Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of August 5, 2005, by
and among Modtech Holdings, Inc., a Delaware corporation, with headquarters
located at 2830 Barrett Avenue, Perris, California 92751 (the “Company”), and
the investors listed on the Schedule of Buyers attached hereto (each, a “Buyer”
and collectively, the “Buyers”).

 

WHEREAS:

 

A. The Company and the Buyers are executing and delivering this Agreement 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 “SEC”) under the Securities Act of 1933, as amended (as
so amended, the “1933 Act”);

 

B. The Company has authorized the issuance and sale of up to 2,046,000 shares of
its common stock, par value $0.01 per share (the “Common Stock”) and warrants to
acquire up to 1,023,000 shares of Common Stock in substantially the form
attached hereto as Exhibit A (the “Warrants”), pursuant to the terms of this
Agreement;

 

C. The Buyers wish to purchase, upon the terms and conditions stated in this
Agreement, an aggregate of up to 2,046,000 shares of Common Stock (the “Offered
Shares”) in the respective amounts set forth opposite each Buyer’s name on the
Schedule of Buyers, together with Warrants exercisable into shares of Common
Stock (the “Warrant Shares”); and

 

D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering an Amended and Restated Registration
Rights Agreement (the “Registration Rights Agreement”), pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.

 

NOW, THEREFORE, the Company and the Buyers hereby agree as follows:

 

1. PURCHASE AND SALE OF OFFERED SHARES.

 

a. Purchase of Offered Shares. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer and each Buyer, severally and not jointly, agrees to purchase from
the Company the respective number of Offered Shares set forth opposite such
Buyer’s name on the Schedule of Buyers, together with the Warrants, at the
respective purchase price (the “Purchase Price”) set forth opposite such Buyer’s
name on the Schedule of Buyers (the “Closing”). The Offered Shares, together
with the Warrants and the Warrant Shares are referred to herein as the
“Securities”).

 

b. Closing Dates.

 

i. Closing Date. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m. California Time, on August 5, 2005, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or

 

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such later date as is mutually agreed to by the Company and the Buyers). The
Closing shall occur on the Closing Date at the offices of Shartsis Friese LLP,
One Maritime Plaza, 18th Floor, San Francisco, California 94111.

 

c. Form of Payment. On the Closing Date or within one business day thereafter,
(i) each Buyer shall pay an amount equal to the Purchase Price to the Company
for the Offered Shares and Warrants to be issued and sold to such Buyer at the
Closing, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions, and (ii) the Company shall deliver to each
Buyer, stock certificates (in the denominations as such Buyer shall request (the
“Common Stock Certificates”) representing such number of the Offered Shares
which such Buyer is then purchasing (as indicated opposite such Buyer’s name on
the Schedule of Buyers), along with the Warrant, duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.

 

2. BUYERS’ REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants, severally and not jointly, that:

 

a. Investment Purpose. Such Buyer (i) is acquiring the Securities for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempt from registration under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of them at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and otherwise in
accordance with applicable law. Such Buyer is acquiring the Securities hereunder
in the ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. If such Buyer is acting in a representative
capacity on behalf of one or more funds, partnerships or managed accounts, such
Buyer has the authority to make, and has made, the foregoing representations and
warranties on behalf of each such fund, partnership or account, each of which
shall be deemed a Buyer hereunder

 

b. Accredited Investor Status. Such Buyer is an “accredited investor” as that
term is defined in Rule 501(a)(3) of Regulation D, and such Buyer is also
knowledgeable, sophisticated and experienced in making, and is qualified to make
decisions with respect to, investments in securities presenting an investment
decision like that involved in the purchase of the Securities, including
investments in securities issued by the Company and investments in comparable
companies. Such Buyer acknowledges that it is able to bear the financial risk
associated with an investment in the Securities.

 

c. Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
such securities.

 

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d. Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by such Buyer, and such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer’s right to rely on the Company’s representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.

 

e. No Governmental Review. Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

 

f. Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless subsequently registered
thereunder or there is an exemption from registration; (ii) any sale of the
Securities made in reliance on Rule 144 promulgated under the 1933 Act, as
amended, or any successor rule thereto (“Rule 144”) may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.

 

g. Legends. Such Buyer understands that the certificates or other instruments
representing the Securities, except as set forth below, shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.

 

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A SECURITIES PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER, WHICH MAY
RESTRICT THE TRANSFER OF SUCH SECURITIES IN CERTAIN CIRCUMSTANCES. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY’S PRINCIPAL
OFFICE.

 

The legends set forth above shall be removed and the Company shall issue a
certificate without such legends to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder 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 Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities 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. Such Buyer acknowledges, covenants and agrees to sell the
Securities represented by a certificate(s) from which the legends have been
removed, only pursuant to (i) a registration statement effective under the 1933
Act or (ii) advice of counsel that such sale is exempt from registration
required by Section 5 of the 1933 Act, including, without limitation, a
transaction pursuant to Rule 144.

 

h. Validity; Enforcement. Such Buyer, if it is an entity, is duly organized,
validly existing and in good standing in the state of its organization and was
not formed for the purpose of investing in the Securities. Such Buyer has full
right, power and authority to enter into this Agreement and to consummate the
transaction contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

 

i. Residency. Such Buyer is a resident of that state and country specified in
its address on the Schedule of Buyers.

 

j. Brokers or Finders. The Company will not incur, directly or indirectly, as a
result of any action taken by the Buyers, any liability for brokerage or
finders’ fees or agents’ commissions or any similar charges in connection with
this Agreement or any transactions contemplated hereby.

 

k. Trading Disclosures. Except as set forth on Schedule 2(l), from June 2, 2005
through and including the date hereof, Buyer has not bought, sold, sold short,
transferred, written options or otherwise disposed of or acquired any of the
Company’s securities.

 

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

a. Organization and Qualification. Except as disclosed in Schedule 3(a), the
Company and its “Subsidiaries” (which for purposes of this Agreement means a
“Subsidiary” as defined in Rule 405 under the 1933 Act) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own their properties and to carry on their business
as now being conducted, except where the failure of any Subsidiary to be duly
organized, validly existing and in good standing would not have a Material
Adverse Effect. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, “Material Adverse Effect” means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule 3(a).

 

b. Authorization; Enforcement; Validity. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 5), the Warrants and each of the other agreements entered
into by the parties hereto in connection with the transaction contemplated by
this Agreement (collectively, the “Transaction Documents”), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Offered Shares and the Warrants and the
reservation for issuance and the issuance of the Warrant Shares, have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, except for the consent of Amphora Limited to the transaction
contemplated herein and the approval of such transaction by the Nasdaq Listings
Qualification Department (which approval has already been obtained) (iii) the
Transaction Documents have been duly executed and delivered by the Company, (iv)
the Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors’
rights and remedies.

 

c. Capitalization. As of August 3, 2005, the authorized capital stock of the
Company consists of (i) 25,000,000 shares of Common Stock, of which as of the
date hereof, 14,834,535 shares are issued and outstanding, 1,598,508 shares are
reserved for issuance pursuant to the Company’s stock option and purchase plans
and 2,873,564 shares are issuable and reserved for issuance pursuant to
securities (other than the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock, and (ii) 5,000,000 shares of Preferred
Stock, of which as of the date hereof, no shares are issued. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(c), (i) no
shares of the Company’s capital stock are subject to

 

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preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) none of the Company or any of its
Subsidiaries has any outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing antidilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement, and (vii) the Company does not have any stock appreciation rights or
stock “phantom stock” plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyer true and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate of Incorporation”), and the Company’s By-laws as amended and
as in effect on the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto. Schedule 3(c) lists all issuances of the
Company’s securities (both debt and equity) since January 1, 2004, detailing the
name of the acquirer, the number and type of securities acquired, and the
consideration paid. Schedule 3(c) also lists each sale of Common Stock by the
Company’s officers, directors and greater than 5% owners of the Company’s Common
Stock from January 1, 2004, through and including the date of this Agreement.

 

d. Issuance of Securities. The Offered Shares are duly authorized and, upon
issuance in accordance with the terms hereof, shall be (i) validly issued, fully
paid and nonassessable, (ii) free from all taxes, liens and charges with respect
to the issue thereof and (iii) entitled to the rights and preferences set forth
in the Certificate of Incorporation. A sufficient number of shares of Common
Stock (subject to adjustment pursuant to the Company’s covenant set forth in
Section 4(f) below) have been duly authorized and reserved for issuance upon
exercise of the Warrants such that upon such exercise the Company will have
sufficient shares to issue to the holders of the Warrants in order to satisfy
its obligations thereunder. Upon exercise of the Warrants, the Warrant Shares
will be validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock. Subject to the
accuracy of the Buyers’ representations and warranties, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

 

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 Incorporation and the consummation by the Company of
the transactions

 

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contemplated hereby and thereby (including, without limitation, the reservation
for issuance and the issuance and registration of the Warrant Shares) will not
(i) result in a violation of the Certificate of Incorporation or the By-laws
(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, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined in Section 4(h) below)) applicable to the Company or any of its
Subsidiaries or by which any material property or asset of the Company or any of
its Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries
is in violation of any term of or in default under its Certificate of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, and other than the Transaction Documents, there are no other
agreements or organizational documents that govern the rights of the Securities.
Neither the Company nor any of its Subsidiaries is in violation of any term of
or in default under any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except, in each case,
where such violation could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect on the Company. The business of the
Company and its Subsidiaries is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for violations the
sanctions for which either individually or in the aggregate could not reasonably
be expected to have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and except for
the consent of Amphora Limited to the transaction contemplated herein and the
approval of such transaction by the Nasdaq Listings Qualification Department,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents or to perform its obligations under the Certificate of Designations,
in each case in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.

 

f. SEC Documents; Financial Statements. Except as provided in Schedule 3(f),
since December 31, 2004, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). The Company has delivered to or otherwise made available to
the Buyers or their respective representatives true and complete copies of the
SEC Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. As of their respective dates, the financial

 

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statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, 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 exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information.

 

g. Absence of Certain Changes. Except as disclosed in Schedule 3(g), since March
31, 2005, there has been no Material Adverse Effect in the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings. Except as disclosed in Schedule 3(g), since March 31,
2005, the Company has not declared or paid any dividends, sold any assets in
excess of $50,000 outside of the ordinary course of business or had capital
expenditures in excess of $50,000. Except as disclosed in Schedule 3(g), since
March 31, 2005, there has not been any other event which could have a Material
Adverse Effect or which could adversely affect the validity or enforceability
of, or the authority or the ability of the Company to perform its obligations
under the Transaction Documents.

 

h. Absence of Litigation. Except as set forth in Schedule 3(h), there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against or affecting the Company or any of its Subsidiaries or any of the
Company’s or the Company’s Subsidiaries’ officers or directors in their
capacities as such, which could have a Material Adverse Effect.

 

i. Acknowledgment Regarding Buyers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Buyers is acting solely in the capacity
of arm’s-length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that each Buyer is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by any of the
Buyers or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer’s purchase of the Securities. The Company
further represents to each

 

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Buyer that the Company’s decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.

 

j. No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is expected to
occur, with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
Except as disclosed in Schedule 3(j), the Company has completed and fully
satisfied all of its obligations with regard to the Heritage project located in
Brentwood, California.

 

k. No General Solicitation. Neither the Company, nor any of its affiliates, nor,
to the Company’s knowledge, 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) in connection with the offer or sale of the Securities.

 

l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor,
to the Company’s knowledge, 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 require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or except as set forth on Schedule 3(l), any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated, nor will the Company or
any of its Subsidiaries take any action or steps that would require registration
of any of the Securities under the 1933 Act (except pursuant to the Registration
Rights Agreement) or cause the offering of the Securities to be integrated with
other offerings.

 

m. Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. None of the Company’s or
its Subsidiaries’ employees is a member of a union, neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer’s employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, nondisclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

 

n. Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service

 

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mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted or as
proposed to be conducted, except where the failure to own or possess such rights
could not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. None of the Company’s trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement, unless such expiration or termination could not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
The Company and its Subsidiaries do not have any knowledge of any infringement
by the Company or its Subsidiaries of trademark, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service mark registrations, trade secret or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others and, there is no claim, action or proceeding being made or
brought against, or to the Company’s knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, and the Company is not aware of any third party
making any unauthorized or infringing use of the intellectual properties of the
Company or any of its Subsidiaries.

 

o. Environmental Laws. The Company and its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval except where, in each of the
three foregoing cases, the failure to so comply could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.

 

p. Title. The Company and its Subsidiaries have clear title to all real
property, if any, owned by it and good and valid title to all personal property
owned by it which, in each case, is material to the business of the Company and
its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects, except such as do not materially affect the value of such property and
do not interfere with the use made and proposed to be made of such property by
the Company and any of its Subsidiaries. Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.

 

q. Insurance. The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which

 

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the Company and its Subsidiaries are engaged, and all of such insurance is in
full force and effect. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that could not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.

 

r. Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess any such certificate,
authorization or permit could not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect, and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.

 

s. Internal Accounting Controls. Subject to the material weaknesses disclosed in
the Company’s report on Form 10-K for the fiscal year ended December 31, 2004,
the Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient 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 generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific or authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.

 

t. Tax Status. The Company and each of its Subsidiaries has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

 

u. Transactions With Affiliates. Except as set forth in Schedule 3(u) or the SEC
Documents filed at least ten (10) days prior to the date hereof and other than
the grant of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other

 

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entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.

 

v. Rights Agreement. The Company has not adopted a shareholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Common
Stock or a change in control of the Company.

 

w. No Other Agreements. The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

 

x. Material Contracts. All material contracts of the Company that are required
by applicable rules and regulations of the SEC to be filed as exhibits to the
SEC Documents (“Material Contracts”) have been so filed. The Company has not
received notice of a default and is not in default under, or with respect to,
any Material Contract. To the knowledge of the Company, no other party to any
Material Contract is in default thereunder, nor does any condition exist that,
with notice or lapse of time or both, would constitute a default by such party
thereunder. Schedule 3(x) lists each agreement with Fortress Credit Corporation,
Fortress Investment Company and Amphora Limited as is in effect on the date
hereof (collectively, the “Loan Documents”), and after giving effect to waivers
and releases obtained by the Company, the Company is not in breach of any
provision of the Loan Documents.

 

y. Brokers or Finders. The Buyers will not incur, directly or indirectly, as a
result of any action taken by the Company, any liability for brokerage or
finders’ fees or agents’ commissions or any similar charges in connection with
this Agreement or any transactions contemplated hereby.

 

z. Officers, Directors and 5% Shareholders. Each of the Company’s key executive
officers and directors and persons owning 5% or more of the Common Stock is
listed on Schedule 3(z).

 

aa. Consents. The Company is not required to obtain any consent, authorization
or approval of any Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transactions Documents, in each
case in accordance with the terms hereof or thereof other than the August 1,
2005 Nasdaq approval letter attached hereto as Exhibit E. The Company is not in
violation of the listing requirements of the Principal Market and has no
knowledge of any facts that would reasonably lead to delisting or suspension of
the Common Stock in the foreseeable future.

 

4. COVENANTS.

 

a. Closing Conditions Compliance. Each party shall use its best efforts to
satisfy timely each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.

 

b. Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action

 

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as the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
states of the United States. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or “Blue Sky” laws of the states of the United States following the
Closing Date.

 

c. Reporting Status. Until the earlier of (i) the date as of which the Investors
(as that term is defined in the Registration Rights Agreement, but excluding
therefrom any officers or directors) may sell all of the Offered Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), or (ii) the date on which (A) the Investors
shall have sold all the Offered Shares and the Warrant Shares and (B) none of
the Offered Shares or Warrants is outstanding (the “Registration Period”), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.

 

d. Use of Proceeds. The Company will use the proceeds from the sale of the
Offered Shares for substantially the same purposes and in substantially the same
amounts as indicated in Schedule 4(d).

 

e. Financial Information. The Company agrees to send the following to each
Investor (as that term is defined in the Registration Rights Agreement, but
excluding therefrom any officers or directors of the Company and any Investors
who no longer own Securities) during the Registration Period: (i) within two (2)
business days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K, including any amendments to such documents, and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, provided that if any such report is filed with the SEC through EDGAR then
the Company shall not be obligated to deliver a copy of such report to any
Investor; (ii) on the same day as the release thereof, facsimile copies of all
press releases issued by the Company or any of its Subsidiaries; and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.

 

f. Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than
100% of the number of shares of Common Stock needed to provide for the issuance
of the shares of Common Stock upon exercise of all outstanding Warrants.

 

g. Lock Up. The Company shall obtain for Buyers’ benefit the written agreement
from each of its executive officers and directors not to sell, short sell, loan,
margin, dispose, pledge or transfer, directly or indirectly, more than five
percent (5%) of the Company’s capital stock they own or control, such
restrictions to apply from the date hereof through the period ending on the day
following the 180th consecutive day that the Registration Statement is available
for the resale of the Offered Shares and Warrant Shares. Such agreement shall be
in substantially the form provided in Exhibit B hereto, but shall not prohibit
those executive

 

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officers and directors who are Buyers of Securities from selling such Securities
in accordance with the Registration Statement. The Company shall provide a
standing stop order with its transfer agent to prohibit the activity proscribed
by such agreement. The Company agrees not to amend any such agreement without
prior written consent of the Required Holders.

 

h. Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. Subject to meeting
applicable listing requirements, the Company shall use reasonable best efforts
to maintain authorization of the Common Stock for quotation on the Nasdaq
National Market, and neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(h).

 

i. Expenses. The Company shall reimburse Peninsula Catalyst Fund, L.P. its
expenses (including reasonable attorneys’ fees and expenses) in due diligence
and negotiating and preparing the Transaction Documents and consummating the
transactions contemplated thereby.

 

j. Filing of Form 8-K. On or before the first (1st) business day following the
Closing Date, the Company shall file a Form 8-K with the SEC describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act., and otherwise disclose all material non-public
information previously disclosed to Buyers which information continues to be, as
of the date hereof, material and non-public.

 

k. Form S-3 Eligibility. The Company shall use its best efforts to obtain
eligibility to file a registration statement on Form S-3 so that it is available
for the registration of the resale of Registrable Securities.

 

l. Limitation on Filing Registration Statements. From the date hereof through
the period ending on the day following the 30th consecutive trading day that the
Registration Statement is available for the resale of the Securities, the
Company shall not register any securities other than the Securities, any
securities that the Company currently is required to register and securities on
Form S-8 issued in connection with any stock option plan, stock purchase plan,
stock bonus plan or other plan for the benefit of employees, officers or
directors of the Company.

 

m. Stockholder Approval. The Company shall use its best efforts to obtain as
soon as possible, but in no event later than the 90th day following the date
hereof, “Stockholder Approval” as that term is defined in Section 4(v) the
Securities Purchase Agreement between Amphora Limited and the Company dated as
of December 30, 2004.

 

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5. TRANSFER AGENT INSTRUCTIONS.

 

a. Delivery of Legended Common Stock. Upon execution of this Agreement, the
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of each
Buyer or its respective nominee(s), for the Offered Shares and the Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company (the “Irrevocable Transfer Agent Instructions”), which instructions
shall be in the form as provided in Exhibit D hereto. Prior to registration of
the Offered Shares and the Warrant Shares under the 1933 Act, all Securities
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Offered Shares and the
Warrant Shares, prior to registration of the Offered Shares and the Warrant
Shares under the 1933 Act) will be given by the Company to its transfer agent
and that the Securities 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.

 

b. Delivery of Unlegended Common Stock. After the Offered Shares and Warrant
Shares have been registered for resale, in lieu of delivering physical
certificates representing Offered Shares or Warrant Shares, provided the
Company’s transfer agent is participating in the Depositary Trust Company
(“DTC”) Fast Automated Securities Transfer program, on the written request of a
Buyer who shall have previously instructed its broker to confirm such request to
the Company’s transfer agent, the Company shall cause its transfer agent to
transmit electronically the Offered Shares or the Warrant Shares to the Buyer by
crediting the account of the Buyer’s prime broker with DTC through its Deposit
Withdrawal Agent Commission system no later than the date upon which the Company
is required to deliver shares to the Buyer under the terms of this Agreement.
Nothing in this Section 5 shall affect in any way each Buyer’s obligations and
agreements to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Securities. If a Buyer 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 Securities may be made without registration
under the 1933 Act or the Buyer provides the Company with reasonable assurances
(including, without limitation, by delivering a certificate of an executive
officer of such Buyer) that the Securities 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 promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legend.

 

c. Timing of Delivery. Whenever the Company is required to deliver Securities
under the Transaction Documents, whether with or without a restrictive legend,
such delivery shall be made within three (3) business days of the day that
request is made for delivery of such Securities.

 

d. Specific Performance. The Company acknowledges that a breach by it or its
transfer agent of their respective obligations hereunder will cause irreparable
harm to the Buyers 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 5

 

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will be inadequate and agrees, in the event of a breach or threatened breach of
the provisions of this Section 5, that the Buyers 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.

 

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Securities to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:

 

a. Such Buyer shall have executed each of the Transaction Documents to which it
is a party and delivered the same to the Company.

 

b. Such Buyer shall have delivered to the Company the Purchase Price for the
Offered Shares and the related Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

 

c. The representations and warranties of such Buyer shall be true and correct as
of the Closing Date (except for representations and warranties that speak as of
a specific date), and such Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Closing Date.

 

d. The offer and sale of the Offered Shares and the related Warrants to such
Buyer pursuant to this Agreement shall be exempt from the registration
requirements under the 1933 Act and shall be exempt from the registration and/or
qualification requirements of all applicable state securities laws.

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Securities at the Closing
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

 

a. The Company shall have executed each of the Transaction Documents and
delivered the same to such Buyer.

 

b. Trading in the Common Stock shall not have been suspended.

 

c. The representations and warranties of the Company shall be true and correct
as of the Closing Date (except for representations and warranties that speak as
of a specific date)

 

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and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer.

 

d. Such Buyer shall have received the opinion of the Company’s counsel dated as
of the Closing Date, in form, scope and substance reasonably satisfactory to
such Buyer and in substantially the form of Exhibit C attached hereto.

 

e. The Company shall have executed and delivered to such Buyer the Warrants and
the Common Stock Certificates (in such denominations as such Buyer shall
request) for the Offered Shares being purchased by such Buyer at the Closing.

 

f. The Company’s Board of Directors shall have adopted resolutions authorizing
the issuance of the Offered Shares, the Warrants and the Warrant Shares and the
other transactions provided by this Agreement and the Transaction Documents in a
form reasonably acceptable to such Buyer.

 

g. As of the Closing Date, the Company shall have reserved out of its authorized
and unissued Common Stock a sufficient number of shares of Common Stock for the
purpose of effecting the exercise of the Warrants.

 

h. The Irrevocable Transfer Agent Instructions, in the form of Exhibit D
attached hereto, shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

 

i. The Company shall have delivered to such Buyer a certificate evidencing the
incorporation and good standing of the Company and each Subsidiary in such
corporation’s state of incorporation issued by the Secretary of State of such
state of incorporation as of a date within 10 days of the Closing Date.

 

j. The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within 10 days of the Closing Date.

 

k. The Company shall have delivered to such Buyer a secretary’s certificate,
dated as the Closing Date, as to (i) the resolutions described in Section 7(f)
and (g), (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in
effect at the Closing.

 

l. The Company shall have made all filings under all applicable federal and
state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws.

 

m. The Transaction Documents will be in a form satisfactory to each Buyer.

 

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n. The offer and sale of the Offered Shares and the related Warrants pursuant to
this Agreement shall be exempt from the registration requirements under the 1933
Act and shall be exempt from the registration and/or qualification requirements
of all applicable state securities laws.

 

o. The Company shall have delivered to such Buyer such other documents relating
to the transactions contemplated by this Agreement as such Buyer or its counsel
reasonably request.

 

8. INDEMNIFICATION.

 

In consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in any Transaction Documents, (b)
any breach of any covenant, agreement or obligation of the Company contained in
any Transaction Documents or (c) any cause of action, suit or claim brought or
made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any
Transaction Documents, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Securities or (iii) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 8 shall be the same as those set forth in Section
6 of the Registration Rights Agreement.

 

9. GOVERNING LAW; MISCELLANEOUS.

 

a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of the State of
Delaware shall govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any

 

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jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of San Francisco, California, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

 

b. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

c. Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

 

d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Buyers, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of a majority of the Offered Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Offered Shares
then outstanding.

 

f. Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent

 

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by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92751

Telephone: 951-943-4014

Facsimile: 951-940-0427

Attention: President

 

With a copy to:

 

Jon Haddan

Haddan & Zepfel LLP

500 Newport Center Drive, Suite 580

Newport Beach, CA 92660

Telephone: 949-706-6000

Facsimile: 949-706-6060

 

If to the Transfer Agent:

 

Mellon Investor Services LLC

Attention: Raymond Torres

400 S. Hope Street, 4th Floor

Los Angeles, California 90071

Telephone: (213) 553-9724

Facsimile: (213) 553-9735

 

If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer’s representatives,
if any, specified on the Schedule of Buyers

 

, or at such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party in accordance with the above provisions five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission, or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively; provided however that the foregoing clause (B) shall only be valid
if such communication contained in the facsimile is delivered by an overnight
courier service within 24 hours of the transmission of facsimile.

 

Modtech Holdings, Inc. Securities Purchase Agreement

  -20-

--------------------------------------------------------------------------------

g. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Offered Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of a majority of the Offered Shares then outstanding,
including by merger or consolidation. A Buyer may assign some or all of its
rights hereunder without the consent of the Company, provided, however, that any
such assignment shall not release such Buyer from its obligations hereunder
unless such obligations are assumed by such assignee. Notwithstanding anything
to the contrary contained in the Transaction Documents, the Buyers shall be
entitled to pledge the Securities in connection with a bona fide margin account.

 

h. 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.

 

i. Survival. The representations, warranties and covenants of the Company and
the Buyers shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.

 

j. Publicity. The Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with respect to the
transactions contemplated hereby as it deems reasonably necessary or appropriate
in accordance with its disclosure obligations under applicable law, rules and
regulations; provided, however, that the Company will not identify by name any
Buyer, other than those that are officers and directors of the Company, in any
press release or the body of any other public disclosure without such Buyer’s
prior approval which will not be unreasonably withheld or delayed; provided,
further, that to the extent the Company breaches the foregoing provision and
such breach is the sole cause of an Event of Default (as defined in the Amended
and Restated Senior Subordinated Secured Convertible Note between Amphora
Limited and the Company of even date herewith (the “Amended Note”),
notwithstanding the provisions of Section 2 of the Amended Note, the Interest
Rate (as defined in the Amended Note) shall not be increased to the Default Rate
(as defined in the Amended Note).

 

k. Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

l. No Strict Construction. The language used in this Agreement will deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.

 

m. Remedies. Each Buyer and each holder of the Securities shall have all rights
and remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. The
parties hereto hereby declare that it is impossible to

 

Modtech Holdings, Inc. Securities Purchase Agreement

  -21-

--------------------------------------------------------------------------------

measure in money the damages which will accrue to Buyers or any holder of the
Securities by reason of the Company’s failure to perform any of the obligations
under this Agreement and agree that the terms of this Agreement shall be
specifically enforceable by Buyers and each holder of the Securities. If a Buyer
or any holder of Securities institutes any action or proceeding to specifically
enforce the provisions hereof, any person or entity against whom such action or
proceeding is brought hereby waives the claim or defense therein that such Buyer
or the holder of the Securities has an adequate remedy at law, and such person
or entity shall not offer in any such action or proceeding the claim or defense
that such remedy at law exists.

 

n. Independence. The Company and each Buyer acknowledge that each Buyer is
acting and has acted independently from one another and not as a group in
connection with the transaction evidenced by the Transaction Documents,
including without limitation, performing due diligence, negotiating the
Transaction Documents, and deciding whether to acquire the Securities, hold the
Securities, vote the Securities or dispose of the Securities. The Company and
each Buyer further acknowledge that each Buyer intends to act independently from
one another and not as a group in connection with (i) any amendment or waiver of
rights under this Agreement or the Registration Rights Agreement, (ii) any
future purchase or sale of the Company’s equity securities, (iii) the
acquisition, holding, voting or disposing of the Securities or any other capital
stock of the Company, or (iv) any other matter arising under or related to the
Transaction Documents.

 

o. Representation. Each party hereto acknowledges that (i) Peninsula Catalyst
Fund, L.P. retained Shartsis Friese LLP to represent it in connection with the
Transaction Documents, that its interests may not necessarily coincide with the
interests of the other Buyers, and that each other Buyer has consulted with, or
has had the opportunity to consult with, its own legal counsel and has not
relied on Shartsis Friese LLP for legal counsel in connection with this
transaction, and (ii) Amphora Limited retained Schulte Roth & Zabel LLP to
represent it in connection with the Transaction Documents, that its interests
may not necessarily coincide with the interests of the other Buyers, and that
each other Buyer has consulted with, or has had the opportunity to consult with,
its own legal counsel and has not relied on Schulte Roth & Zabel LLP for legal
counsel in connection with this transaction.

 

p. Exculpation. Each Buyer acknowledges that it is not relying upon any person,
firm or corporation, other than the Company and its officers and directors, in
making its investment or decision to invest in the Company.

 

Modtech Holdings, Inc. Securities Purchase Agreement

  -22-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

COMPANY: Modtech Holdings, Inc.

By:

  /s/ DENNIS SHOGREN

Name:

  Dennis Shogren

Title:

  Chief Financial Officer

 

Modtech Holdings, Inc. Securities Purchase Agreement

  -23-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

BUYERS: Peninsula Catalyst Fund, L.P.

By:

 

Peninsula Catalyst Management LLC

Its:

  General Partner

By:

  /s/ Mike Ogborne

Name:

 

Mike Ogborne

Title:

 

Managing Member

Peninsula Catalyst QP Fund, L.P.

By:

 

Peninsula Catalyst Management LLC

Its:

 

General Partner

By:

  /s/ Mike Ogborne

Name:

 

Mike Ogborne

Title:

 

Managing Partner

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

Peninsula Fund, L.P.

By:

 

PCM Capital LLC

Its:

 

General Partner

By:

 

/s/ SCOTT A. BEDFORD

Name:

 

Scott A. Bedford

Title:

 

Managing Member

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

 

Gruber & McBaine International       Lagunitas Partners LP

By:

 

Gruber & McBaine Capital Management LLC

     

By:

 

Gruber & McBaine Capital Management LLC

Its:

 

Attorney-in-Fact

     

Its:

 

General Partner

By:

 

/s/ J. PATTERSON MCBAINE

     

By:

 

/s/ J. PATTERSON MCBAINE

Name:

 

J. Patterson McBaine

     

Name:

 

J. Patterson McBaine

Title:

 

Manager

     

Title:

 

Manager

Wallace Foundation       Hamilton College

By:

 

Gruber & McBaine Capital Management, LLC

     

By:

 

Gruber & McBaine Capital Management, LLC

Its:

 

Attorney-in-Fact

     

Its:

 

Attorney-in-Fact

By:

 

/s/ J. PATTERSON MCBAINE

     

By:

 

/s/ J. PATTERSON MCBAINE

Name:

 

J. Patterson McBaine

     

Name:

 

J. Patterson McBaine

Title:

 

Manager

     

Title:

 

Manager

Donaghy Sales, Inc.       Gruber Family Foundation

By:

 

Gruber & McBaine Capital Management, LLC

     

By:

 

Gruber & McBaine Capital Management, LLC

Its:

 

Attorney-in-Fact

     

Its:

 

Attorney-in-Fact

By:

 

/s/ J. PATTERSON MCBAINE

     

By:

 

/s/ JON D. GRUBER

Name:

 

J. Patterson McBaine

     

Name:

 

Jon D. Gruber

Title:

 

Manager

     

Title:

 

Manager

Jon D. & Linda W. Gruber Trust        

By:

 

/s/ JON D. GRUBER

         

/s/ J. PATTERSON MCBAINE

Name:

 

Jon D. Gruber

     

Name:

 

J. Patterson McBaine

Title:

 

Trustee

           

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

Dolphin Offshore Partners, L.P.

By:

  /s/ Peter E. Salas

Name:

  Peter E. Salas

Title:

  General Partner

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

Amphora Limited

By:

 

Amaranth Advisors L.L.C.,

Its:

 

Trading Advisor

By:

 

/s/ Karl J. Wachter

Name:

 

Karl J. Wachter

Title:

 

Authorized Signatory

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

 

/s/    MYRON A. WICK, III

Name:

 

Myron A. Wick, III

 

/s/    CHARLES C. MCGETTIGAN

Name:

 

Charles C. McGettigan

 

/s/    DAVID BUCKLEY

Name:

 

David Buckley

 

/s/    DENNIS SHOGREN

Name:

 

Dennis Shogren

 

/s/    RON SAVONA

Name:

 

Ron Savona

 

/s/    KAREN ANDREASEN

Name:

 

Karen Andreasen

 

/s/    RICK BARTOLOTTI

Name:

 

Rick Bartolotti

 

Modtech Holdings, Inc. Securities Purchase Agreement

   

--------------------------------------------------------------------------------

SCHEDULE OF BUYERS

 

Buyer’s Name

--------------------------------------------------------------------------------

  

Buyer’s (and Buyer’s Representative’s, if

any) Address

and Facsimile Number

--------------------------------------------------------------------------------

  

Number of
Offered

Shares

--------------------------------------------------------------------------------

  

Number of

Warrants

--------------------------------------------------------------------------------

   Purchase
Price

--------------------------------------------------------------------------------

Peninsula Catalyst Fund, L.P.   

235 Pine Street, Suite 1818

San Francisco, CA 94111 Attn: Mike Ogborne

Facsimile: 415-568-3385

 

With a copy to:

 

Steven O. Gasser, Esq.

Shartsis Friese LLP

One Maritime Plaza, 18th Floor

San Francisco, CA 94111

Facsimile: 415-421-2922

   50,750    25,375    $ 287,752.50 Peninsula Catalyst QP Fund, L.P.   

235 Pine Street, Suite 1818

San Francisco, CA 94111

Attn: Mike Ogborne

Facsimile: 415-568-3385

 

With a copy to:

 

Steven O. Gasser, Esq.

Shartsis Friese LLP

One Maritime Plaza, 18th Floor

San Francisco, CA 94111

Facsimile: 415-421-2922

   124,250    62,125    $ 704,497.50 Peninsula Fund, L.P.   

235 Pine Street, Suite 1818

San Francisco, CA 94111

Attn: Jason Harris

Facsimile: 415-568-3385

   475,000    237,500    $ 2,693,250 Lagunitas Partners LP   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   183,200    91,600    $ 1,038,744 Gruber & McBaine International   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   166,900    83,450    $ 946,323 Hamilton College   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   91,000    45,500    $ 515,970 Wallace Foundation   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   48,500    24,250    $ 274,995

 

Modtech Holdings, Inc. Securities Purchase Agreement

SCHEDULE OF BUYERS

  1

--------------------------------------------------------------------------------

Buyer’s Name

--------------------------------------------------------------------------------

  

Buyer’s (and Buyer’s Representative’s, if

any) Address

and Facsimile Number

--------------------------------------------------------------------------------

  

Number of
Offered

Shares

--------------------------------------------------------------------------------

  

Number of

Warrants

--------------------------------------------------------------------------------

   Purchase
Price

--------------------------------------------------------------------------------

Donaghy Sales, Inc.   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   30,400    15,200    $ 172,368 Gruber Family Foundation   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   32,300    16,150    $ 183,141 Jon D. & Linda W. Gruber Trust   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   60,600    30,300    $ 343,602 J. Patterson McBaine   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   30,000    15,000    $ 170,100 Jon D. & Linda W. Gruber Trust   

50 Osgood Place

San Francisco, California 94133

Telephone: (415) 981-2101

Facsimile: (415) 981-6434

   7,100    3,550    $ 40,257 Dolphin Offshore Partners, L.P.   

C/o Dolphin Asset Management

129 E. 17th Street

New York, New York 10003

Facsimile: (212) 202-3817

   200,000    100,000    $ 1,134,000 Amphora Limited   

c/o Amaranth Advisors L.L.C.

One American Lane

Greenwich, CT 06831

Attention: General Counsel

Facsimile: (203) 422-3540

Telephone: (203) 422-3340

Residence: Cayman Islands

 

With a copy to:

 

Eleazer Klein, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Facsimile: 212-593-5955

   500,000    250,000    $ 2,835,000 Myron A. Wick, III   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   15,900    7,950    $ 99,931.50 Charles C. McGettigan   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   15,900    7,950    $ 99,931.50

 

Modtech Holdings, Inc. Securities Purchase Agreement

SCHEDULE OF BUYERS

  2

--------------------------------------------------------------------------------

Buyer’s Name

--------------------------------------------------------------------------------

  

Buyer’s (and Buyer’s Representative’s,

if any) Address

and Facsimile Number

--------------------------------------------------------------------------------

  

Number of
Offered

Shares

--------------------------------------------------------------------------------

  

Number of

Warrants

--------------------------------------------------------------------------------

   Purchase
Price

--------------------------------------------------------------------------------

David Buckley   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   4,000    2,000    $ 25,140 Dennis Shogren   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   5,400    2,700    $ 33,939 Ron Savona   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   1,600    800    $ 10,056 Karen Andreason   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   1,600    800    $ 10,056 Rick Bartolotti   

C/o Modtech Holdings, Inc.

2830 Barrett Avenue

Perris, California 92571

Telephone: (951) 943-4014

Facsimile: (951) 940-0427

   1,600    800    $ 10,056 TOTAL         2,046,000    1,023,000    $ 11,629,110

 

Modtech Holdings, Inc. Securities Purchase Agreement

SCHEDULE OF BUYERS

  3

--------------------------------------------------------------------------------

SCHEDULES

 

Schedule 3(a)

   Subsidiaries

Schedule 3(c)

   Capitalization

Schedule 3(f)

   SEC Documents

Schedule 3(g)

   Material Changes

Schedule 3(h)

   Litigation

Schedule 3(x)

   Loan Documents

Schedule 3(z)

   Key Executives and Directors

Schedule 4(d)

   Use of Proceeds

 

EXHIBITS

 

Exhibit A

   Form of Warrant

Exhibit B

   Form of Lock Up

Exhibit C

   Form of Company Counsel Opinion

Exhibit D

   Form of Irrevocable Transfer Agent Instructions

Exhibit E

   NASDAQ Letter

 

Modtech Holdings Securities Purchase Agreement

SCHEDULES

   

--------------------------------------------------------------------------------

Exhibit C

 

Form of Company Counsel Opinion

 

Modtech Holdings Securities Purchase Agreement

 

EXHIBIT C

--------------------------------------------------------------------------------

HADDAN & ZEPFEL LLP

Attorneys at Law

500 Newport Center Drive, Suite 580

Newport Beach, California 92660

(949) 706-6000

Facsimile (949) 706-6060

 

August     , 2005

 

To Each of the Buyers

Listed on the Schedule of Buyers to

the Securities Purchase Agreement with

Modtech Holdings, Inc., dated August 5, 2005

 

Gentlemen:

 

We have acted as counsel to Modtech Holdings, Inc., a Delaware corporation (the
“Company”), in connection with the issuance and sale by the Company of 2,046,000
shares of the Company’s common stock, par value $0.01 per share (the “Offered
Shares”), and warrants (the “Warrants”) to purchase an additional
1,023,000 shares of common stock (the “Warrant Shares”) to each of the Buyers
under the Securities Purchase Agreement dated as of August 5, 2005 (the
“Purchase Agreement”). This opinion is being delivered pursuant to Section 7(d)
of the Purchase Agreement. Unless otherwise defined herein, capitalized terms
used in this letter have the meanings given them in the Purchase Agreement.

 

In connection with rendering this opinion letter, we have examined original or
photostatic copies of the Purchase Agreement as well as the following agreements
of even date therewith: (i) the Amended and Restated Registration Rights
Agreement among the Company and Buyers (the “Registration Rights Agreement”),
(ii) the Warrants to Purchase Common Stock between the Company and the Buyers
(the “Warrant Agreements”), (iii) the Amended and Restated Senior Subordinated
Secured Convertible Note between the Company and Amphora Limited (the “Note”),
(iv) the Consent, Waiver, Amendment and Exchange Agreement between the Company
and Amphora Limited (the “Waiver”), (v) the Warrant to Purchase Common Stock
between the Company and Amphora Limited for 8,276 shares of common stock (the
“Amphora Warrant”), and (vi) the Voting Agreements between the Company and
certain stockholders of the Company (the “Voting Agreements). The Purchase
Agreement, the Registration Rights Agreement, the Warrant Agreements, the Note,
the Waiver, the Amphora Warrant and the Voting Agreements are collectively
referred to herein as the “Transaction Documents.”

 

In addition, we have examined original or certified copies of the current
(i) Certificate of Incorporation and Bylaws of the Company; (ii) resolutions
adopted by the Board of Directors of the Company; and (iii) good standing
certificate of the Company as of a recent date issued by the California,
Delaware, Arizona, Florida and Texas Secretaries of State. As to other questions
of fact relevant to our opinion, we have relied upon the representations and
warranties as to factual

--------------------------------------------------------------------------------

Modtech Holdings, Inc.

August 5, 2005

Page 2 of 4

 

matters made in the Transaction Documents by the parties thereto and have made
no independent verification of such factual statements.

 

In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; the accuracy on the date of this letter as
well as on the date stated in all governmental certifications of each statement
as to each factual matter contained in such governmental certifications; the due
authorization, execution and delivery of all Transaction Documents by each
party, except the Company, where authorization, execution and delivery are
prerequisites to the effectiveness of such documents; and the legality,
validity, binding effect and enforceability as to each party other than the
Company of each document executed and delivered or to be executed or delivered
and of each other act done or to be done by such party. We have also assumed:
that there have been no undisclosed modifications of any provision of any
document reviewed by us in connection with the rendering of the opinions set
forth in this opinion letter and no undisclosed prior waiver of any right or
remedy contained in the Transaction Documents; that the Buyers have complied
with all laws applicable to them that affect the transactions referred to in the
Transaction Documents; that routine procedural matters such as service of
process, qualification to do business, the filing of tax returns or the payment
of taxes in the relevant jurisdictions will be satisfied by the parties seeking
to enforce the Transaction Documents; that there are no other agreements or
understandings among the parties that would modify the terms of the Transaction
Documents or the respective rights or obligations of the parties to the
Transaction Documents; and that there has been no mutual mistake of fact and
there exists no fraud or duress with respect to the Transaction Documents and
the transactions referred to therein.

 

The qualification of any opinion or statement with respect to the existence or
absence of facts by the phrase “to our knowledge” or “known to us” means the
actual knowledge of the attorneys in this firm involved with the review and
negotiation of the Transaction Documents. We also call to your attention to the
fact that while we regularly represent the Company, we are not familiar with all
aspects of the Company’s business affairs. We have not conducted an independent
audit of the Company or its files.

 

We are qualified to practice law in the State of California. The opinions
expressed herein are limited to the laws of the State of California, the Federal
laws of the United States, and the corporate law of the State of Delaware. We do
not express any opinion concerning any law of any other jurisdiction or the
local laws of any jurisdiction or the enforceability of any choice-of-law
provisions, but have assumed for purposes of this opinion that to the extent any
agreement described herein states that it is governed by New York law, that New
York law is the same as California law. We are not expressing any opinion as to
compliance with any antifraud law, rule or regulation relating to securities, or
to the sale or issuance thereof.

--------------------------------------------------------------------------------

Modtech Holdings, Inc.

August 5, 2005

Page 3 of 4

 

With regard to our opinion in paragraph 5 below with respect to material
defaults under any material agreement known to us, we have relied solely upon
inquiries of officers of the Company for disclosure of material agreements to
which the Company is a party and have made no further investigation.

 

Based on the foregoing, and subject to the qualifications and limitations stated
in this letter, we are of the opinion that:

 

1. The Company has been duly incorporated and is validly existing and in good
standing under the laws of the state of Delaware. It has the requisite corporate
power to own or lease its properties and to carry on its business as presently
conducted. It is qualified as a foreign corporation to do business in
California, Arizona, Texas and Florida and is presently in good standing as a
foreign corporation in such states. To our knowledge, there are no other states
where the ownership of the Company’s property or the conduct of its business
both require it to qualify as a foreign corporation and where any statutory
fines or penalties for failure to so qualify would have a Material Adverse
Effect on the Company

 

2. The Transaction Documents have been duly and validly authorized, executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against it in accordance with their terms, except as may be
limited or otherwise affected by (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar statutes, rules, regulations
or other laws affecting the enforcement of creditors’ rights and remedies
generally and (ii) the unavailability of, or limitation on the availability of,
a particular right or remedy (whether in a proceeding in equity or at law)
because of an equitable principle or a requirement as to commercial
reasonableness, conscionability or good faith

 

3. The authorized capital stock of the Company consists of 25,000,000 shares of
common stock, par value $ 0.01 per share (“Common Stock”) and 5,000,000 shares
of preferred stock, par value $0.01 per share (“Preferred Stock”). As of
August 3, 2005, and excluding any Offered Shares and Warrant Shares to be issued
pursuant to the terms of the Transaction Documents, any shares of common stock
to be issued upon the conversion or exercise of outstanding securities
convertible or exercisable into shares of Common Stock, there were, according to
the Company’s transfer agent, 14,834,535 shares of Common Stock outstanding.
There are no shares of Preferred Stock outstanding.

 

4. The Offered Shares 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 Warrant Shares issuable upon
exercise of the Warrants, have been duly authorized and reserved for issuance,
and, when delivered upon exercise and against payment in full as provided in the
Warrants, will be validly issued, fully paid and nonassessable.

--------------------------------------------------------------------------------

Modtech Holdings, Inc.

August 5, 2005

Page 4 of 4

 

5. The execution, delivery and performance of the Transaction Documents by the
Company (i) do not violate any provision of the Certificate of Incorporation or
Bylaws, (ii) to our knowledge, do not constitute a material default of any
material agreement to which the Company is a party, and (iii) do not conflict
with or violate (a) any order, judgment or decree applicable to the Company and
known to us, or (b) the Federal laws of the United State or the laws of the
State of Delaware, where such conflict or violation would have a Material
Adverse Effect on the Company.

 

6. To our knowledge, there is no action, proceeding or investigation pending or
overtly threatened against the Company before any court or administrative agency
that questions the validity of the Transaction Documents.

 

7. Subject to (i) the accuracy of the Buyers’ representations and warranties in
Section 2 of the Purchase Agreement and the Company’s representation and
warranties in Section 3(k) and 3(l) of the Purchase Agreement, and (ii) the
timely filing of a Form D Notice pursuant to Regulation D of the Securities and
Exchange Commission, the offer, issuance and sale of the Offered Shares,
Warrants and Warrant Shares pursuant to the Purchase Agreement are exempt from
the registration requirements of the Securities Act of 1933.

 

This opinion letter is furnished pursuant to the request of the parties to whom
it is addressed and is rendered by us solely for the benefit of such parties in
connection with the Transaction Documents. We are not hereby assuming any
professional responsibilities to any other person or entity whatsoever. This
opinion letter may be relied upon only in connection with the Transaction
Documents. This opinion letter may not be relied upon by any other person or
entity (including by way of subrogation or assignment) or for any other purpose
without our prior written consent. This opinion letter is rendered as of the
date set forth above, and we express no opinion as to circumstances or events
that may occur subsequent to such date. We assume no duty to update or
supplement this opinion letter to reflect any facts or circumstances that may
hereafter come to our attention or reflect any changes in any law that may
hereafter occur or become effective.

 

Very truly yours,

 

HADDAN & ZEPFEL, LLP

--------------------------------------------------------------------------------

Exhibit D

 

Form of Irrevocable Transfer Agent Instructions

 

Modtech Holdings Securities Purchase Agreement

 

EXHIBIT D

--------------------------------------------------------------------------------

TRANSFER AGENT INSTRUCTIONS

 

MODTECH HOLDINGS, INC.

 

                         , 2005

 

Mellon Investor Services LLC

400 S. Hope Street, 4th Floor

Los Angeles, California 90071

Telephone: (213) 553-9724

Facsimile: (213) 553-9735

Attention: Ron Lug

 

Dear Mr. Lug:

 

Reference is made to that certain Registration Rights Agreement, dated July
    , 2005 (the “Agreement”), by and among Modtech Holdings, Inc., a Delaware
corporation (the “Company”), and the investors named on the Schedule of Buyers
attached thereto (collectively, the “Holders”), pursuant to which the Company is
issuing to the Holders an aggregate of up to                      shares of
Common Stock, $0.     par value per share (“Common Stock”), and warrants to
purchase additional shares of Common Stock (the “Warrants”).

 

This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time):

 

(i) to promptly issue shares (the “Shares”) of Common Stock of the Company to
the Holders in the amounts specified opposite each Holder’s name on Exhibit I
attached hereto; and

 

(ii) to issue shares of Common Stock upon exercise of the warrants (the “Warrant
Shares”) to or upon the order of a Holder from time to time upon any Holder’s
delivery to you of a properly completed and duly executed Exercise Notice in the
form attached hereto as Exhibit II which has been acknowledged by the Company as
indicated by the signature of a duly authorized officer of the Company thereon,
which form may be submitted by facsimile to you at (        )         -        .

 

So long as you have previously received (a) written confirmation from counsel to
the Company that either (i) a registration statement covering resales of the
applicable Shares and/or the Warrant Shares has been declared effective by the
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “1933 Act”), or (ii) the sales of the Shares and/or Warrant
Shares may be made in conformity with Rule 144 under the 1933 Act and (b) a copy
of such registration statement, then you shall issue the certificates
representing the Shares and the Warrant Shares, as applicable, within two
business days after your receipt of a written request of a Holder or the
Exercise Notice (and in instances where certificates evidencing Shares or
Warrant Shares have already been issued with a Securities Act legend, upon
return of such

--------------------------------------------------------------------------------

legended certificates for cancellation by you), and such certificates shall not
bear any legend restricting transfer of the Shares or the Warrant Shares thereby
and should not be subject to any stop-transfer restriction; provided, however,
that if such Shares and Warrant Shares are not registered for resale under the
1933 Act, then the certificates for such Shares and/or 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, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A SECURITIES PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER, WHICH MAY
RESTRICT THE TRANSFER OF SUCH SECURITIES IN CERTAIN CIRCUMSTANCES. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY’S PRINCIPAL
OFFICE.

 

All Shares and Warrants Shares that are to be issued without a restrictive
legend shall, upon request from Holder, be issued electronically using the
Depositary Trust Company (“DTC”) Fast Automated Securities Transfer program so
long as you subscribe to such system. A form of written confirmation from
counsel to the Company that a registration statement covering resales of the
Shares and Warrant Shares has been declared effective by the SEC under the 1933
Act is attached hereto as Exhibit III.

 

[remainder of page intentionally left blank]

--------------------------------------------------------------------------------

Please execute this letter in the space indicated to acknowledge receipt of
these instructions. Should you have any questions concerning this matter, please
contact me at (        )         -        .

 

Very truly yours,

Modtech Holdings, Inc.

By:         

Name:

   

Title:

 

RECEIPT OF THE FOREGOING

INSTRUCTIONS ARE ACKNOWLEDGED

AND AGREED TO

 

this      day of         , 2005

 

Mellon Investor Services LLC

By:

   

Name:

   

Title:

   

 

Enclosures

 

cc: [list names of Holders]

--------------------------------------------------------------------------------

EXHIBIT I

 

Name

--------------------------------------------------------------------------------

  

Address

--------------------------------------------------------------------------------

   Number of Shares

--------------------------------------------------------------------------------

                                               

--------------------------------------------------------------------------------

EXHIBIT II

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

MODTECH HOLDINGS, INC.

 

The undersigned holder hereby exercises the right to purchase
                     of the shares of Common Stock (“Warrant Shares”) of Modtech
Holdings, Inc., a Delaware corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

 

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

 

____________

  a “Cash Exercise” with respect to   _____________   Warrant Shares; and/or

____________

  a “Cashless Exercise” with respect to   _____________   Warrant Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$                     to the Company in accordance with the terms of the
Warrant.

 

3. Delivery of Warrant Shares. The Company shall issue                     
Warrant Shares in the name of the holder or in such other name as specified
below in accordance with the terms of the Warrant. Please deliver the Warrant
Shares as follows:

 

             Warrant Shares are to be issued electronically using the Depositary
Trust Company Fast Automated Securities Transfer program to account
number                                          ; or

 

             Warrants Shares are to be delivered to the following
address:                                

                                                                               
                                        
                                                                           .

 

____________________________

(Name)

 

4. Issuance of Replacement Warrant. Please issue a replacement Warrant for the
unexercised portion of the attached Warrant in the name of the undersigned or in
such other name as is specified below:

 

______________________________

(Name)

 

Date: ___________ ___,_____

 

___________________________________

Name of Registered Holder

 

By:

       

Name:

   

Title:

--------------------------------------------------------------------------------

ACKNOWLEDGMENT

 

Delivery Via DWAC

 

[Company Letterhead]

 

Date:

 

Via Fax:[201-296-4491] only

 

Mellon Investor Services LLC

DWAC Dept

85 Challenger Road, Overpeck Center

Ridgefield Park NJ 07660

 

Re: DWAC Issuance 001-751-60783C10   Control No. 2005-________

 

Ladies and Gentlemen:

 

You are hereby authorized to issue and deliver the shares of Common Stock as
indicated below via DWAC. The shares are being issued to cover the exercise of
the Warrants under the Securities Purchase Agreement, dated as of July      ,
2005.

 

Number of Shares:   _________________________________________     ___________
Original Issue or     ___________ Transfer from Treasury Account Broker Name:  
_________________________________________ Broker’s DTC Number:  
_________________________________________ Contact and Phone:  
_________________________________________ The broker will initiate the DWAC
transaction on (date).

 

Sincerely,

  

[Company Contact Name]

[Title]

 

cc: Broker

 

ACKNOWLEDGEMENT

--------------------------------------------------------------------------------

ACKNOWLEDGMENT

 

Form for Physical Certificate

 

[Company Letterhead]

 

Via Fax:[201-296-4279 only

 

Mellon Investor Services LLC

Stock Option Dept

85 Challenger Road, Overpeck Center

Ridgefield Park NJ 07660

 

Re: Option Issuance 001-751-60783C10   Control No. 2005-________

 

Ladies and Gentlemen:

 

You are hereby authorized to issue and deliver the shares of Common Stock as
indicated below via Physical certificate. The shares are being issued to cover
the exercise of the Warrants under the Securities Purchase Agreement, dated as
of July       , 2005:

 

Date of Certificate:   ______________________________________ Number of Shares:
  ______________________________________ Optionee Name:  
______________________________________ Social Security Number:  
______________________________________ Restricted Shares:   ¨ NO ¨ YES (see
attached legend to be affixed to certificate) Name on Certificate:  
______________________________________ Mailing Address  
______________________________________ for Certificates:  
______________________________________    
______________________________________ Method of Delivery:   Overnight delivery

 

Please call [Company contact & Phone #] if you have any questions. Thank you for
your assistance.

 

Very truly yours,

  

[Company Contact Name]

[Title]

--------------------------------------------------------------------------------

EXHIBIT III

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

Mellon Investor Services LLC

400 S. Hope Street, 4th Floor

Los Angeles, California 90071

Telephone: (213) 553-9724

Facsimile: (213) 553-9735

Attention: Raymond Torres

 

Re:   Modtech Holdings, Inc.

 

Ladies and Gentlemen:

 

[We are][I am] counsel to Modtech Holdings, Inc., a Delaware corporation (the
“Company”), and have represented the Company in connection with that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into
by and among the Company and the buyers named therein (collectively, the
“Holders”) pursuant to which the Company issued to the Holders the Company’s
common stock, $.01 par value per share (the “Common Shares”) and warrants
exercisable for shares of Common Stock (the “Warrants”). Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the “Registration Rights Agreement”) pursuant
to which the Company agreed, among other things, to register the Common Shares
and the shares of Common Stock issuable upon exercise of the Warrants (the
“Warrant Shares”), under the Securities Act of 1933, as amended (the “1933
Act”). In connection with the Company’s obligations under the Registration
Rights Agreement, on                      , 200    , 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 Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

 

In connection with the foregoing, [we][I] advise you that a member of the SEC’s
staff has advised [us][me] 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][I] 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 the Common
Shares and the Warrant Shares are available for resale under the 1933 Act
pursuant to the Registration Statement.

 

This letter shall serve as our standing notice to you that the Common Shares and
the Warrant Shares are, as of this date, freely transferable by the Holders
pursuant to the Registration Statement. Unless you receive separate notice or
instructions from us following the date hereof and preceding a request by a
Holder for a legend-free certificate or reissue thereof, you need not require
further letters from us to effect any future legend-free issuance or reissuance
of shares of Common Stock to the Holders in exchange for their Common Shares or
Warrant Shares as contemplated by the Company’s Irrevocable Transfer Agent
Instructions dated                      , 2005. This letter shall serve as our
standing opinion with regard to this matter.

 

       

Very truly yours,

       

[ISSUER’S COUNSEL]

            By:    

CC:

 

[LIST NAMES OF HOLDERS]

           

 

8

--------------------------------------------------------------------------------

Exhibit E

 

NASDAQ Letter

 

Modtech Holdings Securities Purchase Agreement

 

EXHIBIT E

--------------------------------------------------------------------------------

LOGO [g36316image001.jpg]   

Illegible

 

By Facsimile and First Class Mail

 

August 1, 2005

 

Jon Hadden, Esq.

Haddan & Zepfel LLP

500 Newport Center Drive

Newport Beach, CA 92660

 

Re: Modtech Holdings, Inc. (the “Company”)

 

Dear Mr. Hadden:

 

This is in response to your letter dated June 28, 2005, and your e-mails dated
July 8, 2005, July 14, 2005, July 25, 2005, July 26, 2005, and July 27, 2005,
regarding a proposed private placement of shares of the Company’s common stock
and warrants expected to be consummated in July 2005 (the “Peninsula
Transaction”). Specifically, you asked whether the Peninsula Transaction would
be aggregated with a convertible note and warrant offering completed on December
31, 2004, (the “Amphora Transaction”) for purposes of Marketplace Rule
4350(i)(1)(D)1 (the “Rule”). Your question relates also to the applicability of
Rules 4350(i)(1)(A)2 and 4350(i)(1)(B)3.

 

According to the information you provided, in the Amphora Transaction, the
Company sold to Amphora Limited a $25 million convertible promissory note (the
“Note”) and a related warrant (the “Warrant”), each having a term of five years.
The Note is convertible into, and the Warrant is exercisable for, the Company’s
common stock at a price of $8.70 per share (the “Conversion Price” and the
“Exercise Price”, respectively).4 The Note is convertible into 2,873,564 shares
of common stock (approximately 19.9% of the pre-transaction outstanding shares),
and the Warrant is exercisable for 229,886 shares (approximately 1.6% of the
pre-transaction outstanding shares). No officers, directors, employees or
consultants of the Company participated in the Amphora Transaction. Although
both the Note and the Warrant contain anti-dilution provisions, the Note cannot
be converted into more than 19.9% of the pre-transaction shares at a discount
unless shareholder approval is obtained, and the Exercise Price is subject to a
minimum price which is a

 

--------------------------------------------------------------------------------

1 Marketplace Rule 4350(i)(1)(D)(ii) states that each issuer shall require
shareholder approval prior to the issuance of designated securities in
connection with a transaction other than a public offering involving “the sale
or issuance by the company of common stock (or securities convertible into or
exercisable for common stock) equal to 20 percent or more of the common stock or
20 percent or more of the voting power outstanding before the issuance for less
than the greater of book or market value of the stock.”

 

2 Pursuant to Marketplace Rule 4350(i)(1)(A), each issuer shall require
shareholder approval “when a stock option or purchase plan is to be established
or materially amended or other equity compensation arrangement made or
materially amended, pursuant to which options or stock may be acquired by
officers, directors, employees, or consultants....”

 

3 Marketplace Rule 4350(i)(1)(B) states that each issuer shall require
shareholder approval “when the issuance will result in a change of control of
the issuer.”

 

4 The closing bid price of the Company’s common stock on December 30, 2004, was
$8.56.

--------------------------------------------------------------------------------

Jon Hadden, Esq.

August 1, 2005

Page 2

 

premium to both the market and book value immediately preceding the signing of
the definitive agreement. Accordingly, shareholder approval of the Amphora
Transaction was not required by the Rule. The use of the proceeds was for
general working capital purposes, general corporate purposes, and the repayment
of certain outstanding indebtedness.

 

You stated that in the Peninsula Transaction, the Company will sell 2,067,600
shares of common stock (approximately 14% of the pre-transaction outstanding
shares) (the “Peninsula Stock”) and warrants exercisable for up to 1,355,800
shares (approximately 9% of the pre-transaction outstanding shares) (the
“Peninsula Warrants”) to purchasers including Peninsula Capital Management,
Grubcr McBaine Capital Management, and three directors and three officers of the
Company (the “Insiders”). The Insiders will purchase, in the aggregate, up to
approximately 3% of the shares being issued, and no other officers, directors,
employees, or consultants of the Company will participate in the transaction.
The price paid by the Insiders will be no less than the greater of book and
market value at the time of the definitive agreement.5 The price paid for the
common stock by the other purchasers will be at a discount to the market price,
and the exercise price of the Peninsula Warrants will be no less than the
greater of book and market value immediately preceding the execution of the
definitive agreement unless shareholder approval is obtained.6 The Peninsula
Warrants will not be exercisable until six months after closing.

 

You stated that Amphora had no involvement in the negotiation of the Peninsula
Transaction. However, pursuant to the terms of the Amphora Transaction, Amphora
has a right of first refusal with respect to any subsequent securities offering
for two years. Under such right, Amphora has notified the Company that in the
Peninsula Transaction it intends to purchase 500,000 shares of common stock, and
warrants exercisable for an additional 250,000 shares, or approximately 24% of
the shares to be sold.

 

You stated that the Company had not contemplated the Peninsula Transaction at
the time of the Amphora Transaction and that there were no contingencies between
the two transactions. In addition, you stated that events subsequent to closing
of the Amphora Transaction gave rise to the need for additional financing.
Specifically, you stated that events identified by the Company in April and May
2005 caused it to incur additional losses, resulting in the breach of financial
covenants in its credit facility. The covenants will be amended the Peninsula
financing.

 

According to a Schedule 13G filed with the Securities and Exchange Commission,
four shareholders, with aggregate holdings equal to approximately 20.5% of the
Company’s outstanding shares of commons stock, constitute a group (the “Group”)
within the meaning of Rule 13d-5(b). The Group is the largest holder of the
Company’s common stock; the next largest owns

--------------------------------------------------------------------------------

5 In calculating the market value of each unit, the Company will attribute value
for each warrant as described in your correspondence.

 

6 The transaction will be subject to the requirements of IM-4350-2 –
Interpretive Material Regarding the Use of Share Caps to Comply with Rule
4350(i).

--------------------------------------------------------------------------------

Jon Hadden, Esq.

August 1, 2005

Page 3

 

approximately 10%. Members of the Group will participate in the Peninsula
Transaction, and the Group will remain the largest shareholder following the
Peninsula Transaction.

 

Following our review of the information you provided, we have determined that
the shares to be issued in the Peninsula Transaction will not be aggregated with
the shares issued in the Amphora Transaction for purposes of the Rule because:
i) the Peninsula Transaction was not contemplated at the time of the Amphora
Transaction: ii) there were no contingencies between the two transactions; iii)
the investor in the Amphora Transaction will participate in the Peninsula
Transaction only to limited extent and only because of the right of first
refusal; and iv) approximately seven months will have passed between the two
transactions. In addition, based on your representations regarding the Peninsula
Transaction, shareholder approval is not required under Rule 4350(i)(1)(D)
because the issuance of common shares at less than market and book value will
equal less than 20% of the common shares and voting power outstanding on a
pre-transaction basis. In that regard, while approximately 22% of the
pre-transaction shares outstanding could be issued in the Peninsula Stock and
Peninsula Warrants, the Peninsula Warrants may not be exercised until six months
after the date of closing and the exercise price of those warrants will not be
less than the greater of book or market value. As such, the Peninsula Warrants
will not count towards the 20% calculation of Rule 4350(i)(l)(D). Shareholder
approval is not required pursuant to Rule 4350(i)(l)(A) because the price to be
paid by the Insiders will not be at a discount. In addition, given the size of
the Group’s current ownership position and because the Group will remain the
largest shareholder, the Peninsula Transaction will not result in a change of
control and, therefore, will not require shareholder approval under Rule
4350(i)(1)(B).

 

This letter has been reviewed and approved for issuance by the Nasdaq Office of
General Counsel. The foregoing conclusions are based solely upon the
representations made in your letter, and should not he interpreted as precedent.
This interpretation should not be relied upon if there are any omissions of
material information or change in the facts or conditions presented in your
letters. The opinions expressed in this letter are based upon current Nasdaq
Rules and policies, and may not be relied upon should there be a subsequent
change in Nasdaq’s listing criteria. Furthermore, this conclusion relates only
to the enforcement of Nasdaq Rules and does not represent a legal conclusion
regarding the applicability of statutory or regulatory provisions of federal or
state securities laws. Please note that to provide transparency about the
interpretation of our rules, Nasdaq will publish an anonymous summary of our
conclusions, which will appear on the Legal and Compliance section of Nasdaq’s
web site.

 

If you have any questions, please contact Tom Choe at (301) 978-8027 or me at
(301) 978-8026.

 

Sincerely,

LOGO [g36316image002.jpg] David Compton