        Title:   President & CEO     

            TEXAS CAPITAL BANK, NATIONAL
ASSOCIATION, for itself and as Agent,
Hereby confirms that the foregoing letter meets
The requirements of paragraph 3 of the
Second Amendment and that all Conditions
Precedent to the effectiveness of the Second
Amendment have been satisfied.
      BY:           Name:           Title: