**Exhibit10.22**

November 2, 2006

 

 

Mr. Charles E. Cauthen1105 Valladolid de AvilaTampa, FL 33613

Dear Charles:

Confirming ourrecent discussions, we are pleased that you have accepted our position as ChiefFinancial Officer of the Homes Group (“the Company”) and President of Mid-StateHomes, Inc. effective November 13, 2006. The following outlines the terms ofyour employment. This document supersedes all previous agreements you had withthe Company or any of its affiliates and includes an updated Change in ControlAgreement dated October, 2006.  Thesedocuments will be final and binding on the date you sign.

1.                                       Youwill serve as Chief Financial Officer of the Homes Group and President ofMid-State Homes, Inc. reporting to the Chief Executive Officer of the HomesGroup. You will be responsible for the management of all financial mattersaffecting the Company, including financial reporting, balance sheet management,capital structure, strategic issues and working with the corporate accountingdepartment of Walter Industries, Inc. You will also manage the P&L of the Financial Services Groupincluding its growth and return objectives.

2.                                       Yourcompensation package will be as follows:

(a)                                  Yourannualized base salary will be increased from $300,440 to $325,000 per yeareffective January 1, 2007 and your salary and performance will be reviewedannually consistent with the practices of the Company.

(b)                                 Youwill participate in the Executive Incentive Plan (EIP) as established by theCompany.  For the 2006 fiscal year, youwill continue to participate in the Walter Industries, Inc. EIP with a bonustarget of 60% of your base salary to a maximum of 2 times target.  Your bonus will be calculated 

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using the performance ofJim Walter Homes from January 1, 2006 through August 15, 2006, then using theperformance of the Homes Group (combined Jim Walter Homes and FinancialServices Group) for the period August 16, 2006 through December 31, 2006. Theamount of your incentive will fluctuate based upon actual performance under theperformance metrics associated with the EIP. In situations other than thosedescribed in section 3 of this agreement, a bonus will not be paid or payablein the event you are not employed by the Company on the date the bonus is paid.  Please note that participation in theEmployee Stock Purchase Plan is a requirement of the Walter Industries’ EIP.

(c)  *                           *Youwill be eligible for the Walter Industries, Inc. annual long-term incentiveprogram.  In addition, you will receive aone-time grant of non-qualified stock options on the equivalent of 2.5% of thetotal combined equity of the Homes Group (or another vehicle that will deliverequivalent value). The strike price of these options will be equal to thestrike price used in the equity grant for the CEO of the Homes Group pursuantto his agreement of March 2, 2006. These options will vest at the rate of 1/3per year commencing on 03/02/07, 03/02/08, and 03/02/09 respectively. Theoptions will be evidenced by an option agreement and option plan, which aresubstantially equivalent to the form of plan and agreement currently used byWalter Industries, Inc., with such revisions as are necessary to conform tothis agreement.  Except as providedbelow, these options will expire ten years from the grant date.  The options will vest on any change incontrol of the Homes Group.  A spin-offor other transaction separating the Homes Group from Walter Industries, Inc.shall not be considered a change in control and in the case of such atransaction your options and this agreement will continue in full force andeffect.  In the event of your terminationby the Homes Group for Cause or your voluntary termination of employment otherthan for a reason specified in the next sentence, your unvested options willexpire immediately and you will have 90 days to exercise any options which arevested on the date your employment terminates. In the event of your termination by the Homes Group for any otherreason, your resignation because of a significant diminution in pay orresponsibilities, your normal retirement after the third anniversary of thedate of this agreement, your resignation because of the Homes Group’s or WalterIndustries’ material breach of this agreement which is not cured within areasonable period after notice, or your death, your options will accelerate andfully vest on the date of termination and you will have two years aftertermination to exercise your vested options. If you have vested options at any time when there is no public marketfor the common stock of the Homes Group and you notify the Homes Group of yourintention to exercise such options, the per share price of the common stock ofthe Homes Group shall be calculated by reference to a valuation of the HomesGroup as a going concern conducted by a mutually agreeable, experiencedvaluation firm of national reputation. The Homes Group shall not be 

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required to conduct morethan one such valuation in any calendar year. Following receipt of suchvaluation, the Homes Group shall, upon your request, pay you an amount in cashequal to the difference between the price of the common stock as so calculatedand the strike price of the options you wish to exercise upon your surrender ofsuch options to the Homes Group.

(d)                                 Youwill receive a vehicle allowance of $1,500 per month, subject to usualwithholding taxes.

(e)                                  Youwill receive the benefits generally applicable to senior executives of theCompany in the location in which you are primarily based, as well as thefollowing additional benefits:

·                  Reimbursementfor all reasonable and customary business-related travel and entertainmentexpenses in accordance with the terms of the policy generally applicable to theexecutives in the location in which you are primarily based, as it may changefrom time to time.

·                  Participationin the group life and health insurance benefit programs, generally applicableto executives employed in the location in which you are primarily based, inaccordance with their terms, as they may change from time to time.

·                  Participationin the Company’s retirement plan, generally applicable to salaried employees inthe location in which you are primarily based, as it may change from time totime and in accordance with its terms.

·                  Participationin the Employee Stock Purchase Plan, generally applicable to salaried employeesin the location in which you are primarily based and as it may change from timeto time and in accordance with its terms.

·                  Eligibilityfor 30 days of annual vacation to be used each year in accordance with policygenerally applicable to executives employed in the location in which you areprimarily based, as it may change from time to time.

3.                                       Inthe event of your involuntary termination, other than for “Cause” (definedbelow), in the event of your Constructive Termination (also defined below), orif you are required to relocate more than 50 miles from the currentheadquarters location in Tampa, Florida, in each case, other than as a resultof death or disability, you will be entitled to (i) payment of base salary for18 months, (ii) payment of the target amount of your cash bonus (including yourvehicle allowance) for 18 months, and (iii) continued participation in benefitsuntil the earlier of the 18-month anniversary of the termination date or untilyou are 

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eligible to receive comparable benefits fromsubsequent employment. The COBRA election period will not commence until theexpiration of that 18-month period. Payment must be in accordance with allgovernment regulations e.g. IRC 409A.

4.                                       Youagree that all inventions, improvements, trade secrets, reports, manuals,computer programs, systems, tapes and other ideas and materials developed orinvented by you during the period of your employment with the Company, eithersolely or in collaboration with others, which relate to the actual oranticipated business or research of the Company, which result from or aresuggested by any work you may do for the Company, or which result from use ofthe Company’s premises or the Company’s or its customers’ property(collectively, the “Developments”) shall be the sole and exclusive property ofthe Company.  You hereby assign to theCompany your entire right and interest in any Developments and will hereafterexecute any documents in connection therewith that the Company may reasonablyrequest.  This section does not apply toany inventions that you made prior to your employment by the Company or any ofits predecessors or affiliates, or to any inventions that you develop entirelyon your own time without using any of the Company’s equipment, supplies,facilities or the Company’s or its customers’ confidential information andwhich do not relate to the Company’s business, anticipated research anddevelopments or the work you have performed for the Company.

5.                                       Non-Compete/Non-Solicit.It is understood and agreed that the nature and methods employed in the Company’sbusiness are such that you will have substantial relationships with specificbusinesses and personnel, prospective and existing, vendors, contractors,customers, and employees of the Company that result in the creation of customergoodwill.  Therefore, following thetermination of employment under this agreement for any reason that results inthe payment of severance and continuing for a period of eighteen (18) monthsfrom the date of such termination, so long as the Company or any affiliate,successor or assigns thereof carries on the name or like business within theRestricted Area (defined below), including the states that the Company operatesin as of the date of your separation, you shall not, directly or indirectly,for yourself or on behalf of, or in conjunction with, any other person,persons, company, partnership, corporation, business entity or otherwise:

(a)                                  Callupon, solicit, write, direct, divert, influence, or accept business (eitherdirectly or indirectly) with respect to any account or customer or prospectivecustomer of the Company or any corporation controlling, controlled by, undercommon control with, or otherwise related to Company, including but not limitedto any other affiliated companies; or

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(b)                                 Hireaway any independent contractors or personnel of Company and/or entice any suchpersons to leave the employ of Company or its affiliated entities without theprior written consent of Company.

Notwithstanding the foregoing, following thetermination of employment under this agreement for any reason and continuingfor a period of eighteen (18) months from the date of such termination, youshall not, directly or indirectly, for yourself or on behalf of, or inconjunction with, any other person, persons, company, partnership, corporation,business entity or otherwise, hire away any independent contractors orpersonnel of Employer and/or entice any such persons to leave the employ ofEmployer or its affiliated entities without the prior written consent ofCompany.

6.                                       Non-Disparagement.  Except as may be legally required followingthe termination of employment under this agreement for any reason andcontinuing for so long as the Company or any affiliate, successor or assignsthereof carries on the name or like business within the Restricted Area, neitheryou nor the company shall not, directly or indirectly, for themselves or onbehalf of, or in conjunction with, any other person, persons, company,partnership, corporation, business entity or otherwise:

(a)                                  Makeany statements or announcements or permit anyone to make any public statementsor announcements concerning your termination with Company, or

(b)                                 Makeany statements that are inflammatory, detrimental, slanderous, or negative inany way to the interests of you or the Company or its affiliated entities.

7.                                       Asan inducement to the Company to make this offer to you, you represent andwarrant that you are not a party to any agreement or obligation for personalservices and that there exists no impediment or restraint, contractual orotherwise on your power, right or ability to accept this offer and to performthe duties and obligations specified herein.

8.                                       Youacknowledge and agree that you will respect and safeguard the Company’s property,trade secrets and confidential information. You acknowledge that the Company’s electronic communication systems(such as email and voicemail) are maintained to assist in the conduct of theCompany’s business and that such systems and data exchanged or stored thereonare Company property.  In the event thatyou leave the employ of the Company, you will not disclose any trade secrets orconfidential information you acquired while an employee of the Company to anyother person or entity, including without limitation, a subsequent employer, oruse such information in any manner.

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9.                                       Definitions:

 “Cause” shallmean: (a) a willful and continued material failure to act in accordance withthe reasonable instructions of the CEO of the Homes Group, (b) conviction of afelony arising from any act of fraud, embezzlement or willful dishonesty inrelation to the business or affairs of the Company or any other feloniousconduct on your part that is demonstrably detrimental to the best interests ofthe Company or any subsidiary or affiliate, (c) being repeatedly under theinfluence of illegal drugs or alcohol while performing your duties, or (d)commission of any other willful act that is demonstrably injurious to thefinancial condition or business reputation of the Company or any subsidiary oraffiliate. However, no act or failure to act on your part shall be deemed “willful”unless done, or omitted to be done, by you not in good faith and withoutreasonable belief that the action or omission was in the best interests of theCompany.

“Constructive Termination”shall mean, without your written consent: (a) a material failure of the Companyto comply with the provisions of this agreement, (b) a material diminution ofyour position (including status, offices, title and reporting relationships),duties or responsibilities, (c) any purported termination of your employmentother than for Cause, or (d) the failure of a successor corporation to assumethe Company’s obligations under this agreement.

For purposes of this agreement, a significantdiminution in pay or responsibility shall not have occurred if: (i) theamount of your bonus fluctuates due to performance considerations under the EIPor other Company incentive plan applicable to you and in effect from time totime or (ii) you are transferred to a position of comparable responsibility andcompensation with the Homes Group, as long as you retain the position of ChiefFinancial Officer and report to the  Chief Executive Officer.

“Restricted Area” shall mean in the homebuilding andfinancing industries that we compete at the time of your separation, unlessmanagement approves an exception.

 10.                      As discussed,the Company desires to have you, as a senior executive of the Company, make ameaningful investment in the Company. If and when the Homes Group spins-offfrom Walter Industries, you have committed to invest at least $100,000 in theCompany’s common stock within two years after the date of the spin-off.

11.                                 In the event that any portion of any payment underthis agreement, or under any other agreement with, or plan of the Company (inthe aggregate, Total Payments) would constitute an “excess parachute payment,”such that a golden parachute excise tax is due, the Company shall provide toyou, in cash, an additional payment in an amount sufficient to cover the fullcost of any excise tax and all of your additional federal, state, and localincome, excise, and employment taxes 

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that arise on this additionalpayment (cumulatively, the Full Gross-Up Payment), such that you are in thesame after-tax position as if you had not been subject to the excise tax. Forthis purpose, you shall be deemed to be in the highest marginal rate offederal, state, and local income taxes in the state and locality of yourresidence on the date of your termination. This payment shall be made as soonas possible following the date of your termination, but in no event later thanten (10) calendar days from such date. For purposes of this agreement, the term “excess parachute payment”shall have the meaning assigned to such term in Section 280G of the InternalRevenue Code, as amended (the Code), and the term “excise tax” shall mean thetax imposed on such excess parachute payment pursuant to Sections 280G and 4999of the Code.

12.                                 Itis agreed and understood that this offer letter, if and when accepted, shallconstitute our entire agreement with respect to the subject matter herein andshall supersede all prior agreements, discussions, understandings and proposals(written or oral) relating to your employment with the Jim Walter Homes, theHomes Group and related business units.

Charles, yoursignature below confirms your acceptance of this employment agreement. Pleasesign one of the enclosed copies and return it to me in the envelope provided.
|        | Very truly  yours,                          |   |
|--------|---------------------------------------------|--------|
|   |                                        |   |
|   | /s/ Mark O’Brien                       |   |
|   |                                        |   |
|   | Mark O’Brien                           |   |
|   | Chief Executive  Officer of the Homes Group |   |

MO: lacEnclosures

Agreed andAccepted
| /s/ Charles E. Cauthen |   |
|------------------------|--------|
|                   |   |
| Charles E.  Cauthen    |   |
|                   |   |
|                   |   |
| Date                   |   |

 

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