Exhibit 10.1
HOME SOLUTIONS AMERICA, INC.
May 28, 2008
Frank J. Fradella
1500 Dragon Street
Suite B
Dallas, Texas 75207
Dear Frank:
We are pleased to confirm the terms and conditions of your continued employment
with Home Solutions America, Inc. (the “Company”) as set forth herein:

1.  
Employment. You will be employed by the Company as its Chief Executive Officer.
You will report to its Board of Directors (the “Board”) or such persons as
designated by them, and shall perform such duties as may be assigned to you. For
as long as you serve as Chief Executive Officer, the Company will use its best
efforts to nominate you to serve as a member of the Board, and, if appointed,
you agree to serve as such. You may also be appointed to serve, and agree to
serve, as an officer and/or director of one or more subsidiaries and/or
affiliates of the Company. You agree to use your best efforts to perform your
duties faithfully, to devote all of your working time, attention and energies to
the businesses of the Company and its subsidiaries, and while you remain
employed, not to engage in any other business activity that is in conflict with
your duties and obligations to the Company.

2.  
Term. Subject to the provisions of Section 6 of this Agreement, this Agreement
and your employment hereunder shall be effective as of the date hereof (the
“Effective Date”) and shall continue until the third anniversary of the
Effective Date (the “Term”). The period during which you are employed by the
Company hereunder is hereinafter referred to as the “Employment Term”.

3.  
Base Salary. You will be paid a base salary (“Base Salary”) at an annual rate of
$350,000. Your Base Salary will be reviewed at least annually, and may be
subject to upward adjustment at the discretion of the Board.

4.  
Annual Bonus. In addition to a Base Salary, you shall receive an annual cash
bonus for each fiscal year that ends during the Employment Term (the “Annual
Bonus”); provided that you remain employed by the Company on the date on which
the Annual Bonus is paid. The Annual Bonus shall be an amount equal to three
percent (3%) of EBITDA (as defined below) for each such year. The Annual Bonus
shall be paid to you during the fiscal year following the fiscal year to which
is relates, as soon as practicable after the release of audited financial
statements for such year. EBITDA means the Company’s consolidated earnings
before interest, income taxes, depreciation, and amortization, as shall be
determined by the Board based on the Company’s financial statements for such
year, subject to such adjustments to reflect unusual, nonrecurring or
extraordinary items or events as the Board shall deem equitable and appropriate
in its discretion.

 

 

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5.  
Stock Option. Upon or as soon as practicable after the Effective Date, the
Company will grant you options to purchase shares of common stock of the Company
on terms and conditions set forth in a separate option agreement (the “Option
Agreement”).

6.  
Termination.

(a) Generally. You will be free to resign from the Company at any time, and the
Company will be free to terminate your employment at any time. Upon any such
termination or resignation, except as provided in paragraph 6(b) below or as set
forth in the Option Agreement, you will be entitled only to (i) any portion of
your Base Salary earned but not yet paid, and (ii) any amounts payable pursuant
to the terms of any Company benefit plan.
(b) Severance. In addition to the amounts payable pursuant to paragraph 6(a), if
the Company terminates your employment other than for Cause (as defined below)
prior to the end of the Term, then in lieu of any other severance benefits
otherwise payable under any Company policy, or any other damages payable in
connection with such termination, you will be entitled to receive continued
payment of your Base Salary for twelve (12) months following termination of your
employment and reimbursement of premiums you pay for continued health coverage
under “COBRA” during the twelve (12) month period following termination of your
employment. Your right to such payments and benefits shall be conditional upon
your execution of a customary release of claims in favor of the Company and its
affiliates, in a form prescribed by the Company, and your compliance with the
provisions of Sections 7 and 8 herein. If at the time of your termination of
employment with the Company, the Company has securities which are publicly
traded on an established securities market and you are a “specified employee”
within the meaning of Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and the deferral of the commencement of any payments or
benefits otherwise payable as a result of such termination of employment is
necessary in order to prevent any accelerated or additional tax under
Section 409A of the Code, then, to the extent permitted by Section 409A of the
Code, the Company will defer the commencement of the payment of any such
payments or benefits hereunder (without any reduction in such payments or
benefits ultimately paid or provided to you) until the date that is six (6)
months following your termination of employment with the Company (or the
earliest date as is permitted under Section 409A of the Code). If any payments
or benefits are deferred due to such requirements, such amounts will be paid in
a lump sum to you at the end of such six (6) month period. Notwithstanding the
foregoing, the Company will have no liability to you for any tax imposed upon
you pursuant to Section 409A of the Code.

 

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“Cause” means the occurrence of any of the following: (i) commission by you of
any act of gross negligence or fraud; (ii) your failure, refusal or neglect to
substantially perform your duties (other than by reason of a bona fide physical
or mental impairment) or to implement the directives of the Company that
continued for thirty (30) days after you had been provided adequate and specific
written notice thereof, (iii) the appropriation (or willful attempted
appropriation) by you of a material business opportunity of the Company that is
not waived in writing or renounced in writing by the Company, including, but not
limited to, attempting to secure any personal profit in connection with any
transaction entered into on behalf of the Company; (iv) theft or embezzlement by
you of any material real or personal property, tangible or intangible, of the
Company or any of its affiliates; (v) willful engaging in conduct that is
materially injurious to the Company, monetarily or otherwise; (vi) your
indictment of (or plea of guilty or no contest to) a felony (or the equivalent
thereof), or any other crime with respect to which imprisonment is a possible
punishment or any crime involving moral turpitude; (vii) your having been
enjoined or banned by any state or federal governmental agency from serving as a
board member or officer of a public company; (viii) any determination or finding
by a federal or state governmental agency or any stock exchange or quotation
system that you have committed any acts of wrongdoing which the Board, in its
sole discretion, determines has had or could have an adverse effect on the
Company or its affiliates; or (ix) any material breach by you of this Letter
Agreement or any material inaccuracy of any representation or warranty contained
herein.

7.  
Assignment of Inventions/Confidentiality.

(a) Confidential Information Defined. For the purposes of this Letter Agreement,
the phrase “Confidential Information” means any and all of the following
information or items that the Company treats as confidential: trade secrets
concerning the business and affairs of the Company or its affiliates, product
specifications, data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas, past,
current, and planned research and development, current and planned distribution
methods and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software and
programs (including object code, machine code, and source code), computer
software and database technologies, systems, structures, and architecture (and
related formulae, compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, and methods); information
concerning the business and affairs of the Company or its affiliates (which
includes historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training techniques and materials,
however documented); notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Company or its affiliates containing or
based, in whole or in part, on any information included in the foregoing; and
any other information, observations, and data obtained by you while employed by
the Company or any of its affiliates concerning the business affairs of the
Company or any of its affiliates which is non-public and confidential in nature.
Notwithstanding the foregoing, Confidential Information shall not include any
information that was or became or is or becomes available to the public or to
the Company’s industry other than as a result of a disclosure of such
information by you or any other person under a duty to keep such information
confidential.

 

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(b) Access to the Confidential Information. Throughout your employment with the
Company, the Company has and will continue to provide you with access to
Confidential Information. You acknowledge: (a) that the Company has devoted
substantial time, effort, and resources to develop and compile the Confidential
Information; (b) unauthorized or improper public disclosure of such Confidential
Information by you would have an adverse effect on the Company and its business;
(c) the Company would not disclose such information to you, nor employ or
continue to employ you without the agreements and covenants set forth in this
Section 7; and (d) the provisions of this Section 7 are reasonable and necessary
to prevent the improper use or disclosure of Confidential Information.
(c) Nondisclosure Duties Regarding the Confidential Information.
(i) You will hold in strictest confidence the Confidential Information and will
not disclose it to any Person (as defined in Section 8 of this Agreement) or use
it for your own account except with the specific prior written consent of the
Company or as may be required by court order, law, government agencies with
which the Company deals in the ordinary course of its business, or except to the
extent such disclosure is necessary or appropriate for you to perform your
duties under this Letter Agreement. Any trade secrets of the Company will be
entitled to all of the protections and benefits afforded under applicable laws.
If any Confidential Information that the Company deems to be a trade secret is
ruled by a court of competent jurisdiction not to be a trade secret, such
information will, nevertheless, be considered Confidential Information for
purposes of this Letter Agreement. You hereby waive any requirement that the
Company submit proof of the economic value of any trade secret or post a bond or
other security. You will not remove from the Company’s premises or record
(regardless of the media) any Confidential Information of the Company or its
affiliates, except to the extent such removal or recording is necessary or
appropriate for you to perform your duties or as may be required by court order,
law, or governmental agencies with which the Company deals in the ordinary
course of its business. You acknowledge and agree that all Confidential
Information, and physical embodiments thereof, whether or not developed by you,
are the exclusive property of the Company or its affiliates, as the case may be.
(ii) You recognize that the Company and its affiliates have received and in the
future will receive from third parties their confidential or proprietary
information subject to a duty on the part of the Company and its affiliates to
maintain the confidentiality of such information and to use it only for certain
limited purposes. You agree that you owe the Company, its affiliates, and such
third parties, during the term of your employment with the Company and
thereafter, a duty to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any Person (except as
necessary or appropriate in carrying out your duties for the Company consistent
with the Company’s agreement with such third party or as may required by court
order, law, or government agencies with which the Company deals in the ordinary
course of its business), or to use it for the benefit of anyone other than for
the Company or such third party (consistent with the Company’s agreement with
such third party) without the express written authorization of the Company or
its affiliate, as the case may be.

 

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(iii) You agree that, at the time of the termination of the Employment Term or
at any other time that the Company may request, you will deliver to the Company
(and will not keep in your possession or deliver to any other Person) any and
all devices, records, data, notes, plans, reports, memoranda, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any of the
aforementioned items or any property belonging to the Company or any of its
affiliates, and their respective successors or assigns, regardless of whether
such items are represented in tangible, electronic, digital, magnetic or any
other media, to the extent that any of the foregoing are in the your possession
or within your control. In the event of the termination of the Employment Term,
you agree to promptly sign and deliver to the Company the “Termination
Certification” attached hereto as Exhibit A.
(d) Disputes or Controversies. You recognize that should a dispute or
controversy arising from or relating to this Letter Agreement be submitted for
adjudication to any court or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records in your possession or under your control relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Company, you, and each party’s attorneys and experts, who will
agree, in advance and in writing, to receive, use, and maintain all such
Confidential Information in secrecy, except as may be agreed by them in writing.
(e) Inventions and Patents. You agree that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company’s or any of its
affiliates’ actual or anticipated business, research and development or existing
or future products or services and which are conceived, developed or made by you
during your employment with the Company (“Work Product”) belong to the Company.
You will promptly disclose such Work Product to the Company and perform all
actions reasonably requested by the Company (whether during or after the
Employment Term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).

 

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8.  
Non-Interference. You agree that the Company’s commitment described in Section
7(b) above to provide its Confidential Information to you gives rise to the
Company’s interest in restraining you from competing against it and that the
restrictions in this Section are designed to enforce your promise in Section
7(c) not to use or disclose Confidential Information belonging to the Company,
except as otherwise permitted in Section 7. You agree that the restrictions in
this Section 8 are reasonable and do not impose a greater restraint than is
necessary to protect the goodwill or other business interests of the Company.
For these reasons, you agree to the following:

(a) Solicitation of Customers. During the Restricted Period you will not,
directly or indirectly, on behalf of yourself or any other person or entity,
solicit a Current Customer (as defined below) of the Company or its affiliates
with whom you had contact during your employment by the Company, for purposes of
selling products or services to such Current Customer that are in competition
with the products and services offered or sold by the Company or its affiliates
as part of the Business of the Company.
(b) Solicitation of Employees. During the Restricted Period you will not,
directly or indirectly, on behalf of yourself or any other person or entity,
employ any current employee of the Company or its affiliates or any individual
who was an employee of the Company or its affiliates at any time during your
employment by the Company, and will not solicit any employee of the Company or
its affiliates for the purpose of encouraging such employee to leave or
terminate his or her employment with the Company or its affiliates.
(c) Computer Systems. Following the termination of your employment with the
Company, you will not, either directly or indirectly, access the Company’s
computer systems, download files or any other information from the Company’s
computer systems or in any way interfere, disrupt, modify or change any computer
system used by the Company or any data stored on the Company’s computer systems.
(d) Scope. You acknowledge and agree that the length and scope of the
restrictions contained in Sections 7 and 8 hereof are reasonable and necessary
to protect the legitimate business interests of the Company. The duration of the
agreements contained in this Section 8 shall be extended for the amount of any
time of any violation thereof and the time, if greater, necessary to enforce
such provisions or obtain any relief or damages for such violation through the
court system. The Company may, at any time on written notice approved by the
Board reduce the length or scope of any restrictions contained in Sections 7 and
8 and, thereafter, you shall comply with the restriction as so reduced, subject
to subsequent reductions. If any covenant in Sections 7 or 8 of this Agreement
is held to be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope and time, and such
lesser scope and time, as an arbitrator or a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against you. In the event of termination
of your employment with the Company for any reason, you shall inform any
subsequent employer within the Restricted Period (if applicable) of the
continuing restrictions and obligations imposed on you under this Letter
Agreement.

 

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(e) Required Notice. You agree that during the Restricted Period following the
termination of your employment with the Company, you will provide the Company
with written notice of any new employment within thirty (30) days after you
commence such employment. The notice will identify your new employer and include
your representation that you have informed your new employer of the applicable
confidentiality and other obligations under this Letter Agreement.
(f) Injunctive Relief and Additional Remedy. You acknowledge that the injury
that would be suffered by the Company as a result of a breach of the provisions
of Sections 7 and 8 hereof might be irreparable and that an award of monetary
damages to the Company for such a breach would be an inadequate remedy.
Consequently, the Company will have the right, in addition to any other rights
it may have, to obtain injunctive relief to restrain any breach or overtly
threatened breach or otherwise to specifically enforce the provisions of
Sections 7 and 8 hereof.
(g) Covenants of Sections 7 and 8 are Essential Covenants. The covenants by you
in Sections 7 and 8 are essential elements of this Agreement, and without your
agreement to comply with such covenants, the Company would not have entered into
this Agreement or employed or continued your employment. You and the Company
have independently consulted counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Company.
(h) Definitions. For purposes of this Letter Agreement:
Current Customer means any person or entity who is currently utilizing any
product or service sold or provided by the Company through the facility managed
by you; any person or entity who utilized any such product or service within the
previous twelve (12) months; and any person or entity with whom the Company or
any of its affiliates is currently conducting negotiations concerning the
utilization of such products or services.
Person has the meaning given in Section 3(a)(9) of the Securities Exchange Act
of 1934, as amended, as modified and used in Sections 13(d)(3) and 14(d)(2) of
such act.
Restricted Period means the period commencing on the Effective Date and
terminating on the second anniversary of your termination of employment.
Business of the Company means the provision of recovery, restoration,
rebuilding/remodeling, and other specialty interior services to residential and
commercial properties.

9.  
Withholding. The Company shall have the right to withhold from any amount
payable to you hereunder an amount necessary in order for the Company to satisfy
any withholding tax obligation it may have under applicable law.

 

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10.  
Governing Law. The terms of this Letter Agreement, and any action arising
thereunder, shall be governed by and construed in accordance with the domestic
laws of the State of Texas, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Texas or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Texas.

11.  
Modification; Waiver; Severability. This Letter Agreement may not be released,
changed or modified in any manner, except by an instrument in writing signed by
you and the Company. The failure of either party to enforce any of the
provisions of this Letter Agreement shall in no way be construed to be a waiver
of any such provision. No waiver of any breach of this Letter Agreement shall be
held to be a waiver of any other or subsequent breach. If any portion or
application of this Letter Agreement should for any reason be declared invalid,
illegal or unenforceable, in whole or in part, by a court of competent
jurisdiction, such invalid, illegal or unenforceable provision or application or
part thereof shall be severable from this Letter Agreement and shall not in any
way affect the validity or enforceability of any of the remaining provisions or
applications.

12.  
Assignment. This Letter Agreement is personal to you. You shall not assign this
Letter Agreement or any of your rights and/or obligations under this Letter
Agreement to any other person. The Company may, without your consent, assign
this Letter Agreement to any affiliate or successor to its business.

13.  
[Dispute Resolution. To benefit mutually from the time and cost savings of
arbitration over the delay and expense of the use of the federal and state court
systems, all disputes involving this Letter Agreement, including claims of
violations of federal or state discrimination statutes or public policy, shall
be resolved pursuant to binding arbitration in Texas. The award of the
arbitrators shall be final and binding and judgment upon the award may be
entered in any court having jurisdiction thereof. This procedure shall be the
exclusive means of settling any disputes that may arise under this Letter
Agreement. All fees and expenses of the arbitrators and all other expenses of
the arbitration, except for attorneys’ fees and witness expenses, shall be
shared equally by you and the Company. Each party shall bear its own witness
expenses and attorneys’ fees. Nothing in this Section 13 shall be construed as
to deny the Company the right and power to seek and obtain injunctive relief in
a court of competent jurisdiction for any breach or threatened breach by you of
the covenants in this Letter Agreement.]

14.  
Representations. You represent and warrant to the Company that your continued
employment and the performance of your duties for the Company will not conflict
with or result in a violation or breach of, or constitute a default under any
contract, agreement or understanding to which you are or were a party or of
which you are aware and that there are no restrictions, covenants, agreements or
limitations on your right or ability to enter into and perform the terms of this
Letter Agreement. You further represent and warrant to the Company that as of
the date hereof you are not aware of any material violation of any federal or
state law or regulation or requirements of any stock exchange or quotation
system which is applicable to you in your capacity as a member of the Board and
Chief Executive Officer of the Company, and in the event that you become aware
of any such violation, you will immediately disclose it to the Board.

 

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15.  
Entire Agreement. This Letter Agreement supersedes all previous and
contemporaneous communications, agreements and understandings, whether oral or
written, between you, on the one hand, and the Company or any of its affiliates,
on the other hand, including the employment agreement between you and the
Company entered into as of September 8, 2006, and constitutes the sole and
entire agreement between you and the Company pertaining to the subject matter
hereof.

16.  
Counterparts. This Letter Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each party
and delivered to the other party.

17.  
Survival. The obligations you and the Company under this Letter Agreement which
by their nature may require either partial or total performance after the
expiration of the Employment Term shall survive such expiration.

*      *     *     *

 

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If the foregoing is acceptable to you, kindly sign and return to us one copy of
this letter.

            Sincerely yours,

Home Solutions of American, Inc.
      By:   /s/ Michael J. McGrath         Name:   Michael J. McGrath       
Title:   Chairman of the Board of Directors   

          AGREED TO AND ACCEPTED BY:    
 
       
By:
  /s/ Frank J. Fradella    
 
 
 
Frank Fradella    

 

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EXHIBIT A
TERMINATION CERTIFICATION
I hereby certify that my employment with Home Solutions of America, Inc. (the
“Company”) has terminated effective as of
                                        , and that as of
                                        , I have fully complied with all of my
obligations in Section 5.3(c)(iii) of the Letter Agreement I entered into with
the Company as of May      , 2008.

     
 
   
 
  Frank J. Fradella
 
   
 
   
 
  Date signed

 

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