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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 RELIANT HOME WARRANTY CORP. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Right to Purchase up to 36,128,286
Shares of Common Stock of
Reliant Home Warranty Corporation
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________ Issue Date: June 8, 2006
RELIANT HOME WARRANTY CORPORATION, a corporation organized under the
laws of the State of Florida (the "Company"), 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, up to 36,128,286 fully
paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001
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 Reliant Home Warranty Corporation
and any person or entity which shall succeed, or assume the
obligations of, Reliant Home Warranty Corporation hereunder.
(b) The term "Common Stock" includes (i) the Company's Common Stock,
par value $0.001 per share; and (ii) any other securities into
which or for which any of the securities described in the
preceding clause (i) 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.
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(d) The "Exercise Price" applicable under this Warrant shall be $0.001
per share.
1. Exercise of Warrant.
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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 Capital 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 Over The Counter 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.
1.3 Company Acknowledgment. The Company will, at the time of the exercise
of this 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
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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 this 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.
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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.
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(a) 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 this
Warrant, or shares of Common Stock and/or Common Stock receivable
upon exercise of this Warrant in accordance with the formula set
forth in subsection (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.
(b) 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
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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:
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 this Warrant or, if only a portion of this
Warrant is being exercised, the portion of this
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 = the Exercise Price per share (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, 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 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.
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
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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
Holder will be delivered to the 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 or any preferred stock issued by
the Company, (b) subdivide its outstanding shares of Common Stock, (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 shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive shall be adjusted 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 (taking into account the
provisions of this Section 4). Notwithstanding the foregoing, in no event shall
the Exercise Price be less than the par value of the Common Stock.
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 this 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 this 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 and any warrant agent of the
Company (appointed pursuant to Section 11 hereof).
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 this Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
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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 (at
the Company's expense) 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 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 Holder dated as of the date
hereof, as the same may be amended, modified and/or supplemented from time to
time.
10. Maximum Exercise. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to exercise this Warrant in
connection with that number of shares of Common Stock which would exceed the
difference between (i) 4.99% of the issued and outstanding shares of Common
Stock and (ii) the number of shares of Common Stock beneficially owned by the
Holder. For purposes of 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. The limitation
described in the first sentence of this Section 10 shall automatically become
null and void following notice to the Company upon the occurrence and during the
continuance of an Event of Default (as defined in the Security and Purchase
Agreement dated as of the date hereof among the Holder, the Company and various
subsidiaries of the Company (as amended, modified, restated and/or supplemented
from time to time, the "Security Agreement")), or upon 75 days prior notice to
the Company.
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.
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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 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 who has so furnished an address to
the Company.
14. 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 THE 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 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 attorneys' 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 hereof. 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.
15. Grant of Irrevocable Proxy.
---------------------------
For good and valuable consideration, receipt of which is hereby
acknowledged, Laurus Master Fund, Ltd., hereby appoints the Company (the "Proxy
Holder"), with a mailing address at 350 Bay Street, Suite 250, Toronto, ON, M5H
2S6, with full power of substitution, as proxy, to vote all shares of Common
Stock of the Company, now or in the future owned by Laurus Master Fund, Ltd.,
but solely to the extent issuable upon exercise of this Warrant (the "Shares").
This proxy is irrevocable and coupled with an interest. Upon the sale
or other transfer of the Shares, in whole or in part, or the assignment of this
Warrant, this proxy shall automatically terminate (x) with respect to such sold
or transferred Shares at the time of such sale and/or transfer, or (y) with
respect to all Shares in the case of an assignment of this Warrant, at the time
of such assignment, in each case, without any further action required by any
person.
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Laurus Master Fund, Ltd. shall use its best efforts to forward to Proxy
Holder within two (2) business days following Laurus Master Fund, Ltd.'s receipt
thereof, at the address for Proxy Holder set forth above, copies of all
materials received by Laurus Master Fund, Ltd. relating, in each case, to the
solicitation of the vote of shareholders of the Company.
This proxy shall remain in effect with respect to the Shares of the
Company during the period commencing on the date hereof and continuing until the
payment in full of all obligations and liabilities owing by the Company to
Laurus Master Fund, Ltd. (as the same may be amended, restated, extended or
modified from time to time).
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
RELIANT HOME WARRANTY CORPORATION
WITNESS: By:
Name:
Title:
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EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: Reliant Home Warranty Corporation
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---------------------
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:___________________________________________
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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 Reliant Home Warranty Corporation 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 Reliant Home Warranty Corporation 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)
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