**HOME SOLUTIONS OF AMERICA, INC.1998 STOCK OPTION PLANSTOCK OPTION AGREEMENT**

Unless otherwise defined herein, the terms defined inthe Plan (defined below) shall have the same defined meanings in this StockOption Agreement (this "***Stock Option Agreement***"), which isexecuted this 27th day of January 2004.

**I.          NOTICEOF STOCK OPTION GRANT**

            Theundersigned Optionee has been granted an Option to purchase Common Stock ofHome Solutions of America, Inc. (the "***Company***"), subject to theterms and conditions of the Company's 1998 Stock Option Plan (the "***Plan***")and this Stock Option Agreement, as follows:

Optionee                                              **FRANKJ. FRADELLA **

Date of Grant                                       January27, 2004

Vesting Commencement Date   January 27, 2004

Exercise Price per Share                       $1.80

Total Number of Shares Granted          500,000

Total Exercise Price                              $900,000

Type of Option:                                     X       Incentive Stock Option                                                                                    Non-Qualified Stock Option

Term/Expiration Date:                          FifthAnniversary of Date of Grant

            VestingSchedule:         The Option shall become exercisable as to the earlier ofa) (i) 33% of the Shares subject to the Option upon the first anniversary ofthe Date of the Grant, (ii) 33% of the Shares subject to the Option upon thesecond anniversary of the Date of the Grant, and (iii) the remaining Sharessubject to the Option upon the third anniversary of the Date of the Grant,subject to Optionee's continued status as a Service Provider on each such dateor b) once the market value of Home Solutions common stock equals or exceeds$40 million for at least twenty consecutive trading days as determined by theclosing stock price for each day.  If a Change of Control of the Company shalloccur, the Shares shall vest in accordance with the Plan. 

Termination Period:  The vested portion of this Option shall be exercisable for fiveyears after Optionee ceases to be a Service Provider.  Upon Optionee's death ordisability, the vested portion of this Option may be exercised for such longerperiod as provided in the Plan.  In no event may Optionee exercise this Optionafter the Term/Expiration Date as provided above.

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**II.               AGREEMENT**

            1.         Grantof Option.

                        (a)        TheAdministrator of the Plan hereby grants to the Optionee named in the Notice ofStock Option Grant (the "***Notice***") in Section I. above (the "***Optionee***"),an option (the "***Option***") to purchase the number of Shares setforth in the Notice, at the exercise price per Share set forth in the Notice(the "***Exercise Price***"), and subject to the terms and conditionsof the Plan, which is incorporated herein by reference.  In the event of aconflict between the terms and conditions of the Plan and this Stock OptionAgreement, the terms and conditions of the Plan shall prevail.

                        (b)        Ifdesignated in the Notice of Stock Option Grant as an Incentive Stock Option ("***ISO***"),this Option is intended to qualify as an Incentive Stock Option as defined inSection 422 of the Code.  Nevertheless, to the extent that it exceeds the$100,000 rule of Code Section 422(d), this Option shall be treated as aNon-Qualified Stock Option ("***NSO***").

            2.         Exerciseof Option.

                        (a)        Rightto Exercise.  This Option shall be exercisable during its term inaccordance with the Vesting Schedule set out in the Notice of Stock OptionGrant and with the applicable provisions of the Plan and this Stock OptionAgreement.

                        (b)        Methodof Exercise.  This Option shall be exercisable by delivery of an exercisenotice in the form attached as Exhibit A (the "***Exercise Notice***")which shall state the election to exercise the Option, the number of Shareswith respect to which the Option is being exercised (the "***ExercisedShares***"), and such other representations and agreements as may berequired by the Company. The Exercise Notice shall be accompanied by payment ofthe aggregate Exercise Price as to all Exercised Shares.  This Option shall bedeemed to be exercised upon receipt by the Company of such fully executedExercise Notice accompanied by the aggregate Exercise Price.

            3.         Optionee'sRepresentations.  In the event the Shares have not been registered underthe Securities Act of 1933, as amended (the "***Securities Act***"), atthe time this Option is exercised, the Optionee shall, if required by theCompany, concurrently with the exercise of all or any portion of this Option,deliver to the Company his or her Investment Representation Statement in theform attached hereto as Exhibit B.

            4.         Methodof Payment.  Payment of the aggregate Exercise Price shall be by any of thefollowing, or a combination thereof, at the election of the Optionee

 

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                        (a)        cashor check;

                        (b)        Sharessurrendered to the Company in a Cashless Exercise; or

                        (c)        surrenderof other Shares that, (i) in the case of Shares acquired upon exercise of anoption, have been owned by the Optionee for more than six months on the date ofsurrender, and (ii) have a Fair Market Value on the date of surrender equal tothe aggregate Exercise Price of the Exercised Shares.

            5.         Restrictionson Exercise.  This Option may not be exercised until such time as thestockholders of the Company have approved the Plan, or if the issuance of suchShares upon such exercise or the method of payment of consideration for suchshares would constitute a violation of any Applicable Law.

            6.         Non-Transferabilityof Option.  This Option may not be transferred in any manner otherwise thanby will or by the laws of descent or distribution and may be exercised duringthe lifetime of Optionee only by Optionee.  The terms of the Plan and thisStock Option Agreement shall be binding upon the executors, administrators,heirs, successors and assigns of the Optionee.

            7.         Termof Option.  This Option may be exercised only within the term set out inthe Notice of Stock Option Grant, and may be exercised during such term only inaccordance with the Plan and the terms of this Stock Option Agreement.

            8.         EntireAgreement; Governing Law.  The Plan is incorporated herein by reference. The Plan and this Stock Option Agreement constitute the entire agreement of theparties with respect to the subject matter hereof and supersede in theirentirety all prior undertakings and agreements of the Company and Optionee withrespect to the subject matter hereof, and may not be modified adversely to the Optionee'sinterest except by means of a writing signed by the Company and Optionee.  Thisagreement is governed by the internal substantive laws but not the choice oflaw rules of the State of Delaware.

            9.         NoGuarantee of Continued Service.  **OPTIONEE ACKNOWLEDGES AND AGREES THATTHE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BYCONTINUING AS A SERVICE PROVIDER IN ACCORDANCE WITH THE OPTIONEE'S EMPOYMENTAGREEMENT, IF ANY, OR OTHERWISE (NOT THROUGH THE ACT OF BEING HIRED, BEINGGRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHERACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATEDHEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE ANEXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FORTHE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANYWAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'SRELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME IN ACCORDANCE WITH THEOPTIONEE'S EMPLOYMENT AGREEMENT, IF ANY, OR OTHERWISE AT ANY TIME, WITH ORWITHOUT CAUSE.**

 

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            10.       Optioneeacknowledges receipt of a copy of the Plan and represents that he or she isfamiliar with the terms and provisions thereof, and hereby accepts this Optionsubject to all of the terms and provisions thereof.  Optionee has reviewed thePlan and this Option in their entirety, has had an opportunity to obtain theadvice of counsel prior to executing this Option and fully understands allprovisions of the Option.  Optionee hereby agrees to accept as binding,conclusive and final all decisions or interpretations of the Administrator uponany questions arising under the Plan or this Option.  Optionee further agreesto notify the Company upon any change in the residence address indicated below.

**"COMPANY"                                                            "OPTIONEE"**

**HOMESOLUTIONS OF AMERICA, INC**

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By:                                                                                                                                                      Name:Rick J. O'Brien                                                 Frank J.FradellaTitle:CFO                                                                     

                                                                                    Address:

                                                                                    

 

 

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**EXHIBIT A**

**1998 STOCK PLANEXERCISE NOTICE**

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HomeSolutions of America, Inc.11850Jones RoadHouston,Texas 77070ATTN:  Secretary

1.   Exercise of Option.  Effective as oftoday, _______________, 200__, the undersigned ("***Optionee***")hereby elects to exercise Optionee's option to purchase ________________ shares(the "***Shares***") of the Common Stock of Home Solutions of America,Inc. (the "***Company***") under and pursuant to the 1998 Stock OptionPlan (the "***Plan***") and the Stock Option Agreement dated January27, 2004 (the "***Stock Option Agreement***").

2.   Delivery of Payment.  Optionee herewithdelivers to the Company the full purchase price of the Shares, as set forth inthe Stock Option Agreement.

3.   Representations of Optionee.  Optioneeacknowledges that Optionee has received, read and understood the Plan and theStock Option Agreement and agrees to abide by and be bound by their terms andconditions.

4.   Rights as Stockholder.  Until the issuanceof the Shares (as evidenced by the appropriate entry on the books of theCompany or of a duly authorized transfer agent of the Company), no right tovote or receive dividends or any other rights as a stockholder shall exist withrespect to the Optioned Stock, notwithstanding the exercise of the Option.  TheShares shall be issued to the Optionee as soon as practicable after the Optionis exercised.  No adjustment shall be made for a dividend or other right forwhich the record date is prior to the date of issuance except as provided inSection 13 of the Plan.

5.   Tax Consultation.  Optionee understandsthat Optionee may suffer adverse tax consequences as a result of Optionee'spurchase or disposition of the Shares.  Optionee represents that Optionee hasconsulted with any tax consultants Optionee deems advisable in connection withthe purchase or disposition of the Shares and that Optionee is not relying onthe Company for any tax advice.

6.   Restrictive Legends and Stop-Transfer Orders.

(a)  Legends.  Optionee understands and agreesthat the Company shall cause the legends set forth below or legendssubstantially equivalent thereto, to be placed upon any certificate(s)evidencing ownership of the Shares together with any other legends that may berequired by the Company or by state or federal securities laws:

 

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**THE SECURITIES REPRESENTED HEREBY HAVE NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTILREGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TOTHE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE ORHYPOTHECATION IS IN COMPLIANCE THEREWITH.**

(b)  Stop-Transfer Notices.  Optionee agreesthat, in order to ensure compliance with the restrictions referred to herein,the Company may issue appropriate "stop transfer" instructions to its transferagent, if any, and that, if the Company  transfers its own securities, it maymake appropriate notations to the same effect in its own records.

(c)  Refusal to Transfer.  The Company shallnot be required (i) to transfer on its books any Shares that have beensold or otherwise transferred in violation of any of the provisions of thisAgreement or (ii) to treat as owner of such Shares or to accord the rightto vote or pay dividends to any purchaser or other transferee to whom suchShares shall have been so transferred.

7.   Successors and Assigns.  The Company mayassign any of its rights under this Agreement to single or multiple assignees,and this Agreement shall inure to the benefit of the successors and assigns ofthe Company.  Subject to the restrictions on transfer herein set forth, thisAgreement shall be binding upon Optionee and his or her heirs, executors,administrators, successors and assigns.

8.   Interpretation.  Any dispute regarding theinterpretation of this Agreement shall be submitted by Optionee or by theCompany forthwith to the Administrator, which shall review such dispute at its nextregular meeting.  The resolution of such a dispute by the Administrator shallbe final and binding on all parties.

                  9.Governing Law; Severability.  This Agreement is governed by the internalsubstantive laws, but not the choice of law rules, of Delaware.

10. Entire Agreement.  The Plan and StockOption Agreement are incorporated herein by reference.  This Agreement, thePlan, the Stock Option Agreement and the Investment Representation Statementconstitute the entire agreement of the parties with respect to the subjectmatter hereof and supersede in their entirety all prior undertakings andagreements of the Company and Optionee with respect to the subject matterhereof, and may not be modified adversely to the Optionee's interest except bymeans of a writing signed by the Company and Optionee.

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Submittedby:                                                               Acceptedby:

                                                                        **HomeSolutions of America, Inc.**

_____________________________             FrankJ. Fradella

By:___________________________Name:_________________________Title:__________________________

 

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**EXHIBIT B**

**INVESTMENT REPRESENTATIONSTATEMENT**

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OPTIONEE:      Frank J. Fradella                          COMPANY:     HomeSolutions of America, Inc.SECURITY:      CommonStockAMOUNT:        $__________________________    DATE:               __________________________

            Inconnection with the purchase of the above-listed Securities, the undersigned Optioneerepresents to the Company the following:

1.   Optionee is aware of the Company's businessaffairs and financial condition and has acquired sufficient information aboutthe Company to reach an informed and knowledgeable decision to acquire theSecurities.  Optionee is acquiring these Securities for investment for Optionee'sown account only and not with a view to, or for resale in connection with, any"distribution" thereof within the meaning of the Securities Act of 1933, asamended (the "***Securities Act***").

2.   Optionee acknowledges and understands that theSecurities constitute "restricted securities" under the Securities Act and havenot been registered under the Securities Act in reliance upon a specificexemption therefrom, which exemption depends upon, among other things, the bonafide nature of Optionee's investment intent as expressed herein.  In thisconnection, Optionee understands that, in the view of the Securities and ExchangeCommission, the statutory basis for such exemption may be unavailable if Optionee'srepresentation was predicated solely upon a present intention to hold theseSecurities for the minimum capital gains period specified under tax statutes,for a deferred sale, for or until an increase or decrease in the market priceof the Securities, or for a period of one year or any other fixed period in thefuture.  Optionee further understands that the Securities must be heldindefinitely unless they are subsequently registered under the Securities Actor an exemption from such registration is available.  Optionee furtheracknowledges and understands that the Company is under no obligation toregister the Securities.  Optionee understands that the certificate evidencingthe Securities will be imprinted with a legend that prohibits the transfer ofthe Securities unless they are registered or such registration is not requiredin the opinion of counsel satisfactory to the Company and any other legendrequired under applicable state securities laws.

 

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3.   Optionee is familiar with the provisions ofRule 144, promulgated under the Securities Act, which, in substance,permits limited public resale of "restricted securities" acquired, directly orindirectly from the issuer thereof, in a non-public offering subject to thesatisfaction of certain conditions.  The Securities may be resold in certainlimited circumstances subject to the provisions of Rule 144, whichrequires the resale to occur not less than one year after the later of thedate the Securities were sold by the Company or the date the Securities weresold by an affiliate of the Company, within the meaning of Rule 144, andthe resale must take place in a manner described in (1) below; and, in the caseof acquisition of the Securities by an affiliate, or by a non-affiliate whosubsequently holds the Securities less than two years, the satisfaction of thefollowing conditions: (1) the resale is made through a broker in an unsolicited"broker's transaction" or in transactions directly with a market maker (assaid term is defined under the Securities Exchange Act of 1934), (2) theavailability of certain public information about the Company, (3) the amount ofSecurities being sold during any three-month period not exceeding thelimitations specified in Rule 144(e), and (4) the timely filing of a Form 144.

4.   Optionee further understands that in the eventall of the applicable requirements of Rule 144 are not satisfied,registration under the Securities Act or some other registration exemption willbe required; and that the Staff of the Securities and Exchange Commission hasexpressed its opinion that persons proposing to sell private placementsecurities other than in a registered offering and otherwise than pursuant toRules 144 will have a substantial burden of proof in establishing that anexemption from registration is available for such offers or sales, and thatsuch persons and their respective brokers who participate in such transactionsdo so at their own risk.  Optionee understands that no assurances can be giventhat any such other registration exemption will be available in such event.

**"Optionee"**

___________________________________Frank J. Fradella

 

Date:______________________________

 

 

 

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