Document:

Exhibit 10.4

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HOME SOLUTIONS OF AMERICA,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to Purchase 370,000 Shares of Common Stock of

Home Solutions of America, Inc. 

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

	
  No. _________________

  	
  Issue Date:  January 22,
  2004

  

HOME SOLUTIONS OF AMERICA, INC., a corporation
organized under the laws of the State of Delaware, hereby certifies that, for
value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company
(as defined herein) from and after the Issue Date of this Warrant and at any
time or from time to time before 5:00 p.m., New York time, through the close of
business January 22, 2011 (the "Expiration Date"), up to 370,000 fully
paid and nonassessable shares of Common Stock (as hereinafter defined), $0.01
par value per share, at the applicable Exercise Price per share (as defined
below).  The number and character of such shares of Common Stock and the
applicable Exercise Price per share are subject to adjustment as provided
herein.

As used herein the following terms, unless the
context otherwise requires, have the following respective meanings: 

(a)        The term "Company" shall
include Home Solutions of America, Inc. and any corporation which shall
succeed, or assume the obligations of, Home Solutions of America, Inc.
hereunder. 

(b)        The term "Common Stock"
includes (i) the Company's Common Stock, par value 0.01 per share; and (ii) any
other securities into which or for which any of the securities described in (a)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

(c)        The term "Other Securities"
refers to any stock (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the holder of the
Warrant at any time shall be entitled to receive, or shall have received, on
the exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for
or in replacement of Common Stock or Other Securities pursuant to Section 4 or
otherwise. 

 

(d)        The "Exercise Price"
applicable under this Warrant shall be as follows:

(i)         a price of
$2.32 [120% of the average closing price of  Common Stock for the five (5)
trading days immediately prior to the date hereof.] for the  first 200,000
shares acquired hereunder;

(ii)        a price of
$2.52 [130% of the average closing price of  Common Stock for the five (5)
trading days immediately prior to the date hereof.] for the next 150,000 shares
acquired hereunder; and

(iii)       a price of
$2.90 [150% of the average closing price of  Common Stock for the five (5)
trading days immediately prior to the date hereof.] for any additional shares
acquired hereunder.

1.                 
Exercise of Warrant. 

1.1             
Number of Shares Issuable upon Exercise.  From and after the date
hereof through and including the Expiration Date, the Holder shall be entitled
to receive, upon exercise of this Warrant in whole or in part, by delivery of
an original or fax copy of an exercise notice in the form attached hereto as
Exhibit A (the "Exercise Notice"), shares of Common Stock of the
Company, subject to adjustment pursuant to Section 4.

1.2             
Fair Market Value.  For purposes hereof, the "Fair Market
Value" of a share of Common Stock as of a particular date (the
"Determination Date") shall mean: 

(a)               
If the Company's Common Stock is traded on the American Stock Exchange
or  another national exchange or is quoted on the National or SmallCap Market
of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the closing or last
sale price, respectively, reported for the last business day immediately
preceding the Determination Date.

(b)              
If the Company's Common Stock is not traded on the American Stock Exchange
or another national exchange or on the Nasdaq but is traded on the NASD OTC
Bulletin Board, then the mean of the average of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.

(c)               
Except as provided in clause (d) below, if the Company's Common Stock is
not publicly traded, then as the Holder and the Company agree or in the absence
of agreement by arbitration in accordance with the rules then in effect of the
American Arbitration Association, before a single arbitrator to be chosen from
a panel of persons qualified by education and training to pass on the matter to
be decided.

(d)              
If the Determination Date is the date of a liquidation, dissolution or
winding up, or any event deemed to be a liquidation, dissolution or winding up
pursuant to the Company's charter, then all amounts to be payable per share to
holders of the Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be payable
per share in respect of the Common Stock in liquidation under the charter,
assuming for the purposes of this clause (d) that all of the shares of Common
Stock then issuable upon exercise of the Warrant are outstanding at the
Determination Date.

 

2

 

1.3             
Company Acknowledgment.  The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights. 

1.4             
Trustee for Warrant Holders.  In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrant
pursuant to Subsection 3.2, such bank or trust company shall have all the
powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or
such successor, as the case may be, on exercise of this Warrant pursuant to
this Section 1.

2.                 
Procedure for Exercise.

2.1             
Delivery of Stock Certificates, Etc., on Exercise.  The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares in accordance herewith.  As soon
as practicable after the exercise of this Warrant in full or in part, and in
any event within three (3) business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.

2.2             
Exercise.  Payment may be made either (i) in cash or by certified
or official bank check payable to the order of the Company equal to the applicable
aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common
Stock and/or Common Stock receivable upon exercise of the Warrant in accordance
with Section (b) below, or (iii) by a combination of any of the foregoing
methods, for the number of Common Shares specified in such Exercise Notice (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the Holder per the terms of this
Warrant) and the Holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.  Notwithstanding any
provisions herein to the contrary, if the Fair Market Value of one share of
Common Stock is greater than the Exercise Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being exercised) by surrender of this Warrant
at the principal office of the Company together with the properly endorsed
Exercise Notice in which event the Company shall issue to the Holder a number
of shares of Common Stock computed using the following formula:

3

	
  X=Y

  	
  (A-B)

  
	

  	
  A

  

Where X =       the number of shares of Common Stock
to be issued to the Holder

Y =                  the number of shares of Common
Stock purchasable under the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being exercised (at the date of
such calculation)

A =                  the Fair Market Value of one
share of the Company's Common Stock (at the date of such calculation)

B =                  Exercise Price (as adjusted to
the date of such calculation)

3.                 
Effect of Reorganization, Etc.; Adjustment of Exercise Price.

3.1             
Reorganization, Consolidation, Merger, Etc.  In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or substantially
all of its properties or assets to any other person under any plan or
arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.

3.2             
Dissolution.  In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, concurrently with any distributions made to holders of its Common
Stock, shall at its expense deliver or cause to be delivered to the Holder the
stock and other securities and property (including cash, where applicable)
receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified by
the Holder and having its principal office in New York, NY as trustee for the
Holder of the Warrant.

 

4

3.3             
Continuation of Terms.  Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities
and property receivable on the exercise of this Warrant after the consummation
of such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4.  In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the
Company's securities and property (including cash, where applicable) receivable
by the Holders of the Warrant will be delivered to Holder or the Trustee as
contemplated by Section 3.2.

4.                 
Extraordinary Events Regarding Common Stock.  In the event
that the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Exercise Price then in effect.
The Exercise Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein in this
Section 4.  The number of shares of Common Stock that the holder of this
Warrant shall thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive shall be increased to a number determined by multiplying
the number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise.

5.                 
Certificate as to Adjustments.  In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of the Warrant, the Company at its expense will
promptly cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of the
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding,
and (c) the Exercise Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
adjustment or readjustment and as adjusted or readjusted as provided in this
Warrant.  The Company will forthwith mail a copy of each such certificate to
the holder of the Warrant and any Warrant agent of the Company (appointed
pursuant to Section 11 hereof).

5

6.                 
Reservation of Stock, Etc., Issuable on Exercise of Warrant. 
The Company will at all times reserve and keep available, solely for issuance
and delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.

7.                 
Assignment; Exchange of Warrant.  Subject to compliance
with applicable securities laws, this Warrant, and the rights evidenced hereby,
may be transferred by any registered holder hereof (a "Transferor")
in whole or in part.  On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from the
Transferor's counsel that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.

8.                 
Replacement of Warrant.  On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

9.                 
Registration Rights.  The Holder of this Warrant has been
granted certain registration rights by the Company.  These registration rights
are set forth in a Registration Rights Agreement entered into by the Company
and Purchaser dated as of even date of this Warrant.

10.             
Maximum Exercise.  The Holder shall not be entitled to
exercise this Warrant on an exercise date, in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates on
an exercise date, and (ii) the number of shares of Common Stock issuable upon
the exercise of this Warrant with respect to which the determination of this
proviso is being made on an exercise date, which would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Company on such date.  For the purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder.  Notwithstanding the
foregoing, the restriction described in this paragraph may be revoked upon 75
days prior notice from the Holder to the Company and is automatically null and
void upon an Event of Default under the Note.

11.             
Warrant Agent.  The Company may, by written notice to the
each Holder of the Warrant, appoint an agent for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, 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.

6

12.             
Transfer on the Company's Books.  Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary.

13.             
Notices, Etc.  All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the last
Holder of this Warrant who has so furnished an address to the Company.

14.             
Voluntary Adjustment by the Company.  The Company may at
any time during the term of this Warrant reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.

15.             
No Shorting.  The Purchaser or any of its affiliates and
investment partners will not and will not cause any person or entity, directly
or indirectly, to engage in "short sales" of the Company's Common
Stock or any other hedging strategies.

16.             
Miscellaneous.  This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to principles of
conflicts of laws.  Any action brought concerning the transactions contemplated
by this Warrant shall be brought only in the state courts of New York or in the
federal courts located in the state of New York; provided, however, that the
Holder may choose to waive this provision and bring an action outside the state
of New York.  The individuals executing this Warrant on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury. 
The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.  In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law.  Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant.  The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof.  The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.  The Company
acknowledges that legal counsel participated in the preparation of this Warrant
and, therefore, stipulates that the rule of construction that ambiguities are
to be resolved against the drafting party shall not be applied in the
interpretation of this Warrant to favor any party against the other party.

[Balance of page intentionally left blank;

signature page follows.]

 

7

 

IN WITNESS WHEREOF, the Company has executed
this Warrant as of the date first written above. 

	

  	

  	
  HOME SOLUTIONS OF
  AMERICA, INC.

  
	

  	

  	

   
	
  WITNESS:

  	

  	

   
	

  	

  	
  By:

  	

  
	

  	

  	
  Name:

  	

  
	

  	

  	
  Title:

  	

  

 

 

 

 

8

Exhibit A

FORM OF SUBSCRIPTION

(To Be Signed Only On
Exercise Of Warrant)

TO:      Home Solutions of America, Inc. 

            

            Attention:          Chief Financial Officer

The undersigned, pursuant to the provisions set
forth in the attached Warrant (No.____), hereby irrevocably elects to purchase
(check applicable box):

	

  	

  	
  ________ shares of the Common
  Stock covered by such Warrant; or

  
	

  	

  	

   
	

  	

  	
  the maximum number of shares of
  Common Stock covered by such Warrant pursuant to the cashless exercise
  procedure set forth in Section 2.

  
	

  

The undersigned herewith makes payment of the
full Exercise Price for such shares at the price per share provided for in such
Warrant, which is $___________.  Such payment takes the form of (check
applicable box or boxes):

	

  	

  	
  $__________ in lawful money of the
  United States; and/or

  
	

  	

  	

   
	

  	

  	
  the cancellation of such portion
  of the attached Warrant as is exercisable for a total of _______ shares of
  Common Stock (using a Fair Market Value of $_______ per share for purposes of
  this calculation); and/or

  
	

  
	

  	

  	

   
	

  	

  	
  the cancellation of such number of
  shares of Common Stock as is necessary, in accordance with the formula set
  forth in Section 2.2, to exercise this Warrant with respect to the maximum
  number of shares of Common Stock purchasable pursuant to the cashless
  exercise procedure set forth in Section 2.

  
	

  
	

  

The undersigned requests that the certificates
for such shares be issued in the name of,

 and delivered to
______________________________________________ whose address is

 ___________________________________________________________________________.

The undersigned represents and warrants that all
offers and sales by the undersigned of the securities issuable upon exercise of
the within Warrant shall be made pursuant to registration of the Common Stock
under the Securities Act of 1933, as amended (the "Securities Act")
or pursuant to an exemption from registration under the Securities Act.

	
  Dated:

  	

  	

  	

  
	

  	

  	
  (Signature must conform to name of holder as specified on the
  face of the Warrant)

  
	

  	

  	

  
	

  	

  	
  Address:

  	

   
	

  	

  	

  	

   

 

 

Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On
Transfer Of Warrant)

For value received, the undersigned hereby
sells, assigns, and transfers unto the person(s) named below under the heading
"Transferees" the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Home Solutions of
America, Inc.into which the within Warrant relates specified under the headings
"Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Home Solutions
of America, Inc.with full power of substitution in the premises.

	
  Transferees

  	
   

  	

  Address

  	

  	
  Percentage

  Transferred

  	

  	
  Number Transferred

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  
	

   	

  	

  	

  	

  	

  	

  

	
  Dated:

  	

  	

  	

  
	

  	

  	
  (Signature must conform to name of holder as specified on the
  face of the Warrant)

  
	

  	

  	

   
	

  	

  	
  Address:

  	

  
	

  	

  	

   	

  
	

   	

   	

   	

   
	

   	

   	

   	

   

	

  	
  SIGNED IN THE PRESENCE OF:

  
	

  	

   
	

  	

   
	

  	
  (Name)

  
	
  ACCEPTED AND AGREED:

  	

  
	
  [TRANSFEREE]

  	

  
	

   	

  
	

   	

  
	

   	

  
	
  (Name)

  	

  

 

 

 

B-1Exhibit 10.5

 

SERIES A CONVERTIBLE
PREFERRED STOCK PURCHASE

AGREEMENT

Dated as of March 1, 2004

among

HOME SOLUTIONS OF AMERICA, INC.

and

THE PURCHASERS LISTED ON EXHIBIT A

 

 

 

 

 

TABLE OF CONTENTS

  	 	

PAGE

      
	ARTICLE I Purchase and Sale of Preferred
      Stock...........................................................................	1
	           Section 1.1       Purchase and Sale of
      Stock..........................................................................	1
	           Section 1.2       The Conversion
      Shares.................................................................................	1
	           Section 1.3       Purchase Price and
      Closing...........................................................................	2
	ARTICLE II Representations and
      Warranties...................................................................................	2
	           Section 2.1       Representations and Warranties of the
      Company...........................................	2
	           Section 2.2       Representations and Warranties of the
Purchasers........................................ 	13
	ARTICLE III Covenants.................................................................................................................
      	15
	           Section 3.1       Securities Compliance..................................................................................
      	15
	           Section 3.2       Registration and Listing................................................................................
      	16
	           Section 3.3       Inspection Rights.........................................................................................
      	16
	           Section 3.4       Compliance with Laws.................................................................................	16
	           Section 3.5       Keeping of Records and Books of Account.................................................
      	16
	           Section 3.6       Reporting Requirements...............................................................................	17
	           Section 3.7       Status of Dividends......................................................................................	17
	           Section 3.7       Amendments...............................................................................................
      	17
	           Section 3.8       Other Agreements.......................................................................................
      	18
	           Section 3.9       Distributions................................................................................................
      	18
	           Section 3.10     Status of Dividends......................................................................................
      	18
	           Section 3.11     Intentionally Omitted....................................................................................
      	20
	           Section 3.12     Future Financings; Right of First Offer and
Refusal........................................ 	20
	           Section 3.13     Reservation of Shares..................................................................................
      	20
	           Section 3.14     Transfer Agent Instructions..........................................................................
      	20
	           Section 3.15     Disposition of Assets...................................................................................
      	20 
	ARTICLE IV Conditions.................................................................................................................	21
	           Section 4.1       Conditions Precedent to the Obligation of
the Company to 

                       Sell the Shares..........................................................................................................	21
	           Section 4.2       Conditions Precedent to the Obligation of
the Purchasers to 

                       Purchase the Shares..................................................................................................	22
	ARTICLE V Intentionally
      Omitted....................................................................................................	24

 

	ARTICLE VI Stock Certificate
    Legend............................................................................................	24
	          
    Section 6.1      
    Legend.........................................................................................................	24
	ARTICLE VII Intentionally
    Omitted.................................................................................................	25
	ARTICLE VIII
    Indemnification........................................................................................................	25
	           Section 8.1       General Indemnity........................................................................................
    	25
	           Section 8.2       Indemnification Procedure............................................................................
    	26
	ARTICLE IX
    Miscellaneous............................................................................................................	27
	           Section 9.1       Fees and Expenses......................................................................................
    	27
	           Section 9.2       Specific Enforcement, Consent to
Jurisdiction............................................... 	27
	           Section 9.3       Entire Agreement; Amendment.....................................................................	28
	           Section 9.4       Notices.......................................................................................................
    	28
	           Section 9.5       Waivers.......................................................................................................	29
	           Section 9.6       Headings.....................................................................................................
    	29
	           Section 9.7       Successors and Assigns...............................................................................
    	29
	           Section 9.8       No Third Party Beneficiaries........................................................................
    	29
	           Section 9.9       Governing Law............................................................................................
    	29
	           Section 9.10     Survival.......................................................................................................
    	29
	           Section 9.11     Counterparts...............................................................................................
    	30
	           Section 9.12     Publicity......................................................................................................
    	30
	           Section 9.13     Severability..................................................................................................
    	30
	           Section 9.14     Further Assurances......................................................................................
    	30

ii

SERIES A
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT 

This SERIES A
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of
March 1, 2004 by and among Home Solutions of America, Inc., a Delaware corporation
(the "Company"), and each of the Purchasers of shares of Series A Convertible
Preferred Stock of the Company whose names are set forth on Exhibit A
hereto (individually, a "Purchaser" and collectively, the "Purchasers").

            The parties
hereto agree as follows:

ARTICLE I

Purchase and Sale of Preferred Stock

Section
1.1             
Purchase and Sale of Stock.  Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company's Series A Convertible Preferred Stock, par value $.001 per share (the
"Preferred Shares"), at a purchase price of $25,000 per share, set forth
opposite such Purchaser's name on Exhibit A hereto. Upon the following
terms and conditions, each of the Purchasers shall be issued Series A Warrants,
in substantially the form attached hereto as Exhibit B (the "Series A
Warrants"), and Series B Warrants, in substantially the form attached hereto as
Exhibit C (the "Series B Warrants" and, together with the
Series A Warrants, the "Warrants"), to purchase the number of shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock") set
forth opposite such Purchaser's name on Exhibit A hereto.  The aggregate
purchase price for the Preferred Shares and the Warrants shall be up to $2,000,000. 
The designation, rights, preferences and other terms and provisions of the
Series A Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock attached hereto as Exhibit D (the "Certificate of
Designation").  The Company and the Purchasers are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded by Rule 506 of Regulation D ("Regulation D")
as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.  

Section
1.2             
The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and exercise of the Warrants then outstanding; provided
that the number of shares of Common Stock so reserved shall at no time be less
than 120% of its authorized but unissued shares of its Common Stock, to effect
the conversion of the Preferred Shares and exercise of the Warrants.  Any
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred to
as the "Conversion Shares" and the "Warrant Shares", respectively. 
The Preferred Shares, the Conversion Shares and the Warrant Shares are
sometimes collectively referred to as the "Shares".

 

Section
1.3             
Purchase Price and Closing.  The Company agrees to issue and sell
to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares and Warrants set forth opposite their respective names on Exhibit
A.  The aggregate purchase price of the Preferred Shares and Warrants being
acquired by each Purchaser is set forth opposite such Purchaser's name on Exhibit
A (for each such Purchaser, the "Purchase Price" and collectively referred
to as the "Purchase Prices").  The closing of the purchase and sale of the
Preferred Shares and Warrants shall take place at the offices of Jenkens &
Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174 (the "Closing") at 1:00 p.m. (eastern time) upon the
satisfaction of each of the conditions set forth in Article IV hereof (the
"Closing Date").  Funding
with respect to the Closing shall take place by wire transfer of immediately
available funds on or prior to the Closing Date..

Section 1.4             
Warrants.  The Company agrees to issue to each of the Purchasers
Series A Warrants and Series B Warrants to purchase the number of shares of
Common Stock set forth opposite such Purchaser's name on Exhibit A
hereto.  The Series A Warrants shall expire 90 days following the Effective
Date (as defined in the Series A Warrant) and have an exercise price per share
equal to the Warrant Price (as defined in the Series A Warrant).  The Series B
Warrants shall expire five (5) years from the Closing Date and have an exercise
price per share equal to the Warrant Price (as defined in the Series B
Warrant).   

ARTICLE II

Representations and Warranties

Section 2.1             
Representations and Warranties of the Company.  The Company
hereby makes the following representations and
warranties to the Purchasers, except as set forth in the Company's disclosure
schedule delivered with this Agreement as follows:

(a)               
Organization, Good Standing and Power.  The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it
is now being conducted.  The Company does not have any subsidiaries except as
set forth in the Company's Form 10-KSB for the year ended December 31, 2002,
including the accompanying financial statements (the "Form 10-KSB"), or in the
Company's Form 10-QSB for the fiscal quarters ended September 30, 2003, June
30, 2003 or March 31, 2003 (collectively, the "Form 10-QSB"), or on Schedule
2.1(a) hereto.  The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary except for any jurisdiction(s) (alone or
in the aggregate) in which the failure to be so qualified will not have a
Material Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's
financial condition.

 

2

(b)              
Authorization; Enforcement.  The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit E (the
"Registration Rights Agreement"), the Irrevocable Transfer Agent Instructions
(as defined in Section 3.14), the Certificate of Designation, and the Warrants
(collectively, the "Transaction Documents") and to issue and sell the Shares
and the Warrants in accordance with the terms hereof.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action, and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required.  This Agreement has been duly executed and delivered
by the Company.  The other Transaction Documents will have been duly executed
and delivered by the Company at the Closing.  Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application. 

(c)               
Capitalization.  The authorized capital stock of the Company and
the shares thereof currently issued and outstanding as of February 27, 2004 are
set forth on Schedule 2.1(c) hereto.  All of the outstanding shares of
the Company's Common Stock and Series A Convertible Preferred Stock have been
duly and validly authorized.  Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company.  Furthermore, except as set forth in this Agreement and
the Registration Rights Agreement or on Schedule 2.1(c), there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company.  Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities
or as set forth on Schedule 2.1(c) hereto, the Company is not a party to
any agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities.  The Company is not a party
to, and it has no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company.  Except as set
forth on Schedule 2.1(c) hereto, the offer and sale of all capital
stock, convertible securities, rights, warrants, or options of the Company
issued prior to the Closing complied with all applicable Federal and state
securities laws, and no stockholder has a right of rescission or claim for
damages with respect thereto which would have a Material Adverse Effect (as
defined below) on the Company's financial condition or operating results.  The
Company has furnished or made available to the Purchasers true and correct
copies of the Company's Certificate of Incorporation as in effect on the date
hereof (the "Certificate"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws").  For the purposes of this Agreement, "Material Adverse
Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.

 

3

(d)              
Issuance of Shares.  The Preferred Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation.  When the Conversion Shares and the Warrant Shares
are issued in accordance with the terms of the Certificate of Designation and
the Warrants, respectively, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock. 

(e)               
No Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company's Certificate or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party or by which it or its
properties or assets are bound, (iii) create or impose a lien, mortgage,
security interest, charge or encumbrance of any nature on any property of the
Company under any agreement or any commitment to which the Company is a party
or by which the Company is bound or by which any of its respective properties
or assets are bound, or (iv) result in a violation of any federal, state, local
or foreign statute, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries are bound or affected, except, in all cases other than
violations pursuant to clauses (i) and (iv) above, for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse
Effect.  The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect.  The Company is
not required under Federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute, deliver or
perform any of its obligations under the Transaction Documents, or issue and
sell the Preferred Shares, the Warrants, the Conversion Shares and the Warrant
Shares in accordance with the terms hereof or thereof (other than any filings
which may be required to be made by the Company with the Commission or state
securities administrators subsequent to the Closing, any registration statement
which may be filed pursuant hereto, and the Certificate of Designation); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.

 

4

(f)                
Commission Documents, Financial Statements.  The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, since September 30, 2003, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents").  The Company has delivered or made available to each
of the Purchasers true and complete copies of the Commission Documents filed
with the Commission since December 31, 2002.  The Company has not provided to
the Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement.  As of
their respective dates, the Form 10-KSB and the Form 10-QSB complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such documents, and, as of
their respective dates, none of the Form 10-KSB and the Form 10-QSB contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(g)               
Subsidiaries.  Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership.  For the
purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries.  All of the outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid and
nonassessable.  There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
any subsidiary for the purchase or acquisition of any shares of capital stock
of any subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. 
Neither the Company nor any subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence.  Neither the
Company nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.

 

5

(h)               
No Material Adverse Change.  Since September 30, 2003, the
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on Schedule 2.1(h) hereto.

(i)                 
No Undisclosed Liabilities.  Except as set forth on Schedule
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its subsidiaries respective
businesses since September 30, 2003 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.

(j)                
No Undisclosed Events or Circumstances.  Except as set forth on Schedule
2.1(j) hereto, no event or circumstance has occurred or exists with respect
to the Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.

(k)              
Indebtedness.  The Form 10-KSB, Form 10-QSB or Schedule 2.1(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments.  For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP.  Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.

(l)                 
Title to Assets.  Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected in
the Form 10-KSB, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Form 10-KSB, Form 10-QSB or on Schedule 2.1(l) hereto or such that,
individually or in the aggregate, do not cause a Material Adverse Effect on the
Company's financial condition or operating results.  All said leases of the
Company and each of its subsidiaries are valid and subsisting and in full force
and effect.

(m)             
Actions Pending.  There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.  Except as set
forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto,
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets.  Except as set forth in the Form
10-KSB, Form 10-QSB or Schedule 2.1(m) hereto, there are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.

 

6

(n)               
Compliance with Law.  The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, or such that,
individually or in the aggregate, do not cause a Material Adverse Effect.  The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

(o)              
Taxes.  Except as set forth in the Form 10-KSB or in the Form
10-QSB, the Company and each of the subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due
and all additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the subsidiaries for
all current taxes and other charges to which the Company or any subsidiary is
subject and which are not currently due and payable.  None of the federal
income tax returns of the Company or any subsidiary have been audited by the
Internal Revenue Service.  The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

(p)              
Certain Fees.  Except as set forth in this Agreement or on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.

(q)              
Disclosure.  To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.

(r)                
Operation of Business.  The Company and each of the subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations as set forth in the
Form 10-KSB, Form 10-QSB and on Schedule 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.

 

7

(s)               
Environmental Compliance.  The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under
any  Environmental Laws.  The Form 10-KSB or Form 10-QSB describes all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries.  "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature.  The Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries.  The Company and each
of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws.  Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, incidents,
actions or omissions relating to or in any way affecting the Company or its
subsidiaries that violate or may violate any Environmental Law after the
Closing Date or that may give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study
or investigation (i) under any Environmental Law, or (ii) based on or related
to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport
or handling, or the emission, discharge, release or threatened release of any
hazardous substance.  

(t)                
Books and Record Internal Accounting Controls.  The books and
records of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.  The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.

 

8

(u)               
Material Agreements.  Except as set forth in the Form 10-KSB,
Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-3 or applicable form (collectively, "Material Agreements") if the
Company or any subsidiary were registering securities under the Securities
Act.  Except as set forth on Schedule 2.1(u) or in the Commission
Documents, the Company and each of its subsidiaries has in all material
respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and, to the
best of the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which could cause a Material Adverse Effect. 
Except as set forth on Schedule 2.1(u) or in the Commission Documents,
no written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement of the Company or of any subsidiary limits or shall limit
the payment of dividends on the Company's Preferred Shares, other Preferred
Stock, if any, or its Common Stock.

(v)               
Transactions with Affiliates.  Except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(v) hereto, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the
other hand, any officer, employee, consultant or director of the Company, or
any of its subsidiaries, or any person owning any capital stock of the Company
or any subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other
entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.

(w)             
Securities Act of 1933.  Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder.  Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the
Company nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection
with the offer or sale of any of the Shares and the Warrants.

(x)               
Governmental Approvals.  Except as set forth in the Form 10-KSB
or Form 10-QSB, and except for the filing of any notice prior or subsequent to
the Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis),
including the filing of a Form D and a registration statement or statements
pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of Delaware,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations
under the Transaction Documents.

 

9

(y)               
Employees.  Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)
hereto.  Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y) hereto, neither the Company nor any subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary.  Since September 30, 2002, no officer, consultant or key employee
of the Company or any subsidiary whose termination, either individually or in
the aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.

(z)               
Absence of Certain Developments.  Except as provided on Schedule
2.1(z) hereto, since September 30, 2003, neither the Company nor any
subsidiary has:

(i)                 
issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;

(ii)               
borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such subsidiary's business;

(iii)              
discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;

(iv)             
declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made
any agreements so to purchase or redeem, any shares of its capital stock;

(v)               
sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business;

(vi)             
sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;

 

10

(vii)            
suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;

(viii)          
made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;

(ix)             
made capital expenditures or commitments therefor that aggregate in
excess of $100,000;

(x)               
entered into any other transaction other than in the ordinary course of
business, or entered into any other material transaction, whether or not in the
ordinary course of business;

(xi)             
made charitable contributions or pledges in excess of $25,000;

(xii)            
suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;

(xiii)          
experienced any material problems with labor or management in connection
with the terms and conditions of their employment;

(xiv)          
effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its subsidiaries; or

(xv)           
entered into an agreement, written or otherwise, to take any of the
foregoing actions.

(aa)           
Public Utility Holding Company Act and Investment Company Act Status. 
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended.  The Company is not, and as a result of and immediately upon the
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

(bb)          
ERISA.  No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries.  The execution and delivery of this Agreement and the issuance
and sale of the Preferred Shares will not involve any transaction which is
subject to the prohibitions of Section 406 of ERISA or in connection with which
a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of
1986, as amended, provided that, if any of the Purchasers, or any person or
entity that owns a beneficial interest in any of the Purchasers, is an
"employee pension benefit plan" (within the meaning of Section 3(2) of ERISA)
with respect to which the Company is a "party in interest" (within the meaning
of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e)
of ERISA, if applicable, are met.  As used in this Section 2.1(ac), the term
"Plan" shall mean an "employee pension benefit plan" (as defined in Section 3
of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any subsidiary or by any
trade or business, whether or not incorporated, which, together with the
Company or any subsidiary, is under common control, as described in Section
414(b) or (c) of the Code.

 

11

(cc)           
Dilutive Effect.  The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances.  The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
in accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.

(dd)          
Delisting Notification.  The Company has not received notice (written or oral)
from the American Stock Exchange to the effect that the Company is not in
compliance with the listing or maintenance requirements of such market. 

(ee)           
Independent Nature of Purchasers.  The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents.  The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this
Agreement has been made by such Purchaser independently of any other purchase
and independently of any information, materials, statements or opinions as to
the business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or
of its Subsidiaries which may have made or given by any other Purchaser or by
any agent or employee of any other Purchaser, and no Purchaser or any of its
agents or employees shall have any liability to any Purchaser (or any other
person) relating to or arising from any such information, materials, statements
or opinions.  The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.  The
Company acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby.  The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.  The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a
group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.

 

12

(ff)              
No Integrated Offering. 
Neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Shares pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Shares pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Shares to be integrated with other offerings.  The Company does not have any
registration statement pending before the Commission or currently under the
Commission's review.

(gg)           
Sarbanes-Oxley Act.  The Company is in substantial compliance with the applicable
provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and
the rules and regulations promulgated thereunder, that are effective and
intends to comply substantially with other applicable provisions of the
Sarbanes-Oxley Act, and the rules and regulations promulgated thereunder, upon
the effectiveness of such provisions.

Section
2.2             
Representations and Warranties of the Purchasers.  Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:

(a)               
Organization and Standing of the Purchasers.  If the Purchaser is
an entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization.

(b)              
Authorization and Power.  The Purchaser has the requisite power
and authority to enter into and perform this Agreement and to purchase the
Preferred Shares and Warrants being sold to it hereunder.  The execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by such Purchaser and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of
such Purchaser or its Board of Directors, stockholders, or partners, as the
case may be, is required.  Each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by such Purchaser
and constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with the terms thereof.

(c)               
No Conflicts.  The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's
charter documents or bylaws or other organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument or obligation to which such Purchaser is a party or by
which its properties or assets are bound, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or governmental
agency applicable to such Purchaser or its properties (except for such
conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on such Purchaser).  Such Purchaser
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement or
the Registration Rights Agreement or to purchase the Preferred Shares or
acquire the Warrants in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.

 

13

(d)              
Acquisition for Investment.  Such Purchaser is acquiring the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution. 
Such Purchaser does not have a present intention to sell the Preferred Shares
or the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(f) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition.  Such Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.

(e)               
Status of Purchasers.  Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.  Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.

(f)                
Opportunities for Additional Information.  Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of
and receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.

(g)               
No General Solicitation.  Each Purchaser acknowledges that the
Preferred Shares and the Warrants were not offered to such Purchaser by means
of any form of general or public solicitation or general advertising, or
publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio,
or (ii) any seminar or meeting to which such Purchaser was invited by any of
the foregoing means of communications.

 

14

(h)               
Rule 144.  Such Purchaser understands that the Shares must be
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from registration is available.  Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule
144"), and that such person has been advised that Rule 144 permits resales only
under certain circumstances.  Such Purchaser understands that to the extent
that Rule 144 is not available, such Purchaser will be unable to sell any
Shares without either registration under the Securities Act or the existence of
another exemption from such registration requirement.

(i)                 
General.  Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such Purchaser
to acquire the Shares.

(j)                
Independent Investment.  No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Shares purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Shares.

ARTICLE III

Covenants

The Company
covenants with each of the Purchasers as follows, which covenants are for the
benefit of the Purchasers and their permitted assignees (as defined herein).

Section
3.1             
Securities Compliance.  (a) The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D
with respect to the Preferred Shares, Warrants, Conversion Shares and Warrant
Shares as required under Regulation D, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers or
subsequent holders. 

(b)              
Unless waived by a Purchaser by means of providing sixty-one (61) days
notice to the Company, in connection with a Voluntary Conversion (as such term
is defined in the Certificate of Designation) or the exercise of the Warrants,
the Company covenants and agrees that upon receipt of a Conversion Notice
pursuant to Section 5(b)(ii) of the Certificate of Designation or Exercise Form
pursuant to Section 2(b) of the Warrants that it will not convert such number
of shares that, when aggregated with all other shares of Common Stock then
owned by a Purchaser beneficially or deemed beneficially owned by a Purchaser,
would result in a Purchaser owning more than 4.99% of all of such Common Stock
as would be outstanding on such date of conversion or such date of exercise of
the Warrant, as determined in accordance with Section 16 of the Exchange Act
and the regulations promulgated thereunder; provided, however,
that if pursuant to this Section the Company does not convert or issue the
number of shares requested under the applicable Conversion Notice or Exercise
Form, the Company will not be subject to Section 5(b)(v) of the Certificate of
Designation as a result of such failure to convert.

 

15

Section
3.2             
Registration and Listing.  The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement or the
Registration Rights Agreement, and will not take any action or file any
document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein.  The
Company will take all action necessary to continue the listing or trading of
its Common Stock on the over-the-counter electronic bulletin board.

Section
3.3             
Inspection Rights.  The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect
the properties, assets, operations and business of the Company and any
subsidiary, and to discuss the affairs, finances and accounts of the Company
and any subsidiary with any of its officers, consultants, directors, and key
employees.  

Section
3.4             
Compliance with Laws.  The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.

Section
3.5             
Keeping of Records and Books of Account.  The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its subsidiaries,
and in which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.

 

16

Section
3.6             
Reporting Requirements.  If the Commission ceases making periodic
reports filed under Section 13 of the Exchange Act available via its Election
Data Gathering Retrieval and Analysis System, then at a Purchaser's request the
Company shall furnish the following to such Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding:

(a)               
Quarterly Reports filed with the Commission on Form 10-QSB as soon as
practical after the document is filed with the Commission, and in any event
within fifty-five (55) days after the end of each of the first three fiscal
quarters of the Company;

(b)              
Annual Reports filed with the Commission on Form 10-KSB as soon as
practical after the document is filed with the Commission, and in any event
within one hundred (100) days after the end of each fiscal year of the Company;
and

(c)               
Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.

Section 3.7             
Amendments.  The Company shall not amend or waive any provision
of the Certificate or Bylaws of the Company in any way that would adversely
affect the liquidation preferences, dividends rights, conversion rights, voting
rights or redemption rights of the Preferred Shares; provided, however,
that any creation and issuance of another series of Junior Stock (as defined in
the Certificate of Designation) or any other class or series of equity
securities which by its terms shall rank on parity with the Preferred Shares
shall not be deemed to materially and adversely affect such rights, preferences
or privileges.

Section 3.8             
Other Agreements.  The Company shall not enter into any agreement
in which the terms of such agreement would restrict or impair the right or
ability to perform of the Company or any subsidiary under any Transaction
Document.

Section 3.9             
Distributions.  So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i)  declare or pay any dividends or make any distributions to
any holder(s) of Common Stock or (ii) purchase or otherwise acquire for value,
directly or indirectly, any Common Stock or other equity security of the
Company.

 

17

Section 3.10         
Status of Dividends.  The Company covenants and agrees that (i)
no Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service will adversely affect the Preferred
Shares, any other series of its Preferred Stock, or the Common Stock, and any
deduction shall not operate to jeopardize the availability to Purchasers of the
dividends received deduction provided by Section 243(a)(1) of the Code or any
successor provision, (ii) in no report to shareholders or to any governmental
body having jurisdiction over the Company or otherwise will it treat the Preferred
Shares other than as equity capital or the dividends paid thereon other than as
dividends paid on equity capital unless required to do so by a governmental
body having jurisdiction over the accounts of the Company or by a change in
generally accepted accounting principles required as a result of action by an
authoritative accounting standards setting body, and (iii) other than pursuant
to this Agreement or the Certificate of Designation, it will take no action
which would result in the dividends paid by the Company on the Preferred Shares
out of the Company's current or accumulated earnings and profits being
ineligible for the dividends received deduction provided by Section 243(a)(1)
of the Code.  The preceding sentence shall not be deemed to prevent the Company
from designating the Preferred Stock as "Convertible Preferred Stock" in its
annual and quarterly financial statements in accordance with its prior practice
concerning other series of preferred stock of the Company.  Notwithstanding the
foregoing, the Company shall not be required to restate or modify its tax
returns for periods prior to the Closing Date.  In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company's current or accumulated earnings
and profits will not be treated as eligible for the dividends received
deduction provided by Section 243(a)(1) of  the Code, or any successor
provision, the Company will, at the reasonable request of the Purchasers of 51%
of the outstanding Preferred Shares, join with the Purchasers in the submission
to the Service of a request for a ruling that dividends paid on the Shares will
be so eligible for Federal income tax purposes, at the Purchasers expense.  In
addition, the Company will reasonably cooperate with the Purchasers (at
Purchasers' expense) in any litigation, appeal or other proceeding challenging
or contesting any ruling, technical advice, finding or determination that
earnings and profits are not eligible for the dividends received deduction
provided by Section  243(a)(1) of the Code, or any
successor provision to the extent that the position to be taken in any such
litigation, appeal, or other proceeding is not contrary to any provision of the
Code or incurred in connection with any such submission, litigation, appeal or
other proceeding.  Notwithstanding the foregoing, nothing herein contained
shall be deemed to preclude the Company from claiming a deduction with respect
to such dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a
portion of the dividends on the Shares is allowable for Federal income tax
purposes, or (ii) in the absence of such an amendment, issuance or modification
and after a submission of a request for ruling or technical advice, the service
shall rule or advise that dividends on the shares should not be treated as
dividends for Federal income tax purposes.  If the Service determines that the
Preferred Shares or Conversion Shares constitute debt, the Company may file
protective claims for refund.

Section
3.11         
Use of Proceeds.  The proceeds from the sale of the Preferred
Shares will be used by the Company for working capital and general corporate
purposes.

Section
3.12         
Future Financings; Right of First Offer and Refusal.   (a) For purposes of this Agreement, a "Subsequent Financing" shall be defined as any
subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including debt securities so convertible, in
a private transaction (collectively, the "Financing Securities") other than a
Permitted Financing (as defined hereinafter).  For purposes of this Agreement,
"Permitted Financing" shall mean any transaction involving (i) the Company's issuance
of any Financing Securities (other than for cash) in connection with a merger
and/or acquisition, consolidation, sale or disposition of all or substantially
all of the Company's assets, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements so long as such
issuances are not for the purpose of raising capital, (iii) the Company's
issuance of Financing Securities in connection with underwritten public
offerings of its securities, (iv) the Company's issuance of Common Stock or the
issuance or grants of options to purchase Common Stock pursuant to the
Company's stock option plans and employee stock purchase plans outstanding on
the date hereof, or (v) as a result of the exercise of options or warrants or
conversion of convertible notes or preferred stock which are granted or issued
as of the date of this Agreement.

 

18

(b)              
During the period commencing on the Closing Date and ending on the date
that is twelve (12) months following the Closing Date, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") each Purchaser of
the terms and conditions of any proposed Subsequent Financing.  The Rights
Notice shall describe, in reasonable detail, the proposed Subsequent Financing,
the proposed closing date of the Subsequent Financing, which shall be within
thirty (30) calendar days from the date of the Rights Notice, including,
without limitation, all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith.  The Rights
Notice shall provide each Purchaser an option (the "Rights Option") during the
fifteen (15) trading days following delivery of the Rights Notice (the "Option
Period") to inform the Company whether such Purchaser will purchase up to its
pro rata portion of the Purchase Price for the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights").  If any Purchaser elects not to
participate in such Subsequent Financing, the other Purchasers may participate
on a pro-rata basis so long as such participation in the aggregate does not
exceed the total Purchase Price hereunder.  Delivery of any Rights
Notice constitutes a representation and warranty by the Company that there are
no other material terms and conditions, arrangements, agreements or otherwise
except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing.  If the Company does not receive notice of exercise of
the Rights Option from the Purchasers within the Option Period, the Company
shall have the right to close the Subsequent Financing on the scheduled closing
date with a third party; provided that all of the material terms and
conditions of the closing are the same as those provided to the Purchasers in
the Rights Notice.  If the closing of the proposed Subsequent Financing does
not occur on that date, any closing of the contemplated Subsequent Financing or
any other Subsequent Financing shall be subject to all of the provisions of
this Section 3.12, including, without limitation, the delivery of a new Rights
Notice.  The provisions of this Section 3.12(b) shall not apply to issuances of
Financing Securities in a Permitted Financing.

(c)               
Notwithstanding anything to the contrary contained in this Section 3.12,
the First Refusal Rights of the Purchasers granted hereunder shall be
subordinate in full to any rights of first offer or first refusal granted by
the Company to Laurus Master Fund, Ltd. pursuant to Section 38 of that certain Security
Agreement dated January 22, 2004 between the Company and Laurus Master Fund,
Ltd.

 

19

Section
3.13         
Reservation of Shares.  So long as any of the Preferred Shares or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than 120% of the aggregate number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares and the Warrant Shares.

Section
3.14         
Transfer Agent Instructions.  The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by each Purchaser to the Company upon conversion of
the Preferred Shares or exercise of the Warrants in the form of Exhibit F
attached hereto (the "Irrevocable Transfer Agent Instructions").  Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement.  The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement.  Nothing in this Section 3.14 shall affect in
any way each Purchaser's obligations and agreements set forth in Section 6.1 to
comply with all applicable prospectus delivery requirements, if any, upon
resale of the Shares.  If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under the Securities Act or the Purchaser
provides the Company with reasonable assurances that the Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend.  The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby.  Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.14, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.

Section 3.15         
Disposition of Assets.  So long as the Preferred Shares remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including,
without limitation, its software and intellectual property, to any person
except for sales to customers in the ordinary course of business or with the
prior written consent of the holders of a majority of the Preferred Shares then
outstanding.

Section 3.16         
Reporting Status; Eligibility to Use Form S-3.  So long as
a Purchaser beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed with the Commission pursuant to the Exchange
Act, and the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.  The Company currently
meets, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general
instructions to Form S-3 applicable to "resale" registrations on
Form S-3 during the Effectiveness Period (as defined in the Registration
Rights Agreement).

 

20

Section 3.17         
Disclosure of Transaction.  The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") as soon as practicable after the Closing; provided,
however, that if Closing occurs after 4:00 P.M. Eastern Time on any
Trading Day but in no event later than one hour after the Closing, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing Date.  The Company shall also file with the Commission
a Current Report on Form 8-K (the "Form 8-K") describing the material terms of
the transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Registration Rights Agreement and the form of  Warrant) as soon
as practicable following the date of execution of this Agreement but in no
event more than two (2) Trading Days following the date of execution of this
Agreement, which Press Release and Form 8-K shall be subject to prior review and
comment by the Purchasers.  "Trading Day" means any day during which
the American Stock Exchange (or other principal exchange on which the Common
Stock is traded) shall be open for trading.  

Section 3.18         
Disclosure of Material Information.  The Company covenants and
agrees that neither it nor any other person acting on its behalf has provided
or will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information.  The Company understands
and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

Section 3.19         
Pledge of Securities.  The Company acknowledges and agrees that
the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the Common
Stock.  The pledge of Common Stock shall not be deemed to be a transfer, sale
or assignment of the Common Stock hereunder, and no Purchaser effecting a
pledge of Common Stock shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document; provided that a Purchaser and its
pledgee shall be required to comply with the provisions of Article V hereof in
order to effect a sale, transfer or assignment of Common Stock to such pledgee.
At the Purchasers' expense, the Company hereby agrees to execute and deliver
such documentation as a pledgee of the Common Stock may reasonably request in
connection with a pledge of the Common Stock to such pledgee by a Purchaser.

 

21

ARTICLE IV 

CONDITIONS

Section 4.1             
Conditions Precedent to the Obligation of the Company to Sell the
Shares.  The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below.  These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.

(a)               
Accuracy of Each Purchaser's Representations and Warranties.  The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.

(b)              
Performance by the Purchasers.  Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.

(c)               
No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement. 

(d)              
Delivery of Purchase Price.  The Purchase Price for the Preferred
Shares and Warrants has been delivered to the Company at the Closing Date.

(e)               
Delivery of Transaction Documents.  The Transaction Documents
have been duly executed and delivered by the Purchasers to the Company. 

Section
4.2             
Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares.  The obligation hereunder of each Purchaser to acquire and pay
for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below. 
These conditions are for each Purchaser's sole benefit and may be waived by
such Purchaser at any time in its sole discretion.

(a)               
Accuracy of the Company's Representations and Warranties.  Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that are
expressly made as of a particular date), which shall be true and correct in all
material respects as of such date.

(b)              
Performance by the Company.  The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.

 

22

(c)               
No Suspension, Etc.  From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission or the American Stock Exchange (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the applicable Closing), and, at any time prior to the Closing,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect
on, or any material adverse change in any financial market which, in each case,
in the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Preferred Shares.

(d)              
No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

(e)               
No Proceedings or Litigation.  No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.

(f)                
Certificate of Designation of Rights and Preferences.  Prior to
the Closing, the Certificate of Designation in the form of Exhibit D
attached hereto shall have been filed with the Secretary of State of Delaware.

(g)               
Opinion of Counsel, Etc. At the Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of the
Closing, in the form of Exhibit G hereto, and such other certificates
and documents as the Purchasers or its counsel shall reasonably require
incident to the Closing.

(h)               
Registration Rights Agreement.  At the Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each
Purchaser.

(i)                 
Certificates.  The Company shall have executed and delivered to
the Purchasers the certificates (in such denominations as such Purchaser shall 
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing.

(j)                
Resolutions.  The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) above in a form reasonably
acceptable to such Purchaser (the "Resolutions").

 

23

(k)              
Reservation of Shares.  As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 120% of the
aggregate number of Conversion Shares issuable upon conversion of the Preferred
Shares outstanding on the Closing Date and the number of Warrant Shares
issuable upon exercise of the number of Warrants assuming such Warrants were
granted on the Closing Date (after giving effect to the Preferred Shares and
the Warrants to be issued on the Closing Date and assuming all such Preferred
Shares and Warrants were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such conversions or
exercises).

(l)                 
Transfer Agent Instructions.  The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.

(m)             
Secretary's Certificate.  The Company shall have delivered to
such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.

(n)               
Officer's Certificate.  The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as
of the Closing Date.

(o)              
Material Adverse Effect.  No Material Adverse Effect shall have
occurred at or before the Closing Date. 

ARTICLE V

Intentionally Omitted

ARTICLE VI

Stock Certificate Legend

Section
6.1             
Legend.  Each certificate representing the Preferred Shares and
the Warrants, and, if appropriate, securities issued upon conversion thereof,
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):

 

24

THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") 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 ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.

The Company agrees to reissue certificates
representing the Shares without the legend set forth above if at such time,
prior to making any transfer of any Shares or Shares, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request, and (x) the Shares
have been registered for sale under the Securities Act and the holder is
selling such shares and is complying with its prospectus delivery requirement
under the Securities Act, (y) the holder is selling such Shares in compliance
with the provisions of Rule 144 or (z) the provisions of paragraph (k) of Rule
144 apply to such Shares.  Whenever a certificate
representing the Conversion Shares or Warrant Shares is required to be issued
to a Purchaser without a legend, in lieu of delivering physical certificates
representing the Conversion Shares or Warrant Shares, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer program, the Company shall use its
reasonable best efforts to cause its transfer agent to electronically transmit
the Conversion Shares or Warrant Shares to a Purchaser by crediting the account
of such Purchaser's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system (to the extent not inconsistent
with any provisions of this Agreement).

ARTICLE VII

Intentionally Omitted.

ARTICLE VIII

Indemnification

Section
8.1             
General Indemnity.  The Company agrees to indemnify and hold
harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein.  Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Company as result of any inaccuracy
in or breach of the representations, warranties or covenants made by such
Purchaser herein.  The maximum aggregate liability of each Purchaser
pursuant to its indemnification obligations under this Article 8 shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.

 

25

Section
8.2             
Indemnification Procedure.  Any party entitled to indemnification
under this Article VIII (an "indemnified party") will give written notice to
the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice.  In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party.  In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim.  In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such
claim, proceeding or action, the indemnified party's costs and expenses arising
out of the defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder.  The
indemnified party shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action or
claim.  The indemnifying party shall keep the indemnified party fully apprised
at all times as to the status of the defense or any settlement negotiations
with respect thereto.  If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense.  The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its prior
written consent.  Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of
any judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim.  The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not
entitled to indemnification.  The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.

 

26

ARTICLE IX

Miscellaneous

Section
9.1             
Fees and Expenses.  Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel,
accountants and other experts, if any, and all other expenses, incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at
the Closing (i) all actual attorneys' fees and expenses (exclusive of
disbursements and out-of-pocket expenses) incurred by the Purchasers up to
$25,000 in connection with the preparation, negotiation, execution and delivery
of this Agreement, the Registration Rights Agreement and the transactions
contemplated thereunder, and (ii) in connection with the filing and declaration
of effectiveness by the Commission of the Registration Statement (as defined in
the Registration Rights Agreement) and any amendments, modifications or waivers
of this Agreement or any of the other Transaction Documents.  In addition, the
Company shall pay all reasonable fees and expenses incurred by the Purchasers
in connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses.  The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.

Section
9.2             
Specific Enforcement, Consent to Jurisdiction.  

(a)               
The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement,
the Certificate of Designation or the Registration Rights Agreement were not
performed in accordance with their specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or
the Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.

(b)              
Each of the Company and the Purchasers (i) hereby irrevocably submits to
the jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York county for the purposes of any suit, action or proceeding arising out of
or relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper.  Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing in this Section 9.2
shall affect or limit any right to serve process in any other manner permitted
by law.

 

27

Section
9.3             
Entire Agreement; Amendment.  This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein or in the Transaction Documents or the
Certificate of Designation,  neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters and they supersede all prior understandings and agreements with
respect to said subject matter, all of which are merged herein.  No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the Company and the holders of at least 75% of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding.  No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.

Section
9.4             
Notices.  Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur. 
The addresses for such communications shall be:

	
  If to the Company:

  	
  Home Solutions of America, Inc.  

  c/o Fiber-Seal Systems, L.P.

  5565 Red Bird Center Drive

  Dallas, TX 75237

  Attention: Rick J. O'Brien, CFO

  Tel. No.: (214) 333-9400

  Fax No.:  (214) 333-9435

  
	

  	

   

  
	
  with copies 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

  
	

  	

   

  
	
  If to any Purchaser:

  	
  At the address of such Purchaser set forth on Exhibit A to
  this Agreement, with copies to Purchaser's counsel as set forth on Exhibit A
  or as specified in writing by such Purchaser with copies to:

  
	

  	

   

  
	

  	
  Jenkens & Gilchrist Parker Chapin LLP

  The Chrysler Building

  405 Lexington Avenue 

  New York, NY 10174

  Attention: Christopher S. Auguste, Esq.

  Tel No.: (212) 704-6000

  Fax No.: (212) 704-6288

  

 

28

 

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.

Section 9.5             
Waivers.  No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party
to exercise any right hereunder in any manner impair the exercise of any  such
right accruing to it thereafter.

Section
9.6             
Headings.  The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this Agreement
for any other purpose and shall not be deemed to limit or affect any of the
provisions hereof.

Section
9.7             
Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.  

Section
9.8             
No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.

Section
9.9             
Governing Law.  This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions.  This Agreement shall not interpreted
or construed with any presumption against the party causing this Agreement to
be drafted.

Section
9.10         
Survival.  The representations and warranties of the Company and
the Purchasers contained in Sections 2.1(o) and (s) should survive indefinitely
and those contained in Article II, with the exception of Sections 2.1(o) and
(s), shall survive the execution and delivery hereof and the Closing until the
date three (3) years from the Closing Date, and the agreements and covenants
set forth in Articles I, III, VIII and IX of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder until the Purchasers in
the aggregate beneficially own (determined in accordance with Rule 13d-3 under
the Exchange Act) less than 10% of the total combined voting power of all
voting securities then outstanding, provided, that Sections 3.1, 3.2, 3.4, 3.5,
3.7, 3.8, 3.9, 3.10, 3.12, 3.13 and 3.14 shall not expire until the
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.

 

29

Section
9.11         
Counterparts.  This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.  In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.

Section
9.12         
Publicity.  The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchasers without
the consent of the Purchasers unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.

Section
9.13         
Severability.  The provisions of this Agreement, the Certificate
of Designation and the Registration Rights Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or
more of the provisions or part of the provisions contained in this Agreement,
the Certificate of Designation or the Registration Rights Agreement shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement, the Certificate of Designation
or the Registration Rights Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

Section
9.14         
Further Assurances.  From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other writings
as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement, the Preferred Shares, the Conversion Shares, the Warrants, the
Warrant Shares, the Certificate of Designation, and the Registration Rights
Agreement.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

30

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

	

  	
  HOME SOLUTIONS OF AMERICA, INC.

  
	

  	

   

  
	

  	

   

  
	

  	
  By:                                                                      

  
	

  	
            Name:

          Title:

     

  

	

  	
  PURCHASER

  
	

  	

   

  
	

  	

   

  
	

  	

   

  
	

  	
  By:                                                                      

            Name: 

            Title:   

  
	

  	

   

  
	

  	
  PURCHASER

  
	

  	

   

  
	

  	

   

  
	

  	

   

  
	

  	
  By:                                                                      

            Name:

          Title

  
	

  	

  PURCHASER

  
	

  	

   

  
	

  	

   

  
	

  	

   

  
	

  	
  By:                                                                      

            Name:

          Title

  

 

 EXHIBIT A to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

 

                                                                                                                                                               

Names
and Addresses                        Number of Preferred Shares                   Dollar
Amount of

of Purchasers                                      & Warrants Purchased                             Investment

 

 

 

EXHIBIT B to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

FORM OF SERIES A WARRANT 

 

EXHIBIT C to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

FORM OF SERIES B WARRANT

 

EXHIBIT D to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

FORM OF CERTIFICATE OF DESIGNATION

 

EXHIBIT E to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

 

FORM OF REGISTRATION RIGHTS AGREEMENT

EXHIBIT F to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

FORM OF IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS

HOME SOLUTIONS OF AMERICA, INC.

as of March 1, 2004

[Name and address of Transfer
Agent]

Attn:  _____________

Ladies
and Gentlemen:

Reference is made to that certain Series A
Convertible Preferred Stock Purchase Agreement (the "Purchase Agreement"),
dated as of March 1, 2004, by and among Home Solutions of America, Inc., a Delaware
corporation (the "Company"), and the purchasers named therein
(collectively, the "Purchasers") pursuant to which the Company is
issuing to the Purchasers shares of its Series A Convertible Preferred Stock,
par value $.001 per share, (the "Preferred Shares") and warrants (the "Warrants")
to purchase shares of the Company's common stock, par value $.001 per share
(the "Common Stock").  This letter shall serve as our irrevocable
authorization and direction to you (subject to Section 3.1(a) of the Purchase
Agreement and provided that you are the transfer agent of the Company at such
time) to issue shares of Common Stock upon conversion of the Preferred Shares
(the "Conversion Shares") and exercise of the Warrants (the "Warrant
Shares") to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Preferred
Shares, a copy of the certificates (with the original certificates delivered to
the Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with  the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the case
of their loss, theft or destruction), and (iii) delivery of a treasury order or
other appropriate order duly executed by a duly authorized officer of the
Company.  So long as you have previously received (x) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and no subsequent
notice by the Company or its counsel of the suspension or termination of its
effectiveness and (y) a copy of such registration statement, and if the
Purchaser represents in writing that the Conversion Shares or the Warrant
Shares, as the case may be, were sold pursuant to the Registration Statement,
then certificates representing the Conversion Shares and the Warrant Shares, as
the case may be, shall not bear any legend restricting transfer of the
Conversion Shares and the Warrant Shares, as the case may be, thereby and
should not be subject to any stop-transfer restriction.  Provided, however,
that if you have not previously received (i) written confirmation from counsel
to the Company that a registration statement covering resales of the Conversion
Shares or Warrant Shares, as applicable, has been declared effective by the SEC
under the 1933 Act, and (ii) a copy of such registration statement, then the
certificates for the Conversion Shares and the Warrant Shares shall bear the
following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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 OR
APPLICABLE STATE SECURITIES LAWS, OR HOME SOLUTIONS OF AMERICA, INC. SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED."

and, provided further, that the Company may from time
to time notify you to place stop-transfer restrictions on the certificates for
the Conversion Shares and the Warrant Shares in the event a registration
statement covering the Conversion Shares and the Warrant Shares is subject to
amendment for events then current.

A form of written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares and the Warrant Shares has been declared effective by the SEC
under the 1933 Act is attached hereto as Exhibit III.

Please be advised that the Purchasers are
relying upon this letter as an inducement to enter into the Securities Purchase
Agreement and, accordingly, each Purchaser is a third party beneficiary to
these instructions.

Please execute this letter in the space
indicated to acknowledge your agreement to act in accordance with these
instructions.  Should you have any questions concerning this matter, please
contact me at ___________.

Very truly yours,

HOME SOLUTIONS OF AMERICA,
INC. 

By:                                                                  

        Name:                                                      

        Title:                                                         

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:
                                                                             

Name:                                                                         

Title:                                                                            

Date:                            

EXHIBIT I

HOME SOLUTIONS OF AMERICA, INC.

CONVERSION NOTICE

Reference
is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series A Preferred Stock of Home Solutions of America, Inc. (the
"Certificate of Designation").  In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $.001 per share (the "Preferred
Shares"), of Home Solutions of America, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $.001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.

Date of Conversion:                                                                                                                   

Number of Preferred Shares to be converted:                 

Stock certificate no(s). of Preferred Shares to be
converted:                    

The Common Stock have been sold pursuant to the
Registration Statement (as defined in the Registration Rights Agreement):  
YES ____       NO____

Please
confirm the following information:

Conversion Price:                                                                                                                      

Number of shares of Common Stock

to be issued:                                                                                                                              

Number of shares of Common Stock beneficially owned or
deemed beneficially owned by the Holder on the Date of Conversion:
_________________________

Please
issue the Common Stock into which the Preferred Shares are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:

Issue to:                                                                                                                                    

                                                                        

Facsimile Number:                                                                                                                     

Authorization:                                                                                                                            

By:                                                                   

Title:                                                                 

Dated:

 

EXHIBIT
II

FORM OF
EXERCISE NOTICE

EXERCISE FORM

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 _______________.

EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and address of Transfer
Agent]

Attn:  _____________

Re:       Home Solutions of
America, Inc. 

Ladies and Gentlemen:

We are counsel to Home Solutions of
America, Inc., a Delaware corporation (the "Company"), and have
represented the Company in connection with that certain Series A Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement"), dated as
of March 1, 2004, by and among the Company and the purchasers named therein
(collectively, the "Purchasers") pursuant to which the Company issued to
the Purchasers shares of its Series A Convertible Preferred Stock, par value
$.001 per share, (the "Preferred Shares") and warrants (the "Warrants")
to purchase shares of the Company's common stock, par value $.001 per share
(the "Common Stock").  Pursuant to the Purchase Agreement, the Company
has also entered into a Registration Rights Agreement with the Purchasers (the
"Registration Rights Agreement"), dated as of March 1, 2004, pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the "1933
Act").  In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2004, the Company filed a Registration
Statement on Form S-3 (File No. 333-________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the
resale of the Registrable Securities which names each of the present Purchasers
as a selling stockholder thereunder.

In connection with the foregoing, we
advise you that a member of the SEC's staff has advised us by telephone that
the SEC has entered an order declaring the Registration Statement effective
under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a
member of the SEC's staff, that any stop order suspending its effectiveness has
been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and accordingly, the Registrable Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

[COMPANY COUNSEL]

By:                                                                  

cc:        [LIST
NAMES OF PURCHASERS]

EXHIBIT G to the 

SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT FOR 

HOME SOLUTIONS OF AMERICA, INC.

FORM OF OPINION OF COUNSEL

 

1.                  
The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware and has the requisite corporate power to own, lease and operate its
properties and assets, and to carry on its business as presently conducted. 
The company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary.

2.                  
The Company has the requisite
corporate power and authority to enter into and perform its obligations under
the Transaction Documents and to issue the Preferred Stock, the Warrants and
the Common Stock issuable upon conversion of the Preferred Stock and exercise
of the Warrants.  The execution, delivery and performance of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required.  Each of the Transaction
Documents have been duly executed and delivered, and the Preferred Stock and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its respective terms.  The Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants are not subject to any preemptive rights
under the Certificate of Incorporation or the Bylaws.

3.                  
The Preferred Stock and the
Warrants have been duly authorized and, when delivered against payment in full
as provided in the Purchase Agreement, will be validly issued, fully paid and
nonassessable.  The shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants, have been duly authorized and
reserved for issuance,  and, when delivered upon conversion or against payment
in full as provided in the Certificate of Designation and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable.

4.                  
The execution, delivery and
performance of and compliance with the terms of the Transaction Documents and
the issuance of the Preferred Stock, the Warrants and the Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants do not (i)
violate any provision of the Certificate of Incorporation or Bylaws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party, (iii)
create or impose a lien, charge or encumbrance on any property of the Company
under any agreement or any commitment to which the Company is a party or by
which the Company is bound or by which any of its respective properties or
assets are bound, or (iv) (a) result in a violation of any federal, state,
local or foreign statute, rule, regulation, order, judgment, injunction or
decree (including Federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected, except, in all cases other than violations pursuant to clause (i)
above, for such conflicts, default, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect.

5.                  
No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required under Federal, state or local
law, rule or regulation in connection with the valid execution and delivery of
the Transaction Documents, or the offer, sale or issuance of the Preferred
Stock, the Warrants or the Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants other than the Certificate of
Designation and the Registration Statement.

 

6.                  
There is no action, suit, claim,
investigation or proceeding pending or threatened against the Company which
questions the validity of this Agreement or the transactions contemplated
hereby or any action taken or to be taken pursuant hereto or thereto.  There is
no action, suit, claim, investigation or proceeding pending, or to our
knowledge, threatened, against or involving the Company or any of its
properties or assets and which, if adversely determined, is reasonably likely
to result in a Material Adverse Effect.  There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any officers or
directors of the Company in their capacities as such.

7.                  
The offer, issuance and sale of
the Preferred Stock and the Warrants and the offer, issuance and sale of the
shares of Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants pursuant to the Purchase Agreement, the Certificate of
Designation and the Warrants, as applicable, are exempt from the registration
requirements of the Securities Act.

8.                  
The Company is not, and as a
result of and immediately upon Closing will not be, an "investment
company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.

                        Very truly yours,

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