Document:

Exhibit 10.6

 

REGISTRATION RIGHTS AGREEMENT

This
Registration Rights Agreement (this "Agreement") is made and
entered into as of March 1, 2004, by and among Home Solutions of America, Inc.,
a Delaware corporation (the "Company"), and the purchasers
listed on Schedule I hereto (the "Purchasers").

This Agreement
is being entered into pursuant to the Series A Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").

The Company and the Purchasers
hereby agree as follows:

1.        Definitions.

Capitalized
terms used and not otherwise defined herein shall have the meanings given such
terms in the Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

"Advice" shall
have meaning set forth in Section 3(m).

"Affiliate"
means, with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person.  For the
purposes of this definition, "control," when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.

"Board" shall
have meaning set forth in Section 3(n).

            "Business
Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.

"Closing
Date" means the date of the final closing of the purchase and sale of
the Preferred Stock and Warrants pursuant to the Purchase Agreement.

"Commission"
means the Securities and Exchange Commission.

"Common
Stock" means the Company's Common Stock, par value $.001 per share.

"Effectiveness
Date" means with respect to the Registration Statement the earlier of the
ninetieth (90th) day following the Closing Date or the date which is within five (5) days of the date on which
the Commission informs the Company that the Commission (i) will not review the
Registration Statement or (ii) that the Company may request the
acceleration of the effectiveness of the Registration Statement and the Company
makes such request.

 

 

"Effectiveness
Period" shall have the meaning set forth in Section 2.

"Event"
shall have the meaning set forth in Section 7(e).

"Event
Date" shall have the meaning set forth in Section 7(e).

"Exchange
Act" means the Securities Exchange Act of 1934, as amended.

"Filing
Date" means the thirtieth (30th) day following the Closing
Date.  

            "Holder"
or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.

                        "Indemnified
Party" shall have the meaning set forth in Section 5(c).

                        "Indemnifying
Party" shall have the meaning set forth in Section 5(c).

"Losses"
shall have the meaning set forth in Section 5(a).

            "Person"
means an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.

            "Preferred
Stock" means the Series A Convertible Preferred Stock, par value $.001
per share and stated value $25,000 per share, of the Company issued to the
Purchasers pursuant to the Purchase Agreement.

            "Proceeding"
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

"Prospectus"
means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.

 

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"Registrable
Securities means the shares of Common Stock issuable upon conversion of the
Preferred Stock and the shares of Common Stock issuable upon exercise of the
Warrants; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal
to no less than 120% of the maximum number of shares of Common Stock which
would be issuable upon conversion of the Preferred Stock and upon exercise of
the Warrants, assuming such conversion and exercise occurred on the Closing
Date or the Filing Date, whichever date would result in the greater number of
Registrable Securities.  Such registered shares of Common Stock shall be
allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the Commission.  Notwithstanding anything herein contained to the
contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants exceeds
120% of the number of shares of Common Stock issuable upon conversion of the
Preferred Stock and upon exercise of the Warrants based upon a computation as
at the Closing Date or the Filing Date, the term "Registrable
Securities" shall be deemed to include such additional shares of Common
Stock.

"Registration
Statement" means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.

"Rule
144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

"Rule
158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

"Rule
415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

                        "Securities
Act" means the Securities Act of 1933, as amended.

"Special
Counsel" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.

2.         Shelf
Registration.

On or prior to
the Filing Date the Company shall prepare and file with the Commission a
"shelf" Registration Statement covering all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415.  The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith).  The Company shall (i) not permit any securities other than the
Registrable Securities and the securities listed on Schedule II hereto to
be included in the Registration Statement and (ii) use its best efforts to
cause the Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event prior to
the Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until such date as is the earlier of (x) the
date when all Registrable Securities covered by such Registration Statement
have been sold or (y) the date on which the Registrable Securities may be sold
without any restriction pursuant to Rule 144 as determined by the counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). 
If at any time and for any reason, an additional Registration Statement is
required to be filed because at such time the actual number of shares of Common
Stock into which the Preferred Stock is convertible and the Warrants are
exercisable exceeds the number of shares of Registrable Securities remaining
under the Registration Statement, the Company shall have twenty (20) Business
Days to file such additional Registration Statement, and the Company shall use
its best efforts to cause such additional Registration Statement to be declared
effective by the Commission as soon as possible, but in no event later than
sixty (60) days after filing.  

 

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3.         Registration
Procedures.

                        In
connection with the Company's registration obligations hereunder, the Company
shall:

                        (a)        Prepare
and file with the Commission, on or prior to the Filing Date, a Registration
Statement on Form S-3 (or if the Company is not then eligible to register for
resale the Registrable Securities on Form S-3 such registration shall be on
another appropriate form in accordance herewith) including the method or
methods of distribution thereof as specified by the Holders (except if
otherwise directed by the Holders) and in accordance with applicable law, and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than three (3)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall (i)
furnish to the Holders and any Special Counsel, copies of all such documents
proposed to be filed, which documents will be subject to the review of such
Holders and such Special Counsel, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of counsel to such
Holders, to conduct a reasonable review of such documents.  The Company shall
not file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within
three (3) Business Days of their receipt thereof.

(b)        (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the
Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible, but in no event later than ten (10)
business days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by
the Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

 

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(c)        Notify
the Holders of Registrable Securities and any Special Counsel as promptly as
possible (and, in the case of (i)(A) below, not less than three (3) days prior
to such filing) and (if requested by any such Person) confirm such notice in
writing no later than two (2) Business Days following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is filed; (B) when the Commission notifies the Company
whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or supplements
to the Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation or threatening of any Proceedings for
that purpose; (iv) if at any time any of the representations and warranties of
the Company contained in any agreement contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation of any Proceeding for such purpose; and (vi) of
the occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

                        (d)        Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of, as promptly as possible, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction.

(e)        If
requested by the Holders of a majority in interest of the Registrable
Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.

 

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(f)             
If requested by any Holder, furnish to such Holder and any Special
Counsel, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by reference,
and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of
such documents with the Commission.

(g)            
Promptly deliver to each Holder and any Special Counsel, without charge,
as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and subject to the provisions of Section 3(n), the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the offering and sale
of the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

(h)            
Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and any
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where
it is not then so subject or subject the Company to any material tax in any
such jurisdiction where it is not then so subject.

                        (i)         Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to a
Registration Statement, which certificates, to the extent permitted by the
Purchase Agreement and applicable federal and state securities laws, shall be
free of all restrictive legends, and to enable such Registrable Securities to
be in such denominations and registered in such names as any Holder may request
in connection with any sale of Registrable Securities.

(j)         Upon
the occurrence of any event contemplated by Section 3(c)(v), as promptly as
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.

 

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(k)        Use
its best efforts to cause all Registrable Securities relating to such
Registration Statement to be listed on the American Stock Exchange or any other
securities exchange, quotation system or market, if any, on which similar
securities issued by the Company are then listed as and when required pursuant
to the Purchase Agreement.

(l)         Comply
in all material respects with all applicable rules and regulations of the
Commission and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
not later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) commencing on
the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.

(m)       The
Company may require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, Prospectus, or
any amendment or supplement thereto, and the Company may exclude from such
registration the Registrable Securities of any such Holder who unreasonably
fails to furnish such information within a reasonable time after receiving such
request.

Each Holder
covenants and agrees that (i) it will not sell any Registrable Securities under
the Registration Statement until it has received copies of the Prospectus as
then amended or supplemented as contemplated in Section 3(g) and notice from
the Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.

Each Holder
agrees by its acquisition of such Registrable Securities that, upon receipt of
a notice from the Company of the occurrence of any event of the kind described
in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(n), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement.

(n)        If
(i) there is material non-public information regarding the Company which the
Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate
during any 12 month period; provided, however, that no such
postponement or suspension shall be permitted for consecutive 20 day periods,
arising out of the same set of facts, circumstances or transactions.

 

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     4.                Registration
Expenses.

All fees and
expenses incident to the performance of or compliance with this Agreement by
the Company, except as and to the extent specified in Section 4, shall be borne
by the Company whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to
the Registration Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (A) with respect to
filings required to be made with each securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities
Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders
of a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company and
Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum amount of $5,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters).  In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the Registrable Securities
on any securities exchange as required hereunder.

     5.                 Indemnification.

(a)        Indemnification
by the Company.  The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Holder, the officers, directors,
agents, brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees of each of them, each
Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto), in the light of the circumstances under
which they were made, not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions arise out of or are based upon
information regarding the Holders or such other Indemnified Party furnished in
writing to the Company by a Holder expressly for use therein, which information
was reasonably relied on by the Company for use therein or to the extent that
such information relates to a Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by a Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement
thereto.  The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement.

 

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(b)        Indemnification
by Holders.  Each Holder shall, severally and not jointly, indemnify and
hold harmless the Company, the directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses, as incurred,
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto), in the light of the circumstances under which they were
made, not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder or other Indemnified Party to the Company expressly for use
therein and that such information was reasonably relied upon by the Company for
use therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or any
amendment or supplement thereto.  Notwithstanding anything to the contrary
contained herein, the Holders shall be liable under this Section 5(b) for only
that amount as does not exceed the net proceeds to such Holder as a result of
the sale of Registrable Securities pursuant to such Registration Statement.

                        (c)        Conduct
of Indemnification Proceedings.  If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party promptly shall notify the Person from
whom indemnity is sought (the "Indemnifying Party) in writing, and
the Indemnifying Party shall be entitled to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.

 

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An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties unless:
(1) the Indemnifying Party has agreed in writing to pay such fees and expenses;
or (2) the Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such parties shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened Proceeding in respect of which any Indemnified Party is a
party and indemnity has been sought hereunder, unless such settlement includes
an unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

     All fees
and expenses of the Indemnified Party (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid
to the Indemnified Party, as incurred, within ten (10) Business Days of written
notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnified Party shall
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

                        (d)        Contribution. 
If indemnification under Section 5(a) or 5(b) is due but unavailable to an
Indemnified Party because of a failure or refusal of a governmental authority
to enforce such indemnification in accordance with its terms (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying,
Party or Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action,
statement or omission.  The amount paid or payable by a party as a result of
any Losses shall be deemed to include, subject to the limitations set forth in
Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

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     The parties
hereto agree that it would not be just and equitable if contribution pursuant
to this Section 5(d) were determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.  No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

     The indemnity
and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties
pursuant to the law.

6.         Rule
144.

     As long as
any Holder owns Shares, Conversion Shares, Warrants or Warrant Shares, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act.  As long as any Holder owns Shares, Conversion Shares, Warrants
or Warrant Shares, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Holders and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act.  The
Company further covenants that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Person to sell Conversion Shares and Warrant Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act, including providing any legal
opinions relating to such sale pursuant to Rule 144.  Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.

 

-11-

7.         Miscellaneous.

(a)        Remedies.  In the event of a breach by the Company or
by a Holder, of any of their obligations under this Agreement, such Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. 
The Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of
any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.

(b)        No
Inconsistent Agreements.  Neither the Company nor any of its subsidiaries
has, as of the date hereof entered into and currently in effect, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof.  Except as disclosed in Schedule 2.1(c) of
the Purchase Agreement, neither the Company nor any of its subsidiaries has
previously entered into any agreement currently in effect granting any
registration rights with respect to any of its securities to any Person. 
Without limiting the generality of the foregoing, without the written consent
of the Holders of a majority of the then outstanding Registrable Securities,
the Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of
the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.

(c)        No
Piggyback on Registrations.  Neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto or as
disclosed in Schedule 2.1(c) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its securityholders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.

(d)        Piggy‐Back
Registrations.  If at any time when there is not an effective Registration
Statement covering (i) Conversion Shares or (ii) Warrant Shares, the Company
shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form
S-4 or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Registrable Securities written notice of such
determination and, if within thirty (30) days after receipt of such notice, or
within such shorter period of time as may be specified by the Company in such
written notice as may be necessary for the Company to comply with its
obligations with respect to the timing of the filing of such registration
statement, any such holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will

 

-12-

 

cause the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the holder, to the extent requisite to permit the disposition of
the Registrable Securities so to be registered, provided that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to such holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 4 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period
as the delay in registering such other securities. The Company shall include in
such registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, however, that the
Company shall not be required to register any Registrable Securities pursuant
to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the
Securities Act.  In the case of an underwritten public offering, if the
managing underwriter(s) or underwriter(s) should reasonably object to the
inclusion of the Registrable Securities in such registration statement, then if
the Company after consultation with the managing underwriter should reasonably
determine that the inclusion of such Registrable Securities would materially
adversely affect the offering contemplated in such registration statement, and
based on such determination recommends inclusion in such registration statement
of fewer or none of the Registrable Securities of the Holders, then (x) the
number of Registrable Securities of the Holders included in such registration
statement shall be reduced pro‐rata among such Holders (based upon
the number of Registrable Securities requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities, or (y) none of the
Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; provided, however,
that if Securities are being offered for the account of other persons or
entities as well as the Company, such reduction shall not represent a greater
fraction of the number of Registrable securities intended to be offered by the
Holders than the fraction of similar reductions imposed on such other persons
or entities (other than the Company).

(e)        Failure
to File Registration Statement and Other Events.  The Company and the
Purchasers agree that the Holders will suffer damages if the Registration
Statement is not filed on or prior to the Filing Date and not declared
effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Time. 
The Company and the Holders further agree that it would not be feasible to
ascertain the extent of such damages with precision.  Accordingly, if, except
as set forth in Section 3(n), (A) the Registration Statement is not filed on or
prior to the Filing Date, or (B) the Registration Statement is not declared
effective by the Commission on or prior to the 100th day after the
Closing Date (or in the event an additional Registration Statement is filed
because the actual number of shares of Common Stock into which the Preferred
Stock is convertible and the Warrants are exercisable exceeds the number of shares
of Common Stock initially registered is not filed and declared effective with
the time periods set forth in Section 2), or (C) the Company fails to file with
the Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act within five (5) Business Days of the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that a Registration Statement will not be "reviewed,"
or is not subject to further review, or (D) the Registration Statement is filed
with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission in
accordance with Section 2 hereof or (E) the Company has breached Section 3(n),
or (F) trading in the Common Stock shall be suspended or if the Common Stock is
delisted from the American Stock Exchange for any reason for more than three
Business Days in the aggregate without subsequent listing on another securities
exchange, quotation system or market (any such failure or breach being referred
to as an "Event," and for purposes of clauses (A) and (B) the
date on which such Event occurs, or for purposes of clause (C) the date on
which such five Business Day period is exceeded, or for purposes of clause (D)
after more than fifteen Business Days, or for purposes of clause (F) the date
on which such three Business Day period is exceeded, being referred to as
"Event Date"), the Company shall pay an amount as liquidated
damages to each Holder equal to 2.0% for the first calendar month or portion
thereof and 1.5% per calendar month thereafter or portion thereof of the
Holder's initial investment in the Preferred Stock from the Event Date
(provided that, with respect to the Event described in clause (B), the "first
calendar month" shall be deemed to commence on the 10th day prior to
the applicable Event Date), less any amount of Preferred Stock that has been
converted or redeemed by such Holder, until the applicable Event is cured. 
Notwithstanding anything to the contrary in this paragraph (e), if (I) any of
the Events described in clauses (A), (B) or (C) shall have occurred, (II) on or
prior to the applicable Event Date, the Company shall have exercised its rights
under Section 3(n) hereof and (III) the postponement or suspension permitted
pursuant to such Section 3(n) shall remain effective as of such applicable
Event Date, then the applicable Event Date shall be deemed instead to occur on
the second Business Day following the termination of such postponement or
suspension. 

 

-13-

(f)         Amendments
and Waivers.  The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and each of the Holders. 
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however,
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

(g)        Notices. 
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice prior to 5:00 p.m., New York City time, on a Business Day,
(ii) the Business Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified for
notice later than 5:00 p.m., New York City time, on any date and earlier than
11:59 p.m., New York City time, on such date, (iii) the Business Day following
the date of mailing, if sent by overnight delivery by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given.  The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on Schedule
1 attached hereto, or with respect to the Company, addressed to:

  
    

Home
Solutions of America, Inc.  

11850 Jones Road

Houston, TX 77070 

Attention: ______________

Tel. No.: (281) 970-9859

Fax No.:  (281)
___-____

    

  

 

-14-

 

or to such other address or addresses or facsimile number or
numbers as any such party may most recently have designated in writing to the
other parties hereto by such notice.  Copies of notices to the Company shall be
sent to J. Paul Caver, Attorney
at Law, 3102 Maple Avenue, Suite 220, Dallas, Texas 75201, Tel. No.: (214)
468-8868; Fax No.: (214) 220-1288.

(h)        Successors
and Assigns.  This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns and shall inure to
the benefit of each Holder and its successors and assigns.  The Company may not
assign this Agreement or any of its rights or obligations hereunder without the
prior written consent of each Holder.  Each Purchaser may assign its rights hereunder
in the manner and to the Persons as permitted under the Purchase Agreement.

(i)         Assignment
of Registration Rights.  The rights of each Holder hereunder, including the
right to have the Company register for resale Registrable Securities in
accordance with the terms of this Agreement, shall be automatically assignable
by each Holder to any Affiliate of such Holder or any other Holder or
Affiliate of any other Holder of all or a portion of the
Preferred Stock or the Registrable Securities if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement, and (vi)
at least 100,000 shares of Registrable Securities (appropriately adjusted for
any stock dividend, split or combination of the Common Stock) are being
transferred to such transferee or assignee in connection with such assignment
of rights.  In addition, each Holder shall have the right to assign its rights
hereunder to any other Person with the prior written consent of the Company,
which consent shall not be unreasonably withheld.  The rights to assignment
shall apply to the Holders (and to subsequent) successors and assigns.  

 

-15-

(j)         Counterparts. 
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

(k)        Governing
Law.  This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law thereof.

                        (l)         Cumulative
Remedies.  The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.

(m)       Severability.
If any term, provision, covenant or restriction of this Agreement is held to be
invalid, illegal, void or unenforceable in any respect, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.  It is hereby
stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.

                        (n)        Headings. 
The headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

(o)        Shares
Held by the Company and its Affiliates. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its Affiliates (other
than any Holder or transferees or successors or assigns thereof if such Holder
is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

-16-

IN WITNESS
WHEREOF, the parties hereto have caused this Registration Rights Agreement to
be duly executed by their respective authorized persons as of the date first
indicated above.

HOME SOLUTIONS
OF AMERICA, INC.

By:_____________________________________

                                                                       
           Name: 

                                                                                   Title:   

PURCHASER:

By:_____________________________________

                                                                       
           Name: 

                                                                                   Title:

PURCHASER:

By:_____________________________________

                                                                       
           Name: 

                                                                                   Title:

PURCHASER:

By:_____________________________________

                                                                       
           Name: 

                                                                                   Title:

 

-17-

Schedule I

Purchasers

 

 

-18-

Schedule II

 

 

 

-19-Exhibit 10.7

THIS WARRANT AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR HOME SOLUTIONS OF AMERICA, INC. SHALL HAVE RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO HOME SOLUTIONS OF AMERICA, INC. THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

 

SERIES A WARRANT TO
PURCHASE

SHARES OF COMMON
STOCK

OF

HOME SOLUTIONS OF
AMERICA, INC.

 

No.: W-A-04-__                                                                              Number
of Shares: ___________

Date of Issuance: March 1, 2004

FOR VALUE
RECEIVED, subject to the provisions hereinafter set forth, the undersigned, Home
Solutions of America, Inc., a Delaware corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that
_______________________________ or its registered assigns is entitled to
subscribe for and purchase, during the Term (as hereinafter defined), up to
____________________________________ (_____________) shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth.  Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 9 hereof.

1.         Term. 
The term of this Warrant shall commence on March 1, 2004 and shall expire at
5:00 p.m., eastern time, on the date that is ninety (90) days following the effective
date  (the "Effective Date") of the registration statement providing for
the resale of the Warrant Stock and the shares of Common Stock issuable upon
conversion of the Issuer's Series A Preferred Stock issued pursuant to the
Purchase Agreement (such period being the "Term").

 

 

 

2.         Method
of Exercise Payment; Issuance of New Warrant; Transfer and Exchange.

(a)        Time
of Exercise.  The purchase rights represented by this Warrant may be
exercised in whole or in part during the Term commencing on March 1, 2004 and
expiring on the date that is ninety (90) days following the Effective Date. 

(b)        Method
of Exercise.  The Holder hereof may exercise this Warrant, in whole or in
part, by the surrender of this Warrant (with the exercise form attached hereto
duly executed) at the principal office of the Issuer, and by the payment to the
Issuer of an amount of consideration therefor equal to the Warrant Price in
effect on the date of such exercise multiplied by the number of shares of
Warrant Stock with respect to which this Warrant is then being exercised,
payable at such Holder's election by certified or official bank check or by wire transfer to an account designated by the Issuer. 

(c)        Issuance
of Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant in accordance with and subject to the terms and
conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after
such exercise or, at the request of the Holder (provided that a registration
statement under the Securities Act providing for the resale of the Warrant
Stock is then in effect), issued and delivered to the Depository Trust Company
("DTC") account on the Holder's behalf via the Deposit Withdrawal Agent
Commission System ("DWAC") within a reasonable time, not exceeding three
(3) Trading Days after such exercise, and the Holder hereof shall be deemed for
all purposes to be the holder of the shares of Warrant Stock so purchased as of
the date of such exercise and (ii) unless this Warrant has expired, a new
Warrant representing the number of shares of Warrant Stock, if any, with
respect to which this Warrant shall not then have been exercised (less any
amount thereof which shall have been canceled in payment or partial payment of
the Warrant Price as hereinabove provided) shall also be issued to the Holder
hereof at the Issuer's expense within such time.

(d)        Transferability
of Warrant.  Subject to Section 2(f), this Warrant may be transferred by a
Holder without the consent of the Issuer.  If transferred pursuant to this
paragraph and subject to the provisions of subsection (f) of this Section 2,
this Warrant may be transferred on the books of the Issuer by the Holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Issuer, properly endorsed (by the Holder executing an
assignment in the form attached hereto) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer.  This
Warrant is exchangeable at the principal office of the Issuer for Warrants for
the purchase of the same aggregate number of shares of Warrant Stock, each new
Warrant to represent the right to purchase such number of shares of Warrant
Stock as the Holder hereof shall designate at the time of such exchange.  All
Warrants issued on transfers or exchanges shall be dated the Original Issue
Date and shall be identical with this Warrant except as to the name of the
Holder or the number of shares of Warrant Stock, as applicable.

(e)        Continuing
Rights of Holder.  The Issuer will, at the time of or at any time after
each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant, provided
that if any such Holder shall fail to make any such request, the failure shall
not affect the continuing obligation of the Issuer to afford such rights to
such Holder.

 

2

 

(f)         Compliance
with Securities Laws.

(i)         The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant or the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Warrant
Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.

(ii)        Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:

  

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR HOME SOLUTIONS OF
AMERICA, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO HOME SOLUTIONS OF AMERICA, INC. THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.

  

(iii)       The restrictions imposed by this subsection (e) upon the
transfer of this Warrant or the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been resold
pursuant to an effective registration statement under the Securities Act, (B)
upon the Issuer's receipt of an opinion of counsel, in form and substance reasonably
satisfactory to the Issuer, addressed to the Issuer to the effect that such
restrictions are no longer required to ensure compliance with the Securities
Act and state securities laws or (C) upon the Issuer's receipt of other
evidence reasonably satisfactory to the Issuer that such registration and
qualification under the Securities Act and state securities laws are not
required.  Whenever such restrictions shall cease and terminate as to any such
securities, the Holder thereof shall be entitled to receive from the Issuer (or
its transfer agent and registrar), without expense (other than applicable
transfer taxes, if any), new Warrants (or, in the case of shares of Warrant
Stock, new stock certificates) of like tenor not bearing the applicable legend
required by paragraph (ii) above relating to the Securities Act and state
securities laws.

 

3

 

(g)        In no
event may the Holder exercise this Warrant in whole or in part unless the
Holder is an "accredited investor" as defined in Regulation D under the Securities
Act.

3.         Stock Fully Paid; Reservation and Listing of Shares;
Covenants.

(a)        Stock Fully Paid.  The Issuer represents, warrants,
covenants and agrees that all shares of Warrant Stock which may be issued upon
the exercise of this Warrant or otherwise hereunder will, when issued in
accordance with the terms of this Warrant, be duly authorized, validly issued,
fully paid and non-assessable and free from all taxes, liens and charges
created by or through Issuer.  The Issuer further covenants and agrees that
during the period within which this Warrant may be exercised, the Issuer will
at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.

(b)        Reservation. 
If any shares of Common Stock required to be reserved for issuance upon
exercise of this Warrant or as otherwise provided hereunder require
registration or qualification with any governmental authority under any federal
or state law before such shares may be so issued, the Issuer will in good faith
use its reasonable best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified.  If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder (provided that such Warrant Stock
has been registered pursuant to a registration statement under the Securities
Act then in effect), and, to the extent permissible under the applicable
securities exchange rules, all unissued shares of Warrant Stock which are at
any time issuable hereunder, so long as any shares of Common Stock shall be so
listed.  The Issuer will also so list on each securities exchange or market,
and will maintain such listing of, any other securities which the Holder of
this Warrant shall be entitled to receive upon the exercise of this Warrant if
at the time any securities of the same class shall be listed on such securities
exchange or market by the Issuer.

(c)        Covenants. 
The Issuer shall not by any action including, without limitation, amending the Certificate
of Incorporation or the by-laws of the Issuer, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions as
may be necessary or appropriate to protect the rights of the Holder hereof
against dilution (to the extent specifically provided herein) or impairment. 
Without limiting the generality of the foregoing, the Issuer will (i) not
permit the par value, if any, of its Common Stock to exceed the then effective
Warrant Price, (ii) not amend or modify any provision of the Certificate of
Incorporation or by-laws of the Issuer in any manner that would adversely
affect the rights of the Holders of the Warrants in their capacity as Holders
of the Warrants, (iii) take all such action as may be reasonably necessary in
order that the Issuer may validly and legally issue fully paid and
nonassessable shares of Common Stock, free and clear of any liens, claims,
encumbrances and restrictions (other than as provided herein) upon the exercise
of this Warrant, and (iv) use its reasonable best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be reasonably necessary to enable the Issuer to
perform its obligations under this Warrant.

 

4

 

(d)        Loss,
Theft, Destruction of Warrants.  Upon receipt of evidence satisfactory to
the Issuer of the ownership of and the loss, theft, destruction or mutilation
of any Warrant and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security satisfactory to the Issuer or, in the case of
any such mutilation, upon surrender and cancellation of such Warrant, the
Issuer will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same number of shares of Common Stock.

4.         Adjustment
of Warrant Price and Warrant Share Number.  The number of shares of Common
Stock for which this Warrant is exercisable, and the price at which such shares
may be purchased upon exercise of this Warrant, shall be subject to adjustment
from time to time as set forth in this Section 4. The Issuer shall give the
Holder notice of any event described below which requires an adjustment
pursuant to this Section 4 in accordance with Section 5.  

(a)        Recapitalization,
Reorganization, Reclassification, Consolidation, Merger or Sale.

            (i) 
In case the Issuer after the Original Issue Date shall do any of the following
(each, a "Triggering Event"): (a) consolidate or merge with or
into another corporation where the holders of outstanding Voting Stock prior to
such merger or consolidation do not own over 50% of the outstanding Voting
Stock of the merged or consolidated entity immediately after such merger or
consolidation, or (b) sell all or substantially all of its properties or assets
to any other Person, or (c) change the Common Stock to the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 4(b) or Section 4(c)), or (d) effect a capital reorganization (other
than by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 4(b) or Section 4(c)), then, and in the
case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled upon the exercise hereof at any time
after the consummation of such Triggering Event, to the extent this Warrant is
not exercised prior to such Triggering Event, to receive at the Warrant Price
in effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto, subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for elsewhere in this
Section 4.

            (ii)        Notwithstanding
anything contained in this Warrant to the contrary, a Triggering Event shall
not be deemed to have occurred if, prior to the consummation thereof, each
Person (other than the Issuer) which may be required to deliver any securities,
cash or property upon the exercise of this Warrant as provided herein shall
assume, by written instrument delivered to, and reasonably satisfactory to, the
Holder of this Warrant, (A) the obligations of the Issuer under this Warrant
(and if the Issuer shall survive the consummation of such Triggering Event,
such assumption shall be in addition to, and shall not release the Issuer from,
any continuing obligations of the Issuer under this Warrant) and (B) the
obligation to deliver to such Holder such shares of securities, cash or
property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder a written acknowledgement executed by the
President or Chief Financial Officer of the Company, stating that this Warrant
shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the securities, cash or property which such Person may
be required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto. 

 

5

 

                        (b)        Stock
Dividends, Subdivisions and Combinations.  If at any time the Issuer shall:

                        (i)         make
or issue or set a record date for the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, shares of Common Stock, 

                        (ii)
       effect a stock split of its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or

                        (iii)
      combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock,

then (1) the number of shares of Common Stock for which
this Warrant is exercisable immediately after the occurrence of any such event
shall be adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (2) the Warrant
Price then in effect shall be adjusted to equal (A) the Warrant Price then in
effect multiplied by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the adjustment divided by (B) the
number of shares of Common Stock for which this Warrant is exercisable
immediately after such adjustment.

Notwithstanding the foregoing, if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Warrant Price shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends
or distributions.

            (c)        Certain
Other Distributions.  If at any time the Issuer shall make or issue or set
a record date for the determination of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:

 

6

 

(i)         cash
(other than a cash dividend payable out of earnings or earned surplus legally
available for the payment of dividends under the laws of the jurisdiction of
incorporation of the Issuer),

(ii)        any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock
Equivalents or Additional Shares of Common Stock), or

(iii)       any
warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property of any nature whatsoever (other than cash, Common Stock Equivalents or
Additional Shares of Common Stock), 

then (1) the number of shares of
Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (A)
the numerator of which shall be the Per Share Market Value of Common Stock at
the date of taking such record and (B) the denominator of which shall be such
Per Share Market Value minus the amount allocable to one share of Common Stock
of any such cash so distributable and of the fair value (as determined in good
faith by the Board of Directors of the Issuer and supported by an opinion from
an investment banking firm of recognized national standing acceptable to (but
not affiliated with) the Holder) of any and all such evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights so distributable, and (2) the Warrant Price then in effect
shall be adjusted to equal (A) the Warrant Price then in effect multiplied by
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares of
Common Stock for which this Warrant is exercisable immediately after such
adjustment.  A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Issuer to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4(c)
and, if the outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be,
of the outstanding shares of Common Stock within the meaning of Section 4(b).       

Notwithstanding the foregoing, if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Warrant Price shall be adjusted
pursuant to this Section 4(c) as of the time of actual payment of such
dividends or distributions.

            (d)        Issuance
of Additional Shares of Common Stock.  

                        (i)         In
the event the Issuer shall at any time following the Original Issue Date issue
any Additional Shares of Common Stock (otherwise than as provided in the
foregoing subsections (a) through (c) of this Section 4), at a price per share
less than the Warrant Price then in effect or without consideration, then the
Warrant Price upon each such issuance shall be adjusted to that price
determined by multiplying the Warrant Price then in effect by a fraction:

 

7

 

(A)       the
numerator of which shall be equal to the sum of (x) the number of shares of
Outstanding Common Stock immediately prior to the issuance of such Additional
Shares of Common Stock plus (y) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the Warrant Price then in effect, and

(B)       the denominator of
which shall be equal to the number of shares of Outstanding Common Stock
immediately after the issuance of such Additional Shares of Common Stock.

                        (ii)        No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (i) of Section 4(d) upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any Common Stock Equivalents, if any such adjustment shall
previously have been made upon the issuance of such Common Stock Equivalents
(or upon the issuance of any warrant or other rights therefor) pursuant to
Section 4(e).

(e)            
  Intentionally Omitted.

(f)              
Issuance of Common Stock Equivalents.  If at any time the Issuer
shall issue or sell any Common Stock Equivalents, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the aggregate
price per share for which Common Stock is issuable upon such conversion or
exchange plus the consideration received by the Issuer for issuance of such
Common Stock Equivalent divided by the number of shares of Common Stock
issuable pursuant to such Common Stock Equivalent shall be less than the
Warrant Price in effect immediately prior to the time of such issue or sale,
then the number of shares of Common Stock for which this Warrant is exercisable
and the Warrant Price then in effect shall be adjusted as provided in Section 4(d)
on the basis that the maximum number of Additional Shares of Common Stock
necessary to effect the conversion or exchange of all such Common Stock
Equivalents shall be deemed to have been issued and outstanding and the Issuer
shall have received all of the consideration payable therefor, if any, as of
the date of actual issuance of such Common Stock Equivalents.  No further
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made under this
Section 4(e) upon the issuance of any Common Stock Equivalents which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon
the issuance of such warrants or other rights pursuant to this Section 4(e). 
No further adjustments of the number of shares of Common Stock for which this
Warrant is exercisable and the Warrant Price then in effect shall be made upon
the actual issue of such Common Stock upon conversion or exchange of such
Common Stock Equivalents.

 

8

 

(g)         Superseding Adjustment.  If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable and
the Warrant Price then in effect shall have been made pursuant to Section 4(e)
as the result of any issuance of Common Stock Equivalents, and (i) such Common
Stock Equivalents, or the right of conversion or exchange in such Common Stock
Equivalents, shall expire, and all or a portion of such or the right of
conversion or exchange with respect to all or a portion of such Common Stock
Equivalents, as the case may be, shall not have been exercised, or (ii) the
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents shall be increased, then such previous
adjustment shall be rescinded and annulled and the Additional Shares of Common
Stock which were deemed to have been issued by virtue of the computation made
in connection with the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation.  Upon the occurrence
of an event set forth in this Section 4(g) above, there shall be a
recomputation made of the effect of such Common Stock Equivalents on the basis
of: (i) treating the number of Additional Shares of Common Stock theretofore
actually issued or issuable pursuant to the previous exercise of Common Stock
Equivalents or any such right of conversion or exchange, as having been issued
on the date or dates of any such exercise and for the consideration actually
received and receivable therefor, and (ii) treating any such Common Stock
Equivalents which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share for
which Additional Shares of Common Stock are issuable under such Common Stock
Equivalents; whereupon a new adjustment of the number of shares of Common
Stock for which this Warrant is exercisable and the Warrant Price then in
effect shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.

(h)        Purchase
of Common Stock by the Issuer.  If the Issuer at any time while this
Warrant is outstanding shall, directly or indirectly through a Subsidiary or
otherwise, purchase, redeem or otherwise acquire any shares of Common Stock at
a price per share greater than the Per Share Market Value, then the Warrant
Price upon each such purchase, redemption or acquisition shall be adjusted to that
price determined by multiplying such Warrant Price by a fraction (i) the
numerator of which shall be the number of shares of Outstanding Common Stock
immediately prior to such purchase, redemption or acquisition minus the number
of shares of Common Stock which the aggregate consideration for the total
number of such shares of Common Stock so purchased, redeemed or acquired would
purchase at the Per Share Market Value; and (ii) the denominator of which shall
be the number of shares of Outstanding Common Stock immediately after such
purchase, redemption or acquisition.  For the purposes of this subsection (h),
the date as of which the Per Share Market Price shall be computed shall be the
earlier of (x) the date on which the Issuer shall enter into a firm contract
for the purchase, redemption or acquisition of such Common Stock, or (y) the
date of actual purchase, redemption or acquisition of such Common Stock.  For
the purposes of this subsection (h), a purchase, redemption or acquisition of a
Common Stock Equivalent shall be deemed to be a purchase of the underlying
Common Stock, and the computation herein required shall be made on the basis of
the full exercise, conversion or exchange of such Common Stock Equivalent on
the date as of which such computation is required hereby to be made, whether or
not such Common Stock Equivalent is actually exercisable, convertible or
exchangeable on such date.

            (i)         Other
Provisions applicable to Adjustments under this Section.  The following
provisions shall be applicable to the making of adjustments of the number of
shares of Common Stock for which this Warrant is exercisable and the Warrant
Price then in effect provided for in this Section 4:

 

9

 

                        (i)         Computation
of Consideration.  To the extent that any Additional Shares of Common Stock
or any Common Stock Equivalents (or any warrants or other rights therefor)
shall be issued for cash consideration, the consideration received by the
Issuer therefor shall be the amount of the cash received by the Issuer
therefor, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and
without taking into account any compensation, discounts or expenses paid or
incurred by the Issuer for and in the underwriting of, or otherwise in
connection with, the issuance thereof).  In connection with any merger or
consolidation in which the Issuer is the surviving corporation (other than any
consolidation or merger in which the previously outstanding shares of Common
Stock of the Issuer shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefore shall
be, deemed to be the fair value, as determined reasonably and in good faith by
the Board, of such portion of the assets and business of the nonsurviving
corporation as the Board may determine to be attributable to such shares of
Common Stock or Common Stock Equivalents, as the case may be.  The consideration
for any Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the consideration
received by the Issuer for issuing such warrants or other rights plus the
additional consideration payable to the Issuer upon exercise of such warrants
or other rights.  The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Common Stock Equivalents shall be the
consideration received by the Issuer for issuing warrants or other rights to
subscribe for or purchase such Common Stock Equivalents, plus the consideration
paid or payable to the Issuer in respect of the subscription for or purchase of
such Common Stock Equivalents, plus the additional consideration, if any,
payable to the Issuer upon the exercise of the right of conversion or exchange
in such Common Stock Equivalents.  In the event of any consolidation or merger
of the Issuer in which the Issuer is not the surviving corporation or in which
the previously outstanding shares of Common Stock of the Issuer shall be
changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the
assets of the Issuer for stock or other securities of any corporation, the
Issuer shall be deemed to have issued a number of shares of its Common Stock
for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated,
and for a consideration equal to the fair market value on the date of such
transaction of all such stock or securities or other property of the other
corporation.  In the event any consideration received by the Issuer for any
securities consists of property other than cash, the fair market value thereof
at the time of issuance or as otherwise applicable shall be as determined in
good faith by the Board.  In the event Common Stock is issued with other shares
or securities or other assets of the Issuer for consideration which covers
both, the consideration computed as provided in this Section 4(i)(i) shall be
allocated among such securities and assets as determined in good faith by the
Board.

                        (ii)        When
Adjustments to Be Made.  The adjustments required by this Section 4 shall
be made whenever and as often as any specified event requiring an adjustment
shall occur, except that any adjustment of the number of shares of Common Stock
for which this Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 4(b)) up to, but not beyond the date
of exercise if such adjustment either by itself or with other adjustments not
previously made adds or subtracts less than one percent (1%) of the shares of
Common Stock for which this Warrant is exercisable immediately prior to the
making of such adjustment.  Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a minimum
adjustment or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.

 

10

 

                        (iii)       Fractional
Interests.  In computing adjustments under this Section 4, fractional
interests in Common Stock shall be taken into account to the nearest one
one-hundredth (1/100th) of a share.

            (iv)       When
Adjustment Not Required.  If the Issuer shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall, thereafter and
before the distribution to stockholders thereof, legally abandon its plan to
pay or deliver such dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.

(j)         Form
of Warrant after Adjustments.  The form of this Warrant need not be changed
because of any adjustments in the Warrant Price or the number and kind of
Securities purchasable upon the exercise of this Warrant.

            (k)        Escrow
of Warrant Stock.  If after any property becomes distributable pursuant to
this Section 4 by reason of the taking of any record of the holders of Common
Stock, but prior to the occurrence of the event for which such record is taken,
and the Holder exercises this Warrant, any shares of Common Stock issuable
upon exercise by reason of such adjustment shall be deemed the last shares of
Common Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property shall be
held in escrow for the Holder by the Issuer to be issued to the Holder upon and
to the extent that the event actually takes place, upon payment of the current
Warrant Price.  Notwithstanding any other provision to the contrary herein, if
the event for which such record was taken fails to occur or is rescinded, then
such escrowed shares shall be cancelled by the Issuer and escrowed property
returned.

5.         Notice
of Adjustments.  Whenever the Warrant Price or Warrant Share Number shall
be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each
an "adjustment"), the Issuer shall cause its Chief Financial Officer
to prepare and execute a certificate setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated (including a description of the basis on
which the Board made any determination hereunder), and the Warrant Price and
Warrant Share Number after giving effect to such adjustment, and shall cause
copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment.  Any dispute between the Issuer and the Holder
of this Warrant with respect to the matters set forth in such certificate may
at the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big four" selected by the
Holder, provided that the Issuer shall have ten (10) days after receipt
of notice from such Holder of its selection of such firm to object thereto, in
which case such Holder shall select another such firm and the Issuer shall have
no such right of objection.  The firm selected by the Holder of this Warrant as
provided in the preceding sentence shall be instructed to deliver a written
opinion as to such matters to the Issuer and such Holder within thirty (30)
days after submission to it of such dispute.  Such opinion shall be final and
binding on the parties hereto.  

 

11

 

6.         Fractional
Shares.  No fractional shares of Warrant Stock will be issued in connection
with any exercise hereof, but in lieu of such fractional shares, the Issuer
shall make a cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the Per Share Market Value then in effect.

            7.          Ownership Cap and Certain
Exercise Restrictions.  (a)  Notwithstanding anything to the
contrary set forth in this Warrant, at no time may a Holder of this Warrant
exercise this Warrant if the number of shares of Common Stock to be issued
pursuant to such exercise would exceed, when aggregated with all other shares
of Common Stock owned by such Holder at such time, the number of shares of
Common Stock which would result in such Holder owning more than 4.999% of all
of the Common Stock outstanding at such time; provided, however, that upon a
holder of this Warrant providing the Issuer with sixty-one (61) days notice
(pursuant to Section 13 hereof) (the "Waiver Notice") that such
Holder would like to waive this Section 7(a) with regard to any or all shares
of Common Stock issuable upon exercise of this Warrant, this Section 7(a) will
be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice; provided, further, that this provision shall
be of no further force or effect (i) during the sixty-one (61) days immediately
preceding the expiration of the term of this Warrant or (ii) upon the Holder's
receipt of a Call Notice (as defined in Section 8 hereof).

                        (b)        The
Holder may not exercise the Warrant hereunder to the extent such exercise would
result in the Holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.999%
of the then issued and outstanding shares of Common Stock, including shares
issuable upon exercise of the Warrant held by the Holder after application of
this Section; provided, however, that upon a holder of this
Warrant providing the Company with a Waiver Notice that such holder would like
to waive this Section 7(b) with regard to any or all shares of Common Stock
issuable upon exercise of this Warrant, this Section 7(b) shall be of no force
or effect with regard to those shares of Warrant Stock referenced in the Waiver
Notice; provided, further, that this provision shall be of no
further force or effect (i) during the sixty-one (61) days immediately
preceding the expiration of the term of this Warrant or (ii) upon the Holder's
receipt of a Call Notice (as defined in Section 8 hereof).

8.      Call. 
Notwithstanding anything herein to the contrary, commencing on the Effective Date,
the Issuer, at its option, may call up to one hundred percent (100%) of this
Warrant if the Per Share Market Value of the Common Stock has been greater than
$_____ [300% of the Warrant Price] (as may be adjusted for any stock splits or
combinations of the Common Stock) for a period of fifteen (15) consecutive
Trading Days immediately prior to the date of delivery of the Call Notice (a
"Call Notice Period") by providing the Holder of this Warrant
written notice pursuant to Section 13 (the "Call Notice"); provided,
that (i) a registration statement under the Securities Act providing for
the resale of the Warrant Stock and the shares of Common Stock issuable upon
conversion of the Issuer's Series A Preferred Stock issued pursuant to the
Purchase Agreement is then in effect, (ii) trading in
the Common Stock shall not have been suspended by the Securities and Exchange
Commission or the American Stock Exchange and (iii) the Issuer is in material
compliance with the terms and conditions of this Warrant and the other
Transaction Documents (as defined in the Purchase Agreement); provided,
further, that a registration statement under the Securities Act
providing for the resale of the Warrant Stock and the shares of Common Stock
issuable upon conversion of the Issuer's Series A Preferred Stock issued
pursuant to the Purchase Agreement is in effect from the date of delivery of
the Call Notice until the date which is the later of (i) the date the Holder
exercises the Warrant pursuant to the Call Notice and (ii) the 20th
day after the Holder receives the Call Notice (the "Early Termination
Date").  The rights and privileges granted pursuant to this Warrant
with respect to the shares of Warrant Stock subject to the Call Notice (the
"Called Warrant Shares") shall expire on the Early Termination
Date if this Warrant is not exercised with respect to such Called Warrant
Shares prior to such Early Termination Date.  In the event this Warrant is not
exercised with respect to the Called Warrant Shares, the Issuer shall remit to
the Holder of this Warrant (i) $.01 per Called Warrant Share and (ii) a new
Warrant representing the number of shares of Warrant Stock, if any, which shall
not have been subject to the Call Notice upon the Holder tendering to the
Issuer the applicable Warrant certificate.

 

12

 

9.        
Definitions.  For the purposes of this Warrant, the following
terms have the following meanings:

            "Additional
Shares of Common Stock" means all shares of Common Stock issued by the
Issuer after the Original Issue Date, and all shares of Other Common, if any,
issued by the Issuer after the Original Issue Date, except: (i) securities
issued pursuant to an underwritten public offering of the Issuer's securities,
(ii) securities issued pursuant to the conversion or exercise of convertible or
excercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement, (iii) the Warrant Stock, (iv)
securities issued in connection with strategic license agreements so long as
such issuances are not for the purpose of raising capital, (v) Common Stock
issued or options to purchase Common Stock granted or issued pursuant to the
Issuer's stock option plans and employee stock purchase plans as they now
exist, (vi) any warrants issued to the placement agent for the transactions
contemplated by the Purchase Agreement, and (vii) the payment of any dividend
on the Series A Preferred Stock of the Issuer.  

"Board"
shall mean the Board of Directors of the Issuer.

"Capital
Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited)
in any Person which is a partnership, (iii) all membership interests or limited
liability company interests in any limited liability company, and (iv) all
equity or ownership interests in any Person of any other type.

"Certificate
of Incorporation" means the Certificate of Incorporation of the Issuer
as in effect on the Original Issue Date, and as hereafter from time to time
amended, modified, supplemented or restated in accordance with the terms hereof
and thereof and pursuant to applicable law.

 

13

 

"Common
Stock" means the Common Stock, par value $.001 per share, of the
Issuer and any other Capital Stock into which such stock may hereafter be
changed.

"Common
Stock Equivalent" means any Convertible Security or warrant, option or
other right to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Security.

"Convertible
Securities" means evidences of Indebtedness, shares of Capital Stock
or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common Stock.  The term "Convertible
Security" means one of the Convertible Securities.

"Governmental
Authority" means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or
instrumentality, whether federal, state or local, and whether domestic or
foreign.

"Holders"
mean the Persons who shall from time to time own any Warrant.  The term
"Holder" means one of the Holders.

"Independent
Appraiser" means a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the
Holder of any Warrant.

"Issuer"
means Home Solutions of America, Inc., a Delaware corporation, and its
successors. 

"Majority
Holders" means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time
outstanding.

"Nasdaq"
means the Nasdaq National Market or the Nasdaq SmallCap Market.

"Original
Issue Date" means March 1, 2004.

                        "OTC
Bulletin Board" means the over-the-counter electronic bulletin board.

"Other
Common" means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than
Common Stock) and which shall have the right to participate in the distribution
of earnings and assets of the Issuer without limitation as to amount.

 

14

 

            "Outstanding
Common Stock" means, at any given time, the aggregate amount of outstanding
shares of Common Stock, assuming full exercise, conversion or exchange (as
applicable) of all options, warrants and other Securities which are convertible
into or exercisable or exchangeable for, and any right to subscribe for, shares
of Common Stock that are outstanding at such time.

            "Person"
means an individual, corporation, limited liability company, partnership, joint
stock company, trust, unincorporated organization, joint venture, Governmental
Authority or other entity of whatever nature.

"Per
Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the American Stock Exchange
or another registered national stock exchange on which the Common Stock is then
listed, or if there is no such price on such date, then the closing bid price
on such exchange or quotation system on the date nearest preceding such date,
or (b) if the Common Stock is not listed then on the American Stock Exchange,
Nasdaq or any other registered national stock exchange, the closing bid price
for a share of Common Stock in the over‐the‐counter market, as
reported by the OTC Bulletin Board or in the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the OTC Bulletin Board or the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet"
quotes for the relevant conversion period, as determined in good faith by the holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Independent Appraiser selected in
good faith by the Majority Holders; provided, however, that the
Issuer, after receipt of the determination by such Independent Appraiser, shall
have the right to select an additional Independent Appraiser, in which case,
the fair market value shall be equal to the average of the determinations by
each such Independent Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately adjusted
for any stock dividends, stock splits or other similar transactions during such
period.  The determination of fair market value by an Independent Appraiser
shall be based upon the fair market value of the Issuer determined on a going
concern basis as between a willing buyer and a willing seller and taking into
account all relevant factors determinative of value, and shall be final and
binding on all parties.  In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on transfer
of the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting rights.

"Purchase
Agreement" means the Series A Convertible Preferred Stock Purchase
Agreement dated as of March 1, 2004, among the Issuer and the investors a party
thereto.

"Securities"
means any debt or equity securities of the Issuer, whether now or hereafter
authorized, any instrument convertible into or exchangeable for Securities or a
Security, and any option, warrant or other right to purchase or acquire any
Security.  "Security" means one of the Securities.

 

15

 

"Securities
Act" means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.

"Subsidiary"
means any corporation at least 50% of whose outstanding Voting Stock shall at
the time be owned directly or indirectly by the Issuer or by one or more of its
Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

"Term"
has the meaning specified in Section 1 hereof.

"Trading
Day" means (a) a day on which the Common Stock is traded on the
American Stock Exchange, or (b) if the Common Stock is not listed on the
American Stock Exchange, a day on which the Common Stock is traded on any other
registered national stock exchange, or (c) if the Common Stock is not traded on
any other registered national stock exchange, a day on which the Common Stock is
traded on the OTC Bulletin Board, or (d) if the Common Stock is not traded on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the over‐the‐counter
market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted
as set forth in (a), (b) and (c) hereof, then Trading Day shall mean any day
except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York are authorized or required
by law or other government action to close.

"Voting
Stock" means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) having ordinary
voting power for the election of a majority of the members of the Board of
Directors (or other governing body) of such corporation, other than Capital
Stock having such power only by reason of the happening of a contingency.

"Warrants"
means the Warrants issued and sold pursuant to the Purchase Agreement,
including, without limitation, this Warrant, and any other warrants of like
tenor issued in substitution or exchange for any thereof pursuant to the
provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other
Warrants. 

"Warrant
Price" initially means U.S. $1.75, as such Warrant Price may be
adjusted from time to time as shall result from the adjustments specified in
this Warrant, including Section 4 hereto.

"Warrant
Share Number" means at any time the aggregate number of shares of
Warrant Stock which may at such time be purchased upon exercise of this
Warrant, after giving effect to all prior adjustments and increases to such number
made or required to be made under the terms hereof.

"Warrant
Stock" means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants.

 

16

 

10.       Other Notices.  In case at any time:

(A)       the Issuer shall make any distributions
to the holders of Common Stock; or

(B)       the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of Capital Stock
of any class or other rights; or

(C)       there shall be any reclassification of the Capital Stock of
the Issuer; or

(D)       there shall be any capital reorganization by the Issuer; or

(E)       there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or substantially all
of the Issuer's property, assets or business (except a merger or other
reorganization in which the Issuer shall be the surviving corporation and its
shares of Capital Stock shall continue to be outstanding and unchanged and except
a consolidation, merger, sale, transfer or other disposition involving a
wholly-owned Subsidiary); or

(F)       there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial liquidation of the
Issuer or distribution to holders of Common Stock;

then, in each of such cases, the
Issuer shall give written notice to the Holder of the date on which (i) the
books of the Issuer shall close or a record shall be taken for such dividend,
distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be, shall take place.  Such notice also shall
specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their certificates for Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding-up, as
the case may be.  Such notice shall be given at least twenty (20) days prior to
the record date or effective date for the event specified in such notice.

11.       Amendment
and Waiver.  Any term, covenant, agreement or condition in this Warrant may
be amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), by a written
instrument or written instruments executed by the Issuer and the Majority
Holders; provided, however, that no such amendment or waiver
shall reduce the Warrant Share Number, increase the Warrant Price, shorten the
period during which this Warrant may be exercised or modify any provision of
this Section 11 without the consent of the Holder of this Warrant.

 

17

 

12.       Governing
Law.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.

13.       Notices. 
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified for notice prior to 5:00 p.m., eastern time, on a Trading Day, (ii)
the Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified for
notice later than 5:00 p.m., eastern time, on any date and earlier than 11:59
p.m., eastern time, on such date, (iii) the Trading Day following the date of
mailing, if sent by overnight delivery by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given.  The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:

  
    
      

Home
Solutions of America, Inc.  

11850 Jones Road

Houston, TX 77070 

Attention: ______________

Tel. No.: (281) 970-9859

Fax No.:  (281) ___-____

      

    

  

Copies of notices to the Issuer
shall be sent to J. Paul Caver, Attorney
at Law, 3102 Maple Avenue, Suite 220, Dallas, Texas 75201, Tel. No.: (214)
468-8868; Fax No.: (214) 220-1288.  Copies of notices to the Holder shall be
sent to Jenkens & Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New
York, New York 10174, Attention: Christopher S. Auguste,  Facsimile No.: (212)
704-6288.  Any party hereto may from time to time change its address for
notices by giving at least ten (10) days written notice of such changed address
to the other party hereto.

14.       Warrant
Agent.  The Issuer may, by written notice to each Holder of this Warrant,
appoint an agent having an office in New York, New York for the purpose of
issuing shares of Warrant Stock on the exercise of this Warrant pursuant to
subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to
subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

15.       Remedies. 
The Issuer stipulates that the remedies at law of the Holder of this Warrant in
the event of any default or threatened default by the Issuer in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.

 

18

 

16.       Successors
and Assigns.  This Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors and assigns of the Issuer,
the Holder hereof and (to the extent provided herein) the Holders of Warrant
Stock issued pursuant hereto, and shall be enforceable by any such Holder or
Holder of Warrant Stock.

17.       Modification
and Severability.  If, in any action before any court or agency legally
empowered to enforce any provision contained herein, any provision hereof is
found to be unenforceable, then such provision shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.  If any such
provision is not enforceable as set forth in the preceding sentence, the
unenforceability of such provision shall not affect the other provisions of
this Warrant, but this Warrant shall be construed as if such unenforceable
provision had never been contained herein.

18.       Headings. 
The headings of the Sections of this Warrant are for convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.

 

19

IN WITNESS WHEREOF, the Issuer has executed this Series A Warrant as of
the day and year first above written.

                                                                        HOME
SOLUTIONS OF AMERICA, INC.

                                                                        By:                                                                              

                                                                             
Name:

                                                                             
Title:

 

20

EXERCISE FORM

SERIES A WARRANT

HOME SOLUTIONS OF AMERICA, INC. 

The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of Home Solutions of
America, Inc. covered by the within Warrant.

Dated: _________________               Signature          ___________________________

Address           _____________________

_____________________

Number of shares of Common Stock beneficially owned or
deemed beneficially owned by the Holder on the date of Exercise:
_________________________

ASSIGNMENT

FOR VALUE RECEIVED,
_________________ hereby sells, assigns and transfers unto __________________
the within Warrant and all rights evidenced thereby and does irrevocably
constitute and appoint _____________, attorney, to transfer the said Warrant on
the books of the within named corporation.

Dated: _________________               Signature          ___________________________

Address           _____________________

_____________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED,
_________________ hereby sells, assigns and transfers unto __________________
the right to purchase _________ shares of Warrant Stock evidenced by the within
Warrant together with all rights therein, and does irrevocably constitute and
appoint ___________________, attorney, to transfer that part of the said
Warrant on the books of the within named corporation.

Dated: _________________               Signature          ___________________________

Address           _____________________

_____________________

FOR USE BY THE ISSUER
ONLY:

This Warrant No. W-___ canceled
(or transferred or exchanged) this _____ day of ___________, _____, shares of
Common Stock issued therefor in the name of _______________, Warrant No.
W-_____ issued for ____ shares of Common Stock in the name of _______________.

 

21

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