EXHIBIT 10.38
 

 
SECURITIES PURCHASE AGREEMENT
 
LAURUS MASTER FUND, LTD.
 
and
 
MODTECH HOLDINGS, INC.
 
Dated: October 31, 2006
 
TABLE OF CONTENTS 
Page
 
1.
Agreement to Sell and Purchase
1
2.
Fees and Warrant
2
3.
Closing, Delivery and Payment
2
 
3.1
Closing
2
 
3.2
Delivery
2
4.
Representations and Warranties of the Company
3
 
4.1
Organization, Good Standing and Qualification
3
 
4.2
Subsidiaries
4
 
4.3
Capitalization; Voting Rights
4
 
4.4
Authorization; Binding Obligations
5
 
4.5
Liabilities; Solvency
5
 
4.6
Agreements; Action
6
 
4.7
Obligations to Related Parties
8
 
4.8
Changes
8
 
4.9
Title to Properties and Assets; Liens, Etc
10
 
4.10
Intellectual Property
10
 
4.11
Compliance with Other Instruments
11
 
4.12
Litigation
11
 
4.13
Tax Returns and Payments
11
 
4.14
Employees
12
 
4.15
Registration Rights and Voting Rights
12
 
4.16
Compliance with Laws; Permits
12
 
4.17
Environmental and Safety Laws
13
 
4.18
Valid Offering
13
 
4.19
Full Disclosure
13
 
4.20
Insurance    
14
 
4.21
SEC Reports
14
 
4.22
Listing
14
 
4.23
No Integrated Offering
14
 
4.24
Stop Transfer
14
 
4.25
Dilution
15
 
4.26
Patriot Act
15
 
4.27
ERISA
15
5.
Representations and Warranties of the Purchaser
16
 
5.1
No Shorting
16
 
5.2
Requisite Power and Authority
16
 
5.3
Investment Representations
16
 
5.4
The Purchaser Bears Economic Risk
17
 
5.5
Acquisition for Own Account
17
 
5.6
The Purchaser Can Protect Its Interest
17
 
5.7
Accredited Investor
17
 
5.8
Legends
17
6.
Covenants of the Company
18
 
6.1
Stop-Orders
18
 
6.2
Listing
18
 
6.3
Market Regulations
18
 
6.4
Reporting Requirements
19
 
6.5
Use of Funds
20
 
6.6
Access to Facilities
20
 
6.7
Taxes
21
 
6.8
Insurance
21
 
6.9
Intellectual Property
22
 
6.10
Properties
22
 
6.11
Confidentiality
22
 
6.12
Required Approvals
22
 
6.13
Reissuance of Securities
23
 
6.14
Opinion
24
 
6.15
Margin Stock
24
 
6.16
FIRPTA
24
 
6.17
Financing Right of First Refusal
24
 
6.18
Authorization and Reservation of Shares
24
 
6.19
Minimum Borrowing Base Eligibility
24
 
6.20
Prohibitions of Payment Under Subordinated Debt Documentation
26
7.
Covenants of the Purchaser
27
 
7.1
Confidentiality
27
 
7.2
Non-Public Information
27
 
7.3
Limitation on Acquisition of Common Stock of the Company
27
8.
Covenants of the Company and the Purchaser Regarding Indemnification
28
 
8.1
Company Indemnification
28
 
8.2
Purchaser’s Indemnification
28
9.
Conversion of Convertible Note; Exercise of the Warrants
28
 
9.1
Mechanics of Conversion
28
 
9.2
Mechanics of Exercise.
29
10.
Registration Rights
31
 
10.1
Registration Rights Granted
31
 
10.2
Offering Restrictions
31
11.
Miscellaneous
31
 
11.1
Governing Law, Jurisdiction and Waiver of Jury Trial
31
 
11.2
Severability
32
 
11.3
Survival
32
 
11.4
Successors
33
 
11.5
Entire Agreement; Maximum Interest
33
 
11.6
Amendment and Waiver
33
 
11.7
Delays or Omissions
33
 
11.8
Notices
33
 
11.9
Attorneys’ Fees
35
 
11.10
Titles and Subtitles
35
 
11.11
Facsimile Signatures; Counterparts
35
 
11.12
Broker’s Fees
35
 
11.13
Construction
35

 
LIST OF EXHIBITS
Form of Secured Convertible Term Note
Exhibit A-1
Form of Secured Term Note
Exhibit A-2
Form of Warrant
Exhibit B-1
Form of Warrant
Exhibit B-2
Form of Opinion
Exhibit C
Form of Escrow Agreement
Exhibit D
Account Availability
Exhibit E
Form of Subsidiary Guaranty
Exhibit F
Form of Stock Pledge Agreement
Exhibit G

 
 
SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of October 31, 2006, by and between MODTECH HOLDINGS, INC., a Delaware
corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the “Purchaser”).
 
RECITALS
 
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured
Convertible Term Note in the aggregate principal amount of Five Million Dollars
($5,000,000) in the form of Exhibit A-1 hereto (as amended, modified and/or
supplemented from time to time, the “Convertible Note”), which Convertible Note
is convertible into shares of the Company’s common stock, $0.01 par value per
share (the “Common Stock”) at an initial fixed conversion price of $5.96 per
share of Common Stock (“Fixed Conversion Price”);
 
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured Term
Note in the aggregate principal amount of Ten Million Dollars ($10,000,000) in
the form of Exhibit A-2 hereto (as amended, modified and/or supplemented from
time to time, the “Term Note,” and, together with the Convertible Note, each a
“Note” and collectively the “Notes”)
 
WHEREAS, the Company wishes to issue to the Purchaser warrants in the form of
Exhibit B-1 and B-2 hereto (each as amended, modified and/or supplemented from
time to time, a “Warrant” and together, the “Warrants”) to purchase up to
1,540,697 and 581,395 shares, respectively of the Company’s Common Stock
(subject to adjustment as set forth therein) in connection with the Purchaser’s
purchase of the Notes;
 
WHEREAS, the Purchaser desires to purchase the Notes and the Warrants on the
terms and conditions set forth herein; and
 
WHEREAS, the Company desires to issue and sell the Notes and Warrants to the
Purchaser on the terms and conditions set forth herein.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
 
1.  Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Notes. The sale of the Notes on the Closing Date shall be known as
the “Offering.” Each Note will mature on the Maturity Date applicable to such
Note (as defined in the respective Note). Collectively, the Notes and Warrants
and Common Stock issuable upon conversion of the Convertible Note and upon
exercise of either or both Warrants are referred to as the “Securities.”
 
2.  Fees and Warrant. On the Closing Date:
 
(a)  The Company will issue and deliver to the Purchaser (i) the Warrant to
purchase up to 1,540,697 shares of Common Stock and (ii) the Warrant to purchase
up to 581,395 shares of Common Stock (each subject to adjustment as set forth
therein) in connection with the Offering, pursuant to Section 1 hereof. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted for the benefit of the holder of the
Warrants and shares of the Company’s Common Stock issuable upon exercise of
either or both Warrants (the “Warrant Shares”).
 
(b)  Subject to the terms of Section 2(d) below, the Company shall pay to Laurus
Capital Management, LLC, the investment manager of the Purchaser (“LCM”), a
non-refundable payment in an amount equal to three and sixty-five hundredths
percent (3.65%) of the aggregate principal amount of the Notes. The foregoing
payment is referred to herein as the “LCM Payment.” Such payment shall be deemed
fully earned on the Closing Date and shall not be subject to rebate or proration
for any reason.
 
(c)  The Company shall reimburse the Purchaser for its reasonable expenses
(including legal fees and expenses) incurred in connection with the entering
into of this Agreement and the Related Agreements (as hereinafter defined), and
expenses incurred in connection with the Purchaser’s due diligence review of the
Company and its Subsidiaries (as defined in Section 4.2) and all related
matters.
 
(d)  The LCM Payment and the expenses referred to in the preceding clause (c)
(net of deposits previously paid by the Company) shall be paid at closing out of
funds held pursuant to the Escrow Agreement (as defined below) and a
disbursement letter (the “Disbursement Letter”).
 
3.  Closing, Delivery and Payment.
 
3.1  Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on the date
hereof, at such time or place as the Company and the Purchaser may mutually
agree (such date is hereinafter referred to as the “Closing Date”).
 
3.2  Delivery. Pursuant to the Escrow Agreement, at the Closing on the Closing
Date, the Company will deliver to the Purchaser, among other things, the Notes
and the Warrants and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer. The Company hereby acknowledges and agrees that Purchaser’s
obligation to purchase the Notes from the Company on the Closing Date shall be
contingent upon the satisfaction (or waiver by the Purchaser in its sole
discretion) of the items and matters set forth in the closing checklist provided
by the Purchaser to the Company on or prior to the Closing Date.
 
4.  Representations and Warranties of the Company. The Company hereby represents
and warrants to the Purchaser as follows
 
4.1  Organization, Good Standing and Qualification. Each of the Company and each
of its Subsidiaries (that is not an Inactive Subsidiary (as defined below) is a
corporation, partnership or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each of the Company and each of its Subsidiaries
(that is not an Inactive Subsidiary) has the corporate, limited liability
company or partnership, as the case may be, power and authority to own and
operate its properties and assets and, insofar as it is or shall be a party
thereto, to (1) execute and deliver (i) this Agreement, (ii) the Notes and the
Warrants to be issued in connection with this Agreement, (iii) the Master
Security Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified and/or
supplemented from time to time, the “Master Security Agreement”), (iv) the
Intellectual Property Security Agreement dated as of the date hereof between the
Company and the Purchaser (as amended, modified and/or supplemented from time to
time, the “IP Security Agreement”), (v) the Restricted Account Agreement dated
as the date hereof among the Company, North Fork Bank and the Purchaser (as
amended, modified and/or supplemented from time to time, the “CR Security
Agreement”), (vi) the Depositary Account Control Agreement dated as of the date
hereof among the Company, the Purchaser and Bank of America, N.A. (as amended,
modified and/or supplemented from time to time, the “Control Agreement”), (vii)
the Registration Rights Agreement relating to the Securities dated as of the
date hereof between the Company and the Purchaser (as amended, modified and/or
supplemented from time to time, the “Registration Rights Agreement”), (viii) the
Subsidiary Guaranty (as defined in Section 6.12(b) hereto), (ix) the Stock
Pledge Agreement (as defined in Section 6.12 (b) hereto), (x) the Funds Escrow
Agreement dated as of the date hereof among the Company, the Purchaser and the
escrow agent referred to therein, substantially in the form of Exhibit D hereto
(as amended, modified and/or supplemented from time to time, the “Escrow
Agreement”) and (xi) all other documents, instruments and agreements entered
into in connection with the transactions contemplated hereby and thereby (the
preceding clauses (ii) through (xi), collectively, the “Related Agreements”);
(2) issue and sell the Notes and the shares of Common Stock issuable upon
conversion of the Convertible Note (the “Note Shares”); (3) issue and sell the
Warrants and the Warrant Shares; and (4) carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. Each of the Company and each of its Subsidiaries is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so has not, or could not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and its
Subsidiaries, taken individually and as a whole (a “Material Adverse Effect”).
Notwithstanding anything contained herein to the contrary, the Purchaser
acknowledges, based upon the representations and warranties made by the Company
and its Subsidiaries under Section 4.2, that the Subsidiaries of the Company set
forth on Schedule 4.1 hereto (each an “Inactive Subsidiary” and collectively,
the “Inactive Subsidiaries”) have either dissolved, failed to commence or
suspended operations and/or filed for their corporate charters to be revoked and
such occurrences shall not constitute a breach under this Agreement or any
Related Agreement.
 
4.2  Subsidiaries. Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a “Subsidiary” of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time. The Inactive Subsidiaries have
either dissolved, failed to commence or suspended operations and/or filed for
their corporate charters to be revoked.
 
4.3  Capitalization; Voting Rights.
 
(a)  The authorized capital stock of the Company, as of the date hereof consists
of 60,000,000 shares, of which 55,000,000 are shares of Common Stock, par value
$0.01 per share, 19,018,855 shares of which are issued and outstanding, and
5,000,000 are shares of preferred stock, par value $0.01 per share of which no
shares of preferred stock are issued and outstanding. The authorized, issued and
outstanding capital stock of each Subsidiary of the Company (that is not an
Inactive Subsidiary) is set forth on Schedule 4.3.
 
(b)  Except as disclosed on Schedule 4.3, other than: (i) the shares reserved
for issuance under the Company’s stock option plans; and (ii) shares which may
be granted pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of either of the Notes or either of the Warrants, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
 
(c)  All issued and outstanding shares of the Company’s Common Stock: (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
 
(d)  The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Company’s Certificate of Incorporation (the
“Charter”). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
 
4.4  Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and
each of its Subsidiaries (that is not an Inactive Subsidiary) (including their
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company and such Subsidiaries hereunder and under the other Related Agreements
at the Closing and, the authorization, sale, issuance and delivery of the Notes
and Warrants has been taken or will be taken prior to the Closing. This
Agreement and the Related Agreements, when executed and delivered and to the
extent it is a party thereto, will be valid and binding obligations of each of
the Company and each such Subsidiaries, enforceable against each such person or
entity in accordance with their terms, except:
 
(a)  as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors’ rights;
and
 
(b)  general principles of equity that restrict the availability of equitable or
legal remedies.
 
The sale of the Notes and the subsequent conversion of the Convertible Note into
Note Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with. The
issuance of the Warrants and the subsequent exercise of either or both Warrants
for Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
 
4.5  Liabilities; Solvency.
 
(a)  Other than as set forth on Schedule 4.5 hereto, neither the Company nor any
of its Subsidiaries has any liabilities in an aggregate amount greater than
$200,000, except current liabilities incurred in the ordinary course of business
and liabilities disclosed in any of the Company’s filings under the Securities
Exchange Act of 1934 (“Exchange Act”) made prior to the date of this Agreement
(collectively, the “Exchange Act Filings”), copies of which have been provided
to the Purchaser.
 
(b)  Both before and immediately after giving effect to (i) the transactions
contemplated hereby that are to be consummated on the Closing Date, (ii) the
disbursement of the proceeds of, or the assumption of the liability in respect
of, the Notes pursuant to the instructions or agreement of the Company and (iii)
the payment and accrual of all transaction costs in connection with the
foregoing, the Company and each Subsidiary of the Company (that is not an
Inactive Subsidiary), is and will be, Solvent. For purposes of this Section
4.5(b), “Solvent” means, with respect to any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person’s successors
and assigns (each, a “Person”) on a particular date, that on such date (w) the
fair value of the property of such Person is greater than the total amount of
liabilities, including contingent liabilities, of such Person; (x) the present
fair salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured; (y) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person’s
ability to pay as such debts and liabilities mature; and (z) such Person is not
engaged in a business or transaction, and is not about to engage in a business
or transaction, for which such Person’s property would constitute and
unreasonably small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
 
4.6  Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in
any Exchange Act Filings:
 
(a)  There are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company or any of
such Subsidiaries in excess of $200,000 (other than obligations of, or payments
to, the Company or any of such Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company or any of its Subsidiaries (other than licenses
arising from the purchase of “off the shelf” or other standard products); or
(iii) provisions restricting the development, manufacture or distribution of the
Company’s or any of its Subsidiaries products or services; or (iv)
indemnification by the Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
 
(b)  Since June 30, 2006 (the “Balance Sheet Date”), neither the Company nor any
of its Subsidiaries has: (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations and indebtedness incurred by
the Company or any of its Subsidiaries owing to Bank of America, N.A. which
indebtedness shall be paid in full simultaneously with the consummation of the
transactions contemplated hereby) individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate; (iii) made any loans or advances to any
person or entity not in excess, individually or in the aggregate, of $100,000,
other than ordinary course advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
 
(c)  There has been no occurrence of any default (or similar term) in the
observance or performance of any other agreement or condition relating to any
indebtedness or contingent obligation of the Company or any of its Subsidiaries
(including, without limitation, the indebtedness evidenced by the Subordinated
Debt Documentation) beyond the period of grace (if any); for the purposes
hereof, “Subordinated Debt Documentation” shall mean those documents listed on
Schedule 4.6(c) hereof.
 
(d)  For the purposes of subsections (a), (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company or any Subsidiary of the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
 
(e)  The Company maintains disclosure controls and procedures (“Disclosure
Controls”) designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission (“SEC”).
 
(f)  The Company makes and keep books, records, and accounts, that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company’s assets. The Company maintains internal control
over financial reporting (“Financial Reporting Controls”) designed by, or under
the supervision of, the Company’s principal executive and principal financial
officers, and effected by the Company’s board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles (“GAAP”),
including that:
 
(i)       transactions are executed in accordance with management’s general or
specific authorization;
 
(ii)      unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements are prevented or
timely detected;
 
(iii)     transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that the Company’s receipts
and expenditures are being made only in accordance with authorizations of the
Company’s management and board of directors;
 
(iv)     transactions are recorded as necessary to maintain accountability for
assets; and
 
(v)      the recorded accountability for assets is compared with the existing
assets at reasonable intervals, and appropriate action is taken with respect to
any differences.
 
(g)  There is no weakness in any of the Company’s Disclosure Controls or
Financial Reporting Controls that is required to be disclosed in any of the
Exchange Act Filings, except as so disclosed.
 
4.7  Obligations to Related Parties. Except as set forth on Schedule 4.7, there
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than, in the case of the Company and those Subsidiaries that are not
Inactive Subsidiaries:
 
(a)  for payment of salary for services rendered and for bonus payments;
 
(b)  reimbursement for reasonable expenses incurred on behalf of the Company and
such Subsidiaries;
 
(c)  for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company and each such Subsidiary
of the Company, as applicable); and
 
(d)  obligations listed in the Company’s and each such Subsidiary’s financial
statements or disclosed in any of the Company’s Exchange Act Filings.
 
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company’s knowledge, key employees or
stockholders of the Company or any such Subsidiaries or any members of their
immediate families, are indebted to the Company or any such Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any such Subsidiaries is affiliated or with which the Company or any such
Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any such Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any such
Subsidiaries. Except as described above, no officer, director or stockholder of
the Company or any such Subsidiaries, or any member of their immediate families,
is, directly or indirectly, interested in any material contract with the Company
or any such Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between the Company or any such Subsidiaries and
any such person. Except as set forth on Schedule 4.7, neither the Company nor
any such Subsidiaries is a guarantor or indemnitor of any indebtedness of any
other person or entity.
 
4.8  Changes. Since the Balance Sheet Date, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
 
(a)  any change in the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
 
(b)  any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries (that is not an Inactive
Subsidiary);
 
(c)  any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
 
(d)  any damage, destruction or loss, whether or not covered by insurance, which
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
 
(e)  any waiver by the Company or any of its Subsidiaries of a valuable right or
of a material debt owed to it;
 
(f)  any direct or indirect loans made by the Company or any of its Subsidiaries
to any stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of business;
 
(g)  any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
 
(h)  any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its Subsidiaries;
 
(i)  any labor organization activity related to the Company or any of its
Subsidiaries;
 
(j)  any debt, obligation or liability incurred, assumed or guaranteed by the
Company or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
 
(k)  any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
 
(l)  any change in any material agreement to which the Company or any of its
Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(m)  any other event or condition of any character that, either individually or
in the aggregate, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or
 
(n)  any arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above.
 
4.9  Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
 
(a)  those resulting from taxes which have not yet become delinquent;
 
(b)  minor liens and encumbrances which do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or any such Subsidiaries, so long as in each such case, such liens and
encumbrances have no effect on the lien priority of the Purchaser in such
property; and
 
(c)  those that have otherwise arisen in the ordinary course of business, so
long as they have no effect on the lien priority of the Purchaser therein.
 
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and such Subsidiaries are, in the
aggregate, in good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used. Except as set forth on
Schedule 4.9, the Company and such Subsidiaries are in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
 
4.10  Intellectual Property.
 
(a)  Except as set forth on Schedule 4.10, each of the Company and each of its
Subsidiaries (that is not an Inactive Subsidiary) owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and, to the Company’s knowledge, as
presently proposed to be conducted (the “Intellectual Property”), without any
known infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of such Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products.
 
(b)  Except as set forth in Schedule 4.10, neither the Company nor any of
Subsidiaries has received any communications alleging that the Company or any of
its Subsidiaries has violated any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity, nor is the Company or any of its Subsidiaries aware of
any basis therefor.
 
(c)  The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries (that
is not an Inactive Subsidiary), except for inventions, trade secrets or
proprietary information that have been rightfully assigned to the Company or any
of its Subsidiaries.
 
4.11  Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (a) any term of its Charter or
Bylaws, or (b) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (c), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Notes by the
Company and the other Securities by the Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
 
4.12  Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation for which the Company has been served
process or, to the Company’s knowledge, currently threatened or pending against
the Company or any of its Subsidiaries that prevents the Company or any of its
Subsidiaries from entering into this Agreement or the other Related Agreements,
or from consummating the transactions contemplated hereby or thereby, or which
has had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect or any change in the current equity
ownership of the Company or any of its Subsidiaries, nor is the Company aware
that there is any basis to assert any of the foregoing. Neither the Company nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or any
of its Subsidiaries intends to initiate.
 
4.13  Tax Returns and Payments. Each of the Company and each of its Subsidiaries
(that is not an Inactive Subsidiary) has timely filed all tax returns (federal,
state and local) required to be filed by it. All taxes shown to be due and
payable on such returns, any assessments imposed, and all other taxes due and
payable by the Company or any such Subsidiaries on or before the Closing, have
been paid or will be paid prior to the time they become delinquent. Except as
set forth on Schedule 4.13, neither the Company nor any of such Subsidiaries has
been advised:
 
(a)  that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or
 
(b)  of any adjustment, deficiency, assessment or court decision in respect of
its federal, state or other taxes.
 
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
 
4.14  Employees. Except as set forth on Schedule 4.14, neither the Company nor
any of its Subsidiaries (that is not an Inactive Subsidiary) has any collective
bargaining agreements with any of its employees. There is no labor union
organizing activity pending or, to the Company’s knowledge, threatened with
respect to the Company or any such Subsidiaries. Except as disclosed in the
Exchange Act Filings or on Schedule 4.14, neither the Company nor any such
Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To the Company’s knowledge, no employee of the Company or any such
Subsidiaries, nor any consultant with whom the Company or any such Subsidiaries
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company or
any such Subsidiaries because of the nature of the business to be conducted by
the Company or any such Subsidiaries; and to the Company’s knowledge the
continued employment by the Company and such Subsidiaries of their present
employees, and the performance of the Company’s and such Subsidiaries’ contracts
with its independent contractors, will not result in any such violation. Neither
the Company nor any such Subsidiaries is aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency that would interfere with their duties to the
Company or any such Subsidiaries. Neither the Company nor any such Subsidiaries
has received any notice alleging that any such violation has occurred. Except
for employees who have a current effective employment agreement with the Company
or any such Subsidiaries, no employee of the Company or any such Subsidiaries
has been granted the right to continued employment by the Company or any such
Subsidiaries or to any material compensation following termination of employment
with the Company or any such Subsidiaries. Except as set forth on Schedule 4.14,
the Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company or any such
Subsidiaries, nor does the Company or any such Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
 
4.15  Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company’s or its Subsidiaries’ presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company’s knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
 
4.16  Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any provision of the Sarbanes-Oxley Act of 2002
or any SEC related regulation or rule or any rule of the Principal Market (as
hereafter defined) promulgated thereunder or any other applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
 
4.17  Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect, and to its knowledge, no material expenditures are or
will be required in order to comply with any such existing statute, law or
regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company’s knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials”
shall mean:
 
(a)  materials which are listed or otherwise defined as “hazardous” or “toxic”
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; or
 
(b)  any petroleum products or nuclear materials.
 
4.18  Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
 
4.19  Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Notes and Warrant, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company’s
and its Subsidiaries’ experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.
 
4.20  Insurance. Each of the Company and each of its Subsidiaries (that is not
an Inactive Subsidiary) has general commercial, product liability, fire and
casualty insurance policies with coverages which the Company believes are
customary for companies similarly situated to the Company and its Subsidiaries
in the same or similar business.
 
4.21  SEC Reports. Except as set forth on Schedule 4.21, the Company has filed
all proxy statements, reports and other documents required to be filed by it
under the Securities Exchange Act 1934, as amended (the “Exchange Act”). The
Company has furnished the Purchaser copies of: (i) its Annual Reports on Form
10-K for its fiscal years ended December 31, 2005; and (ii) its Quarterly
Reports on Form 10-Q for its fiscal quarter ended June 30, 2006, and the Form
8-K filings which it has made during the fiscal year 2006 to date (collectively,
the “SEC Reports”). Except as set forth on Schedule 4.21, each SEC Report was,
at the time of its filing, in substantial compliance with the requirements of
its respective form and none of the SEC Reports, nor the financial statements
(and the notes thereto) included in the SEC Reports, as of their respective
filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
 
4.22  Listing. The Company’s Common Stock is listed or quoted, as applicable, on
a Principal Market (as hereafter defined) and satisfies and at all times
hereafter will satisfy, all requirements for the continuation of such listing or
quotation, as applicable. The Company has not received any notice that its
Common Stock will be delisted from, or no longer quoted on, as applicable, the
Principal Market or that its Common Stock does not meet all requirements for
such listing or quotation, as applicable. For purposes hereof, the term
“Principal Market” means the NASD Over The Counter Bulletin Board, NASDAQ
Capital Market, NASDAQ Global Markets System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
 
4.23  No Integrated Offering. Neither the Company, nor any of its Subsidiaries
or affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or such
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
 
4.24  Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. Neither the Company nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or the
Company has received an opinion of counsel that an exemption from registration
is available, except as required by state and federal securities laws.
 
4.25  Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Convertible Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
 
4.26  Patriot Act.The Company certifies that, to the best of Company’s
knowledge, neither the Company nor any of its Subsidiaries has been designated,
nor is or shall be owned or controlled, by a “suspected terrorist” as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and covenants that: (i) none of the cash or property that the Company
or any of its Subsidiaries will pay or will contribute to the Purchaser has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company or
any of its Subsidiaries to the Purchaser, to the extent that they are within the
Company’s and/or its Subsidiaries’ control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations, warranties or
covenants ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser all additional information
regarding the Company or any of its Subsidiaries that the Purchaser deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Company understands and agrees that
if at any time it is discovered that any of the foregoing representations,
warranties or covenants are incorrect, or if otherwise required by applicable
law or regulation related to money laundering or similar activities, the
Purchaser may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Purchaser’s investment in the Company. The Company further understands that
the Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
 
4.27  ERISA. Based upon the Employee Retirement Income Security Act of 1974
(“ERISA”), and the regulations and published interpretations thereunder: (i)
neither the Company nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the “Code”)); (ii) each of the
Company and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
the Company nor any of its Subsidiaries has any knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company’s or such Subsidiary’s employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.
 
4.28  Other Properties.The Company leases certain properties (the “Other
Properties”) in Lathrop, California, Perris, California and without Owned Assets
Phoenix, Arizona, identified with greater specificity on Schedule 4.28 hereto,
on which none of the Company or it Subsidiaries (that is not an Inactive
Subsidiary) stores or maintains any assets owned by the Company or such
Subsidiaries.
 
5.  Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
 
5.1  No Shorting. The Purchaser or any of its affiliates and investment partners
has not, will not and will not cause any person or entity, to directly engage in
“short sales” of the Company’s Common Stock as long as either Note shall be
outstanding.
 
5.2  Requisite Power and Authority. The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on the Purchaser’s part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
the Purchaser, enforceable in accordance with their terms, except:
 
(a)  as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors’ rights;
and
 
(b)  as limited by general principles of equity that restrict the availability
of equitable and legal remedies.
 
5.3  Investment Representations. The Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon the Purchaser’s representations
contained in this Agreement, including, without limitation, that the Purchaser
is an “accredited investor” within the meaning of Regulation D under the
Securities Act of 1933, as amended (the “Securities Act”). The Purchaser
confirms that it has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Notes and the Warrants to be purchased by it under this Agreement
and the Note Shares and the Warrant Shares acquired by it upon the conversion of
the Convertible Note and the exercise of the Warrant, respectively. The
Purchaser further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company’s and its Subsidiaries’
business, management and financial affairs and the terms and conditions of the
Offering, the Notes, the Warrants and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
 
5.4  The Purchaser Bears Economic Risk. The Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (a) an effective registration
statement under the Securities Act; or (b) an exemption from registration is
available with respect to such sale.
 
5.5  Acquisition for Own Account. The Purchaser is acquiring the Notes and
Warrants and the Note Shares and the Warrant Shares for the Purchaser’s own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
 
5.6  The Purchaser Can Protect Its Interest. The Purchaser represents that by
reason of its, or of its management’s, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Notes, the Warrants and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the Related
Agreements. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
 
5.7  Accredited Investor. The Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
 
5.8  Legends.
 
(a)  The Convertible Note shall bear substantially the following legend:
 
“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”
 
(b)  The Note Shares and the Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in substantially the
following form until such shares are covered by an effective registration
statement filed with the SEC:
 
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”
 
(c)  Each Warrant shall bear substantially the following legend:
 
“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”
 
6.  Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
 
6.1  Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
 
6.2  Listing. The Company shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon conversion of the
Convertible Note and upon the exercise of either or both Warrants on the
Principal Market upon which shares of Common Stock are listed or quoted for
trading, as applicable (subject to official notice of issuance) and shall
maintain such listing or quotation, as applicable, so long as any other shares
of Common Stock shall be so listed or quoted, as applicable. The Company will
maintain the listing or quotation, as applicable, of its Common Stock on the
Principal Market, and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers (“NASD”) and such exchanges, as
applicable.
 
6.3  Market Regulations. The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
 
6.4  Reporting Requirements. The Company will deliver, or cause to be delivered,
to the Purchaser each of the following, which shall be in form and detail
acceptable to the Purchaser:
 
(a)  As soon as available, and in any event within ninety (90) days after the
end of each fiscal year of the Company, each of the Company’s and each of its
Subsidiaries’ (that is not an Inactive Subsidiary) audited financial statements
with a report of independent certified public accountants of recognized standing
selected by the Company and acceptable to the Purchaser (the “Accountants”),
which annual financial statements shall be without qualification and shall
include each of the Company’s and each of its Subsidiaries’ (that is not an
Inactive Subsidiary) balance sheet as at the end of such fiscal year and the
related statements of each of the Company’s and each of such Subsidiaries’
income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include the Company, each
Subsidiary of the Company and each of their respective affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i) if and
when available, copies of any management letters prepared by the Accountants;
and (ii) a certificate of the Company’s President, Chief Executive Officer or
Chief Financial Officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such officer has knowledge
of the occurrence of any Event of Default (as defined in each Note) and, if so,
stating in reasonable detail the facts with respect thereto;
 
(b)  As soon as available and in any event within fifty-one (51) days after the
end of each fiscal quarter of the Company, an unaudited/internal balance sheet
and statements of income, retained earnings and cash flows of the Company and
each of its Subsidiaries (that is not an Inactive Subsidiary) as at the end of
and for such quarter and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include all the Company, each such
Subsidiary of the Company and each of their respective affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end adjustments and accompanied by a certificate of the Company’s
President, Chief Executive Officer or Chief Financial Officer, stating (i) that
such financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and (ii) whether or not such officer has knowledge
of the occurrence of any Event of Default (as defined in each Note) not
theretofore reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto;
 
(c)  As soon as available and in any event within thirty (30) days after the end
of each calendar month, an unaudited/internal balance sheet and statements of
income, retained earnings and cash flows of each of the Company and its
Subsidiaries (that is not an Inactive Subsidiary) as at the end of and for such
month and for the year to date period then ended, prepared on a consolidating
and consolidated basis to include the Company, each such Subsidiary of the
Company and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Company’s President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in each Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
 
(d)  The Company shall timely file with the SEC all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination (for the purposes of the foregoing, “timely” shall be deemed to
include any extension periods with respect to delivery of such reports expressly
provided for in the Exchange Act). Promptly after (i) the filing thereof, copies
of the Company’s most recent registration statements and annual, quarterly,
monthly or other regular reports which the Company files with the SEC, and (ii)
the issuance thereof, copies of such financial statements, reports and proxy
statements as the Company shall send to its stockholders; and
 
(e)  The Company shall deliver, or cause the applicable Subsidiary of the
Company to deliver, such other information as the Purchaser shall reasonably
request.
 
6.5  Use of Funds. The Company shall use the proceeds of the sale of the Notes
and the Warrant (i) to repay in full all obligations and liabilities of the
Company to Bank of America and (ii) for general working capital purposes only.
 
6.6  Access to Facilities. Each of the Company and each of its Subsidiaries will
permit any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person’s expense and accompanied by a representative of the Company or any such
Subsidiary (provided that no such prior notice shall be required to be given and
no such representative of the Company or any such Subsidiary shall be required
to accompany the Purchaser in the event the Purchaser believes such access is
necessary to preserve or protect the Collateral (as defined in the Master
Security Agreement) or following the occurrence and during the continuance of an
Event of Default (as defined in the Notes)), to:
 
(a)  visit and inspect any of the properties of the Company or any such
Subsidiaries;
 
(b)  examine the corporate and financial records of the Company or any such
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
 
(c)  discuss the affairs, finances and accounts of the Company or any such
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
 
Notwithstanding the foregoing, neither the Company nor any such Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
 
6.7  Taxes. Each of the Company and each of its Subsidiaries (that is not an
Inactive Subsidiary) will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Company and such Subsidiaries; provided, however, that any such tax, assessment,
charge or levy need not be paid currently if (a) the validity thereof shall
currently and diligently be contested in good faith by appropriate proceedings,
(b) such tax, assessment, charge or levy shall have no effect on the lien
priority of the Purchaser in any property of the Company or any such
Subsidiaries and (c) if the Company and/or such Subsidiary shall have set aside
on its books adequate reserves with respect thereto in accordance with GAAP; and
provided, further, that the Company and such Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
 
6.8  Insurance. (a) The Company shall bear the full risk of loss from any loss
of any nature whatsoever with respect to the Collateral (as defined in each of
the Master Security Agreement, the Stock Pledge Agreement, the IP Security
Agreement and each other security agreement entered into by the Company and/or
any of its Subsidiaries (that is not an Inactive Subsidiary) for the benefit of
the Purchaser) and the Company and each such Subsidiaries will, jointly and
severally, bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to the Purchaser as security for the
Obligations (as defined in the Master Security Agreement).  Furthermore, the
Company will insure or cause the Collateral to be insured in the Purchaser’s
name as an additional insured and lender loss payee, with an appropriate loss
payable endorsement in form and substance satisfactory to the Purchaser, against
loss or damage by fire, flood, sprinkler leakage, theft, burglary, pilferage,
loss in transit and other risks customarily insured against by companies in
similar business similarly situated as the Company and such Subsidiaries
including but not limited to workers compensation, public and product liability
and business interruption, and such other hazards as the Purchaser shall
reasonably specify in amounts and under insurance policies and bonds by insurers
reasonably acceptable to the Purchaser and all premiums thereon shall be paid by
the Company and the policies delivered to the Purchaser. If the Company or such
Subsidiaries fails to obtain the insurance and in such amounts of coverage as
otherwise required pursuant to this Section 6.8, the Purchaser may procure such
insurance and the cost thereof shall be promptly reimbursed by the Company and
shall constitute Obligations.
 
(b)  The Company’s insurance coverage shall not be impaired or invalidated by
any act or neglect of the Company or any of its Subsidiaries (that is not an
Inactive Subsidiary) and the insurer will provide the Purchaser with no less
than thirty (30) days notice prior of cancellation;
 
(c)  The Purchaser, in connection with its status as a lender loss payee, will
be assigned at all times to a first lien position until such time as all the
Purchaser’s Obligations have been indefeasibly satisfied in full.
 
6.9  Intellectual Property. Each of the Company and each of its Subsidiaries
(that is not an Inactive Subsidiary) shall maintain in full force and effect its
existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
 
6.10  Properties. Each of the Company and each of its Subsidiaries (that is not
an Inactive Subsidiary) will keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and each of the Company and each of such Subsidiaries will at all times
comply with each provision of all leases to which it is a party or under which
it occupies property if the breach of such provision could, either individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
6.11  Confidentiality. The Company will not, and will not permit any of its
Subsidiaries (that is not an Inactive Subsidiary) to, disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose the Purchaser’s identity
and the terms of this Agreement to its current and prospective debt and equity
financing sources.
 
6.12  Required Approvals. (a) For so long as twenty-five percent (25%) of the
aggregate principal amount of the Notes is outstanding, the Company, without the
prior written consent of the Purchaser, shall not, and shall not permit any of
its Subsidiaries to:
 
(i)  (A) directly or indirectly declare or pay any dividends, other than
dividends paid to the Company or any of its wholly-owned Subsidiaries, (B) issue
any preferred stock that is manditorily redeemable prior to the one year
anniversary of the Maturity Date (as defined in each Note) or (C) redeem any of
its preferred stock or other equity interests;
 
(ii)  other than with respect to any Inactive Subsidiary, liquidate, dissolve or
effect a material reorganization (it being understood that in no event shall the
Company or any of its Subsidiaries dissolve, liquidate or merge with any other
person or entity (unless, in the case of such a merger, the Company or, in the
case of merger not involving the Company, such Subsidiary, as applicable, is the
surviving entity);
 
(iii)  become subject to (including, without limitation, by way of amendment to
or modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict the Company’s or any of its Subsidiaries, right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
 
(iv)  materially alter or change the scope of the business of the Company and
its Subsidiaries taken as a whole; or
 
(v)  (B) create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt and debt incurred to finance the purchase of equipment and trade
fixtures (not in excess of five percent (5%) of the fair market value of the
Company’s and its Subsidiaries’ assets)) whether secured or unsecured other than
(1) the Company’s obligations owed to the Purchaser, (2) indebtedness set forth
on Schedule 6.12(a)(v) attached hereto and made a part hereof and any
refinancings or replacements thereof on terms no less favorable to the Purchaser
than the indebtedness being refinanced or replaced, and (3) any indebtedness
incurred in connection with the purchase of assets (other than equipment) in the
ordinary course of business, or any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the indebtedness being refinanced
or replaced, so long as any lien relating thereto shall only encumber the fixed
assets so purchased and no other assets of the Company or any of its
Subsidiaries; (B) cancel any indebtedness owing to it in excess of $50,000 in
the aggregate during any 12 month period; (C) assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other person or entity, except the endorsement of negotiable
instruments by the Company or any such Subsidiary thereof for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant to
this clause (v); and
 
(b)  The Company, without the prior written consent of the Purchaser, shall not,
and shall not permit any of its Subsidiaries to, create or acquire any
Subsidiary or revoke the dissolution of any Inactive Subsidiary after the date
hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company,
the Company shall pledge to the Purchaser all shares of stock, limited
partnership interests and/or membership interests, as the cause may be, owned by
the Company in such Subsidiaries pursuant to a pledge agreement substantially in
the form of Exhibit G hereto (as may be amended, modified or supplemented from
time to time, the “Pledge Agreement”). (ii) such Subsidiary becomes a party to
the Master Security Agreement, the Stock Pledge Agreement and a guaranty in
favor of the Purchaser substantially in the form of Exhibit F hereto (as the
same may be amended, modified and/or supplemented from time to time, the
“Subsidiary Guaranty”) (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof) and, to the extent required
by the Purchaser, satisfies each condition of this Agreement and the Related
Agreements as if such Subsidiary were a Subsidiary on the Closing Date.
 
6.13  Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above
at such time as:
 
(a)  the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or
 
(b)  upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
 
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the Purchaser and broker, if any.
 
6.14  Opinion. On the Closing Date, the Company will deliver to the Purchaser as
such opinions requested by and acceptable to the Purchaser from the Company’s
external legal counsel. The Company will provide, at the Company’s expense, such
other legal opinions in the future as are deemed reasonably necessary by the
Purchaser (and acceptable to the Purchaser) in connection with the conversion of
the Convertible Note and exercise of either or both Warrants.
 
6.15  Margin Stock.The Company will not permit any of the proceeds of either
Note or either Warrant to be used directly or indirectly to “purchase” or
“carry” “margin stock” or to repay indebtedness incurred to “purchase” or
“carry” “margin stock” within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
 
6.16  FIRPTA. Neither the Company, nor any of its Subsidiaries, is a “United
States real property holding corporation” as such term is defined in Section
897(c)(2) of the Code and Treasury Regulation Section 1.897-2 promulgated
thereunder and neither the Company nor any of its Subsidiaries shall at any time
take any action or otherwise acquire any interest in any asset or property to
the extent the effect of which shall cause the Company and/or such Subsidiary,
as the case may be, to be a “United States real property holding corporation” as
such term is defined in Section 897(c)(2) of the Code and Treasury Regulation
Section 1.897-2 promulgated thereunder.
 
6.17  Additional Financing. The Company will not, and will not permit its
Subsidiaries to, agree, directly or indirectly, to any restriction with any
person or entity which limits the ability of the Purchaser to consummate any
additional indebtedness and/or the sale or issuance of any equity interests of
the Company or any of its Subsidiaries with the Company or any of its
Subsidiaries.
 
6.18  Authorization and Reservation of Shares. The Company shall at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the conversion of the Convertible Note and exercise of either or
both Warrants.
 
6.19  Minimum Account Availability and Unencumbered Cash Requirement. The
Company shall at all times maintain (a) an Account Availability plus (b)
Unencumbered Cash of greater than $9,000,000 in the aggregate (the “Availability
Covenant”). The provisions of this Section 6.19 shall be subject to a cure equal
five (5) Business Days from the occurrence of such failure to maintain the
Availability Covenant or such other cure or grace period set forth in any other
term or provision of this Agreement or any Related Agreement. For the purposes
hereof, the following terms shall have the following meanings:
 
(a)  “Accounts” means all “accounts”, as such term is defined in the UCC, now
owned or hereafter acquired by the Company;
 
(b)  “Account Availability” means the net face amount of all Eligible Accounts
multiplied by the Applicable Advance Rate for such category of Eligible Account
set forth on Exhibit E hereto;
 
(c)  “Account Debtor” means any Person who is or may be obligated with respect
to, or on account of, an Account;
 
(d)  “Chattel Paper” means all “chattel paper,” as such term is defined in the
UCC, including electronic chattel paper, now owned or hereafter acquired by any
Person;
 
(e)  “Eligible Accounts” means each Account consisting of a Dealer Receivable,
Direct Non-Educational Receivable, Unbonded Classroom Receivable, Bonded
Classroom Receivable and/or Permanent One Story Receivables (as such terms are
defined on Exhibit E hereto) of each Company which conforms to the following
criteria: (i) shipment of the merchandise or the rendition of services has been
completed; (ii) no return, rejection or repossession of the merchandise has
occurred; (iii) merchandise or services shall not have been rejected or disputed
by the Account Debtor and there shall not have been asserted any offset, defense
or counterclaim; (iv) continues to be in full conformity with the
representations and warranties made by the Company to the Purchaser with respect
thereto; (v) the Purchaser is, and continues to be, satisfied with the credit
standing of the Account Debtor in relation to the amount of credit extended as
determined by the Purchaser in the good faith exercise of its commercially
reasonable discretion; (vi) there are no facts existing or threatened which are
likely to result in any adverse change in an Account Debtor’s financial
condition; (vii) is documented by an invoice in a form utilized by the Company
in accordance with its historical practices and shall not be unpaid more than
ninety (90) days from invoice date; (viii) not more than twenty-five percent
(25%) of the unpaid amount of invoices due from such Account Debtor remains
unpaid more than ninety (90) days from invoice date; (ix) is not evidenced by
chattel paper or an instrument of any kind with respect to or in payment of the
Account unless such instrument is duly endorsed to and in possession of the
Purchaser or represents a check in payment of an Account; (x) the Account Debtor
is located in the United States; provided, however, the Purchaser may, from time
to time, in the exercise of its sole discretion and based upon satisfaction of
certain conditions to be determined at such time by the Purchaser, deem certain
Accounts as Eligible Accounts notwithstanding that such Account is due from an
Account Debtor located outside of the United States; (xi) other than in
connection with Bonded Classroom Receivables, the Purchaser has a first priority
perfected Lien in such Account and such Account is not subject to any Lien;
(xii) in connection with Bonded Classroom Receivables, the Purchaser has a
perfected Lien, second only to the Lien, if any, on such Account in favor of the
person posting a bond on the Company’s behalf to secure the Company’s
performance under the contract out of which the Bonded Classroom Receivable
arose, and such Account is not subject to any other Lien; (xiii) does not arise
out of transactions with any employee, officer, director, stockholder or
Affiliate of any Company; (xiv) is payable to the Company; (xv) does not arise
out of a bill and hold sale prior to shipment and does not arise out of a sale
to any Person to which the Company is indebted; provided that only portion of
such Account that is not subject to any offset shall be included in the
calculation of Account Availability; (xvi) is net of any returns, discounts,
claims, credits and allowances; (xvii) if the Account arises out of contracts
between the Company, on the one hand, and the United States, on the other hand,
any state, or any department, agency or instrumentality of any of them, the
Company has so notified the Purchaser, in writing, prior to the creation of such
Account, except for Accounts with schools, school districts, counties and other
municipalities, and there has been compliance with any governmental notice or
approval requirements, including compliance with the Federal Assignment of
Claims Act; (xviii) is a good and valid account representing an undisputed bona
fide indebtedness incurred by the Account Debtor therein named, for a fixed sum
as set forth in the invoice relating thereto with respect to an unconditional
sale and delivery upon the stated terms of goods sold by the Company or work,
labor and/or services rendered by the Company; (xix) does not arise out of
progress billings prior to completion of the order, except to the extent the
Account which represents a progress billing arises pursuant to a contract
between the Company and the Account Debtor made pursuant to an authorized
statements of value delivered under such contracts in accordance with the
Company's historical practices and a fully executed copy of such contract has
been received by the Purchaser(“Permitted Progress Billing”); (xx) the total
unpaid Accounts from such Account Debtor does not exceed thirty-five percent
(35%) of all Eligible Accounts; (xxi) the Company's right to payment is absolute
and not contingent upon the fulfillment of any condition whatsoever (for
purposes hereof, Permitted Progress Billings are deemed to be an absolute right
to payment); (xxii) the Company is able to bring suit and enforce its remedies
against the Account Debtor through judicial process; (xxiii) does not represent
interest payments, late or finance charges owing to the Company, and (xxiv) is
otherwise satisfactory to the Purchaser as determined by the Purchaser in the
good faith exercise of its commercially reasonable discretion;
 
(f)  “Instruments” means all “instruments”, as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper;
 
(g)  “UCC” means the Uniform Commercial Code as the same may, from time to time
be in effect in the State of New York; and
 
(h)  “Unencumbered Cash Amount” means all cash set forth as an asset on the
Company’s most recent financial statements delivered to the Purchaser under and
in accordance with the terms of Sections 6.4(a), (b) and (c) hereof, provided
that in the event the Company fails to deliver to the Purchaser the financial
statements required by and in accordance with the time frames provided for in
Section 6.4, the term “Unencumbered Cash Amount” shall mean zero dollars ($0)
unless and until such financial statements are delivered to Purchaser.
 
6.20  Prohibitions of Payment Under Subordinated Debt Documentation. Neither the
Company nor any of its Subsidiaries shall, without the prior written consent of
the Purchaser, make any payments in respect of the indebtedness evidenced by the
Subordinated Debt Documentation unless such payments are expressly permitted by
the applicable Subordination Agreement. For the purposes hereof, “Subordination
Agreement” shall mean the Intercreditor Agreement dated as of the date hereof
among the Company, the Purchaser and Amphora Limited and each other agreement
among the Company, the Purchaser and any applicable third party creditor
pursuant to which all of the rights of such third party creditor as to the
Company and/or the assets of the Company and all amounts owing to such third
party creditor by the Company shall be subordinated in favor of and terms and
provisions acceptable to the Purchaser, as each such agreement may be amended,
modified and supplemented from time to time. The provisions of this Section 6.20
shall not be subject to any cure or grace period notwithstanding any term or
provision of this Agreement or any Related Agreement to the contrary.
 
6.21  Inactive Subsidiaries. No Inactive Subsidiary shall obtain any assets,
commence operations, incur income, or, if administratively dissolved, apply for
revocation of such dissolution without the prior written consent of the
Purchaser.
 
6.22  Other Properties. Neither the Company nor any of its Subsidiaries will
store any assets at either of the Other Properties without previously providing
to the Purchase an executed landlord/warehouseman consent in form satisfactory
to the Purchaser in its sole discretion.
 
7.  Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
 
7.1  Confidentiality. The Purchaser will not disclose, and will not include in
any public announcement, the name of the Company, unless expressly agreed to by
the Company or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
 
7.2  Non-Public Information. The Purchaser will not effect any sales in the
shares of the Company’s Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.
 
7.3  Limitation on Acquisition of Common Stock of the Company. Notwithstanding
anything to the contrary contained in this Agreement, any Related Agreement or
any document, instrument or agreement entered into in connection with any other
transactions between the Purchaser and the Company, the Purchaser may not
acquire stock in the Company (including, without limitation, pursuant to a
contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
the Company, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue discount)
payable by the Company to the Purchaser not to qualify as “portfolio interest”
within the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive ownership
rules under Section 871(h)(3)(C) of the Code (the “Stock Acquisition
Limitation”). The Stock Acquisition Limitation shall automatically become null
and void without any notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to the Purchaser of a Notice of Redemption (as
defined in the Convertible Note) or (b) the existence of an Event of Default (as
defined in each Note) at a time when the average closing price of the Company’s
common stock as reported by Bloomberg, L.P. on the Principal Market for the
immediately preceding five trading days is greater than or equal to 150% of the
Fixed Conversion Price (as defined in the Convertible Note).
 
8.  Covenants of the Company and the Purchaser Regarding Indemnification.
 
8.1  Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend the Purchaser, each of the Purchaser’s officers, directors,
agents, affiliates, control persons, and principal shareholders, against all
claims, costs, expenses, liabilities, obligations, losses or damages (including
reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser
which result, arise out of or are based upon: (i) any misrepresentation by the
Company or any of its Subsidiaries or breach of any warranty by the Company or
any of its Subsidiaries in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or default
in performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by the
Company and/or any such Subsidiaries and the Purchaser relating hereto or
thereto.
 
8.2  Purchaser’s Indemnification. The Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company’s officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claims, costs, expenses, liabilities, obligations, losses
or damages (including reasonable legal fees) of any nature, incurred by or
imposed upon the Company which result, arise out of or are based upon: (i) any
misrepresentation by the Purchaser or breach of any warranty by the Purchaser in
this Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by the Purchaser of any
covenant or undertaking to be performed by the Purchaser hereunder or under any
Related Agreement.
 
9.  Conversion of Convertible Note; Exercise of the Warrants.
 
9.1  Mechanics of Conversion.
 
(a)  Provided the Purchaser has notified the Company of the Purchaser’s
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration when
sold: (i) upon the conversion of the Convertible Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to the Purchaser
following a request by the Purchaser) to assure that the Company’s transfer
agent shall issue shares of the Company’s Common Stock in the name of the
Purchaser (or its nominee) or such other persons as designated by the Purchaser
in accordance with Section 9.1(b) hereof and in such denominations to be
specified representing the number of Note Shares issuable upon such conversion;
and (ii) the Company warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the Company’s Common Stock
and that after the Effectiveness Date (as defined in the Registration Rights
Agreement) the Note Shares issued will be freely transferable subject to the
prospectus delivery requirements of the Securities Act and the provisions of
this Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
 
(b)  The Purchaser will give notice of its decision to exercise its right to
convert the Convertible Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the “Notice of Conversion”). The Purchaser will not be
required to surrender the Convertible Note until the Purchaser receives a credit
to the account of the Purchaser’s prime broker through the DWAC system (as
defined below), representing the Note Shares or until the Note has been fully
satisfied. Each date on which a Notice of Conversion is telecopied or delivered
to the Company in accordance with the provisions hereof shall be deemed a
“Conversion Date.” Pursuant to the terms of the Notice of Conversion, the
Company will issue instructions to the transfer agent accompanied by an opinion
of counsel, if required, within one (1) business day of the date of the delivery
to the Company of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system
within three (3) business days after receipt by the Company of the Notice of
Conversion (the “Conversion Delivery Date”).
 
(c)  The Company understands that a delay in the delivery of the Note Shares in
the form required pursuant to Section 9.1 hereof beyond the Conversion Delivery
Date could result in economic loss to the Purchaser. In the event that the
Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 9.1(b)
above and the Note Shares are not delivered to the Purchaser by the Conversion
Delivery Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 9.1 hereof upon conversion of
the Convertible Note in the amount equal to the greater of: (i) $500 per
business day after the Conversion Delivery Date; or (ii) the Purchaser’s actual
damages from such delayed delivery. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares of Common Stock the
Purchaser is forced to purchase (in an open market transaction) which the
Purchaser anticipated receiving upon such conversion, and shall be calculated as
the amount by which (A) the Purchaser’s total purchase price (including
customary brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the
Note, for which such Conversion Notice was not timely honored.
 
9.2  Mechanics of Exercise.
 
(a)  Provided the Purchaser has notified the Company of the Purchaser’s
intention to sell the Warrant Shares and the Warrant Shares are included in an
effective registration statement or are otherwise exempt from registration when
sold: (i) upon the exercise of either or both Warrants or part thereof, the
Company shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel reasonably acceptable to the Purchaser
following a request by the Purchaser) to assure that the Company’s transfer
agent shall issue shares of the Company’s Common Stock in the name of the
Purchaser (or its nominee) or such other persons as designated by the Purchaser
in accordance with Section 9.2(b) hereof and in such denominations to be
specified representing the number of Warrant Shares issuable upon such exercise;
and (ii) the Company warrants that no instructions other than these instructions
have been or will be given to the transfer agent of the Company’s Common Stock
and that after the Effectiveness Date (as defined in the Registration Rights
Agreement) the Warrant Shares issued will be freely transferable subject to the
prospectus delivery requirements of the Securities Act and the provisions of
this Agreement, and will not contain a legend restricting the resale or
transferability of the Warrant Shares.
 
(b)  The Purchaser will give notice of its decision to exercise its right to
exercise either or both Warrants or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
subscribed to the Company and its Exercise Price (as defined in each Warrant) to
be paid therefor (the “Form of Subscription”). The Purchaser will not be
required to surrender either or both Warrants until the Purchaser receives a
credit to the account of the Purchaser’s prime broker through the DWAC system
(as defined below), representing the Warrant Shares or until each Warrant has
been fully exercised. Each date on which a Form of Subscription is telecopied or
delivered to the Company in accordance with the provisions hereof shall be
deemed a “Exercise Date.” Pursuant to the terms of the Form of Subscription, the
Company will issue instructions to the transfer agent accompanied by an opinion
of counsel, if required, within one (1) business day of the date of the delivery
to the Company of the Form of Subscription and shall cause the transfer agent to
transmit the certificates representing the Warrant Shares set forth in the
applicable Form of Subscription to the Holder by crediting the account of the
Purchaser’s prime broker with DTC through the DWAC system within three (3)
business days after receipt by the Company of the Form of Subscription (the
“Subscription Delivery Date”).
 
(c)  The Company understands that a delay in the delivery of the Warrant Shares
in the form required pursuant to Section 9.2 hereof beyond the Subscription
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Warrant Shares to
the Purchaser via the DWAC system within the time frame set forth in Section
9.2(b) above and the Warrant Shares are not delivered to the Purchaser by the
Subscription Delivery Date, as compensation to the Purchaser for such loss, the
Company agrees to pay late payments to the Purchaser for late issuance of the
Warrant Shares in the form required pursuant to Section 9.2 hereof upon exercise
of either or both Warrants in the amount equal to the greater of: (i) $500 per
business day after the Delivery Date; or (ii) the Purchaser’s actual damages
from such delayed delivery. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount of such
damages. Such documentation shall show the number of shares of Common Stock the
Purchaser is forced to purchase (in an open market transaction) which the
Purchaser anticipated receiving upon such exercise, and shall be calculated as
the amount by which (A) the Purchaser’s total purchase price (including
customary brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate amount of the Exercise Price for the
applicable Warrant, for which such Form of Subscription was not timely honored.
 
10.  Registration Rights.
 
10.1  Registration Rights Granted. The Company hereby grants registration rights
to the Purchaser pursuant to the Registration Rights Agreement.
 
10.2  Offering Restrictions. Except as previously disclosed in the SEC Reports
or in the Exchange Act Filings, or stock or stock options granted to employees
or directors of the Company (these exceptions hereinafter referred to as the
“Excepted Issuances”), neither the Company nor any of its Subsidiaries will,
prior to the full repayment of the Term Note and the full repayment or
conversion of the Convertible Note (together with all accrued and unpaid
interest and fees related thereto), issue, or enter into any agreement to issue,
any securities with a variable/floating conversion and/or pricing feature which
are or could be (by conversion or registration) free-trading securities (i.e.
common stock subject to a registration statement).
 
11.  Miscellaneous.
 
11.1  Governing Law, Jurisdiction and Waiver of Jury Trial.
 
(a)  THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
 
(b)  THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS
AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW YORK; AND FURTHER PROVIDED, THAT, NOTHING IN THIS AGREEMENT SHALL BE DEEMED
OR OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL (AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER SECURITY
FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY AGREEMENT), OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE COMPANY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION THAT IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
 
(c)  THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
 
11.2  Severability. Wherever possible each provision of this Agreement and the
Related Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or any
Related Agreement shall be prohibited by or invalid or illegal under applicable
law such provision shall be ineffective to the extent of such prohibition or
invalidity or illegality, without invalidating the remainder of such provision
or the remaining provisions thereof which shall not in any way be affected or
impaired thereby.
 
11.3  Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchaser and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument. All indemnities set forth herein shall survive
the execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the obligations arising hereunder, under the Notes and
under the other Related Agreements.
 
11.4  Successors. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person or entity which shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. The Purchaser shall not be permitted to assign its
rights hereunder or under any Related Agreement to a competitor of the Company
unless an Event of Default (as defined in each Note) has occurred and is
continuing.
 
11.5  Entire Agreement; Maximum Interest. This Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained in this Agreement, any Related
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Purchaser and thus refunded to the Company.
 
11.6  Amendment and Waiver.
 
(a)  This Agreement may be amended or modified only upon the written consent of
the Company and the Purchaser.
 
(b)  The obligations of the Company and the rights of the Purchaser under this
Agreement may be waived only with the written consent of the Purchaser.
 
(c)  The obligations of the Purchaser and the rights of the Company under this
Agreement may be waived only with the written consent of the Company.
 
11.7  Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements,
by law or otherwise afforded to any party, shall be cumulative and not
alternative.
 
11.8  Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:
 
(a)  upon personal delivery to the party to be notified;
 
(b)  when sent by confirmed facsimile if sent during normal business hours of
the recipient, if not, then on the next business day;
 
(c)  three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or
 
(d)  one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
 
All communications shall be sent as follows:
 

 
If to the Company, to:
Modtech Holdings Inc.
2830 Barrett Avenue
Perris, California 92571
Attention: Chief Financial Officer
Facsimile: 951-943-9655
   
with a copy to:
   
Haddan & Zepfel LLP
500 Newport Center Drive, Suite 580
Newport Beach, California 92660
Attention: Robert Zepfel, Esq.
Facsimile: 949-706-6060
 
If to the Purchaser, to:
Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
P.O. Box 309 GT
Ugland House
George Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 345-949-8080
   
with a copy to:
   
Portfolio Services
Laurus Capital Management, LLC
825 Third Avenue, 17th Floor
New York, NY 10022
Facsimile: 212-541-4410
   
and:
   
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Attention: Scott Giordano, Esq.
Facsimile: 212-504-2669

 
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
 
11.9  Attorneys’ Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement or any Related Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement and/or such Related Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
 
11.10  Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
 
11.11  Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one agreement.
 
11.12  Broker’s Fees. Except as set forth on Schedule 11.12 hereof, each party
hereto represents and warrants that no agent, broker, investment banker, person
or firm acting on behalf of or under the authority of such party hereto is or
will be entitled to any broker’s or finder’s fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.
 
11.13  Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement or any Related Agreement to favor any party against the other.

 
 
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
 

        COMPANY:  MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 

        PURCHASER:   LAURUS MASTER FUND, LTD.  
   
   
    By:   /s/   

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

 
Name
Title 

 
 

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

EXHIBIT A-1
 
FORM OF SECURED CONVERTIBLE NOTE
 

 
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
 
SECURED CONVERTIBLE TERM NOTE
 
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
“Company”), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or
its registered assigns or successors in interest, the sum of Five Million
Dollars ($5,000,000), together with any accrued and unpaid interest hereon, on
October 31, 2009 (the “Maturity Date”) if not sooner indefeasibly paid in full.
 
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof by and between the Company and the Holder (as amended, modified
and/or supplemented from time to time, the “Purchase Agreement”).
 
The following terms shall apply to this Secured Convertible Term Note (this
“Note”):
 
ARTICLE I  
CONTRACT RATE AND AMORTIZATION
 
1.1  Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue
at a rate per annum equal to the “prime rate” published in The Wall Street
Journal from time to time (the “Prime Rate”), plus two and one-half percent
(2.5%) (the “Contract Rate”). The Contract Rate shall be increased or decreased
as the case may be for each increase or decrease in the Prime Rate in an amount
equal to such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in the Prime Rate as announced in the Wall
Street Journal. The Contract Rate shall not at any time be less than eight
percent (8%). Interest shall be (a) calculated on the basis of a 360 day year,
and (b) payable monthly, in arrears, commencing on November 1, 2006, on the
first business day of each consecutive calendar month thereafter through and
including the Maturity Date, and on the Maturity Date, whether by acceleration
or otherwise.
 
1.2  Contract Rate Payments. The Contract Rate shall be calculated on the last
business day of each calendar month hereafter (other than for increases or
decreases in the Prime Rate which shall be calculated and become effective in
accordance with the terms of Section 1.1) until the Maturity Date and shall be
subject to adjustment as set forth herein.
 
1.3  Principal Payments. Amortizing payments of the Principal Amount shall be
made by the Company on February 28, 2007 and on the first business day of each
succeeding month thereafter through and including the Maturity Date (each, an
“Amortization Date”). Subject to Article III below, commencing on the first
Amortization Date, the Company shall make monthly payments to the Holder on each
Amortization Date, each such payment in the amount of $104,166.66 together with
any accrued and unpaid interest on such portion of the Principal Amount plus any
and all other unpaid amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (collectively, the “Monthly
Amount”). Any outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing by the
Company to the Holder under this Note, the Purchase Agreement and/or any other
Related Agreement shall be due and payable on the Maturity Date.
 
ARTICLE II
CONVERSION AND REDEMPTION
 
2.1  Payment of Monthly Amount.
 
(a)  Payment in Cash or Common Stock. If the Monthly Amount (or a portion of
such Monthly Amount if not all of the Monthly Amount may be converted into
shares of Common Stock pursuant to Section 3.2) is required to be paid in cash
pursuant to Section 2.1(b), then the Company shall pay the Holder an amount in
cash equal to 100% of the Monthly Amount (or such portion of such Monthly Amount
to be paid in cash) due and owing to the Holder on the Amortization Date. If the
Monthly Amount (or a portion of such Monthly Amount if not all of the Monthly
Amount may be converted into shares of Common Stock pursuant to Section 3.2) is
required to be paid in shares of Common Stock pursuant to Section 2.1(b), the
number of such shares to be issued by the Company to the Holder on such
Amortization Date (in respect of such portion of the Monthly Amount converted
into shares of Common Stock pursuant to Section 2.1(b)), shall be the number
determined by dividing (i) the portion of the Monthly Amount converted into
shares of Common Stock, by (ii) the then applicable Fixed Conversion Price. For
purposes hereof, subject to Section 3.6 hereof, the “Fixed Conversion Price”
means (a) $5.96, which price shall apply to the first $1,666,668 of the
Principal Amount, (b) $6.23, which price shall apply to the next $1,666,666 of
the Principal Amount, or (c) $7.69, which price shall apply to the remaining
$1,666,666 of the Principal Amount.
 
(b)  Monthly Amount Conversion Conditions. Subject to Sections 2.1(a), 2.2, and
3.2 hereof, the Holder shall convert into shares of Common Stock all or a
portion of the Monthly Amount due on each Amortization Date if the following
conditions (the “Conversion Criteria”) are satisfied: (i) the average closing
price of the Common Stock as reported by Bloomberg, L.P. on the Principal Market
for the five (5) trading days immediately preceding such Amortization Date shall
be greater than or equal to one hundred eighteen percent (118%) of the Fixed
Conversion Price and (ii) the amount of such conversion does not exceed twenty
five percent (25%) of the aggregate dollar trading volume of the Common Stock
for the period of twenty-two (22) trading days immediately preceding and
including such Amortization Date. If subsection (i) of the Conversion Criteria
is met but subsection (ii) of the Conversion Criteria is not met as to the
entire Monthly Amount, the Holder shall convert only such part of the Monthly
Amount that meets subsection (ii) of the Conversion Criteria. Any portion of the
Monthly Amount due on an Amortization Date that the Holder has not been able to
convert into shares of Common Stock due to the failure to meet the Conversion
Criteria, shall be paid in cash by the Company at the rate of 100% of the
Monthly Amount otherwise due on such Amortization Date, within three (3)
business days of such Amortization Date.
 
2.2  No Effective Registration. Notwithstanding anything to the contrary herein,
the Company shall not be permitted to pay any part of its obligations to the
Holder hereunder in shares of Common Stock if (a) there fails to exist an
effective current Registration Statement (as defined in the Registration Rights
Agreement) covering the resale of the shares of Common Stock to be issued in
connection with such payment or (b) an Event of Default (as hereinafter defined)
exists and is continuing, unless such Event of Default is cured within any
applicable cure period or otherwise waived in writing by the Holder.
 
2.3  Optional Redemption in Cash. The Company may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to one hundred
twenty-four percent (124%) of the aggregate amount of (a) the Principal Amount
outstanding and (b) the principal amount outstanding pursuant to that certain
Secured Term Note dated as of the date hereof, made by the Company in favor of
the Holder, in the original principal amount of $10,000,000, at such time
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note, the Term Note,
the Purchase Agreement or any other Related Agreement (the “Redemption Amount”)
outstanding on the Redemption Payment Date (as defined below). The Company shall
deliver to the Holder a written notice of redemption (the “Notice of
Redemption”) specifying the date for such Optional Redemption (the “Redemption
Payment Date”), which date shall be seven (7) business days after the date of
the Notice of Redemption (the “Redemption Period”). A Notice of Redemption shall
not be effective with respect to any portion of this Note for which the Holder
has previously delivered a Notice of Conversion (as hereinafter defined) or for
conversions elected to be made by the Holder pursuant to Article III during the
Redemption Period. The Redemption Amount shall be determined as if the Holder’s
conversion elections had been completed immediately prior to the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the event the Company fails to pay the
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
 
ARTICLE III
HOLDER’S CONVERSION RIGHTS
 
3.1  Optional Conversion. Subject to the terms set forth in this Article III,
the Holder shall have the right, but not the obligation, to convert all or any
portion of the issued and outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares of Common
Stock at the Fixed Conversion Price. The shares of Common Stock to be issued
upon such conversion are herein referred to as, the “Conversion Shares.”
 
3.2  Conversion Limitation. Notwithstanding anything herein to the contrary, in
no event shall the Holder be entitled to convert any portion of this Note in
excess of that portion of this Note upon conversion of which the sum of (a) the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Note or the
unexercised or unconverted portion of any other security of the Holder subject
to a limitation on conversion analogous to the limitations contained herein) and
(b) the number of shares of Common Stock issuable upon the conversion of the
portion of this Note with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Holder and its
Affiliates of any amount greater than 4.99% of the then outstanding shares of
Common Stock (whether or not, at the time of such exercise, the Holder and its
Affiliates beneficially own more than 4.99% of the then outstanding shares of
Common Stock). As used herein, the term “Affiliate” means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act.   For
purposes of the proviso to the second preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (a) of such proviso.  The limitations set forth herein (x)
may be waived by the Holder upon provision of no less than sixty-one (61) days
prior notice to the Company and (y) shall automatically become null and void (i)
following notice to the Company upon the occurrence and during the continuance
of an Event of Default, or (ii) upon receipt by the Holder of a Notice of
Redemption, except that at no time shall the number of shares of Common Stock
beneficially owned by the Holder exceed 19.99% of the outstanding shares of
Common Stock. Notwithstanding anything contained herein to the contrary, the
number of shares of Common Stock issuable by the Company and acquirable by the
Holder at a price below $5.35 per share pursuant to the terms of this Note, the
Purchase Agreement, any Related Agreement or otherwise, shall not exceed an
aggregate of 3,811,864 shares of Common Stock (subject to appropriate adjustment
for stock splits, stock dividends, or other similar recapitalizations affecting
the Common Stock) (the “Maximum Common Stock Issuance”), unless the issuance of
Common Shares hereunder in excess of the Maximum Common Stock Issuance shall
first be approved by the Company’s shareholders. If at any point in time and
from time to time the number of shares of Common Stock issued pursuant to the
terms of this Note, the Purchase Agreement, any Related Agreement or otherwise,
together with the number of shares of Common Stock that would then be issuable
by the Company to the Holder in the event of a conversion pursuant to the terms
of this Note, the Purchase Agreement, any Related Agreement (as defined in the
Purchase Agreement) or otherwise, would exceed the Maximum Common Stock Issuance
but for this Section 3.2, the Company shall promptly call a shareholders meeting
to solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance.
 
3.3  Mechanics of Holder’s Conversion. In the event that the Holder elects to
convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion in
substantially the form of Exhibit A hereto (appropriate completed) (“Notice of
Conversion”) to the Company and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest and
fees that are being converted. On each Conversion Date (as hereinafter defined)
and in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Principal Amount, accrued interest and fees as
entered in its records and shall provide written notice thereof to the Company
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion is delivered or telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date (the “Conversion
Date”). Pursuant to the terms of the Notice of Conversion, the Company will
issue instructions to the transfer agent accompanied by an opinion of counsel,
if required, within one (1) business day of the date of the delivery to the
Company of the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder by
crediting the account of the Holder’s designated broker with the Depository
Trust Corporation (“DTC”) through its Deposit Withdrawal Agent Commission
(“DWAC”) system within three (3) business days after receipt by the Company of
the Notice of Conversion (the “Delivery Date”). In the case of the exercise of
the conversion rights set forth herein the conversion privilege shall be deemed
to have been exercised and the Conversion Shares issuable upon such conversion
shall be deemed to have been issued upon the date of receipt by the Company of
the Notice of Conversion. The Holder shall be treated for all purposes as the
record holder of the Conversion Shares, unless the Holder provides the Company
written instructions to the contrary.
 
3.4  Late Payments. The Company understands that a delay in the delivery of the
Conversion Shares in the form required pursuant to this Article beyond the
Delivery Date could result in economic loss to the Holder. As compensation to
the Holder for such loss, in addition to all other rights and remedies which the
Holder may have under this Note, applicable law or otherwise, the Company shall
pay late payments to the Holder for any late issuance of Conversion Shares in
the form required pursuant to this Article II upon conversion of this Note, in
the amount equal to $500 per business day after the Delivery Date. The Company
shall make any payments incurred under this Section in immediately available
funds upon demand.
 
3.5  Conversion Mechanics. The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and interest and fees to be converted, if any, by the then
applicable Fixed Conversion Price. In the event of any conversions of a portion
of the outstanding Principal Amount pursuant to this Article III, such
conversions shall be deemed to constitute conversions of the outstanding
Principal Amount applying to Monthly Amounts for the remaining Amortization
Dates in chronological order.
 
3.6  Adjustment Provisions. The Fixed Conversion Price and number and kind of
shares or other securities to be issued upon conversion determined pursuant to
this Note shall be subject to adjustment from time to time upon the occurrence
of certain events during the period that this conversion right remains
outstanding, as follows:
 
(a)  Reclassification. If the Company at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes, this Note, as to the unpaid Principal Amount
and accrued interest thereon, shall thereafter be deemed to evidence the right
to purchase an adjusted number of such securities and kind of securities as
would have been issuable as the result of such change with respect to the Common
Stock (i) immediately prior to or (ii) immediately after, such reclassification
or other change at the sole election of the Holder.
 
(b)  Stock Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock or any preferred stock
issued by the Company in shares of Common Stock, the Fixed Conversion Price
shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
 
3.7  Reservation of Shares. During the period the conversion right exists, the
Company will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Conversion Shares upon the full
conversion of this Note and the Warrant. The Company represents that upon
issuance, the Conversion Shares will be duly and validly issued, fully paid and
non-assessable. The Company agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for the Conversion Shares upon the conversion
of this Note.
 
3.8  Registration Rights. The Holder has been granted registration rights with
respect to the Conversion Shares as set forth in the Registration Rights
Agreement.
 
3.9  Issuance of New Note. Upon any partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Company to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid. Subject to
the provisions of Article IV of this Note, the Company shall not pay any costs,
fees or any other consideration to the Holder for the production and issuance of
a new Note.
 
ARTICLE IV
EVENTS OF DEFAULT
 
4.1  Events of Default. The occurrence of any of the following events set forth
in this Section 4.1 shall constitute an event of default (“Event of Default”)
hereunder:
 
(a)  Failure to Pay. The Company fails to pay when due any installment of
principal, interest or other fees hereon in accordance herewith, or the Company
fails to pay any of the other Obligations (under and as defined in the Master
Security Agreement) when due, and, in any such case, such failure shall continue
for a period of three (3) Business Days following the date upon which any such
payment was due.
 
(b)  Breach of Covenant. The Company or any of its Subsidiaries breaches any
covenant or any other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of twenty (20) days
after the occurrence thereof.
 
(c)  Breach of Representations and Warranties. Any representation, warranty or
statement made or furnished by the Company or any of its Subsidiaries in this
Note, the Purchase Agreement or any other Related Agreement shall at any time be
false or misleading in any material respect on the date as of which made or
deemed made.
 
(d)  Default Under Other Agreements. The occurrence of any default (or similar
term) in the observance or performance of any other agreement or condition
relating to any indebtedness or contingent obligation of the Company or any of
its Subsidiaries in excess of $200,000 in the aggregate (including, without
limitation, the indebtedness evidenced by the Subordinated Debt Documentation)
beyond the period of grace (if any), the effect of which default is to cause, or
permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable;
 
(e)  Default Under Subordinated Debt Documentation. The Company or any of its
Subsidiaries shall take or participate in any action which is prohibited under
the provisions of any subordination agreement (each, a “Subordination
Agreement”) entered into in connection with any indebtedness, including, without
limitation, any and all indebtedness owing by Company or any of its Subsidiaries
to Amphora Limited, an exempt company organized under the laws of the Cayman
Islands, the evidenced by the Subordinated Debt Documentation (all such
indebtedness, “Subordinated Debt”) among the Company, Laurus and the lender of
such Subordinated Debt (or make any payment on the Subordinated Debt to a Person
that was not entitled to receive such payments under the provisions of the
applicable Subordination Agreement.
 
(f)  Material Adverse Effect. Any change or the occurrence of any event which
could reasonably be expected to have a Material Adverse Effect;
 
(g)  Bankruptcy. The Company or any of its Subsidiaries shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, without challenge within ten (10) days of
the filing thereof, or failure to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
 
(h)  Judgments. Attachments or levies in excess of $200,000 in the aggregate are
made upon the Company or any of its Subsidiary’s assets or a judgment is
rendered against the Company’s property involving a liability of more than
$500,000 which shall not have been vacated, discharged, stayed or bonded within
forty (40) days from the entry thereof;
 
(i)  Insolvency. The Company or any of its Subsidiaries shall admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business;
 
(j)  Change of Control. A Change of Control (as defined below) shall occur with
respect to the Company, unless Holder shall have expressly consented to such
Change of Control in writing. A “Change of Control” shall mean any event or
circumstance as a result of which (i) any “Person” or “group” (as such terms are
defined in Sections 13(d) and 14(d) of the Exchange Act, as in effect on the
date hereof), other than the Holder, is or becomes the “beneficial owner” (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of 51% or more on a fully diluted basis of the then outstanding
voting equity interest of the Company, (ii) the Board of Directors of the
Company shall cease to consist of a majority of the Company’s board of directors
on the date hereof (or of directors appointed by a majority of the Board of
Directors in effect immediately prior to such appointment) or (iii) the Company
or any of its Subsidiaries merges or consolidates with, or sells all or
substantially all of its assets to, any other person or entity;
 
(k)  Indictment; Proceedings. The indictment of the Company or any of its
Subsidiaries or any executive officer of the Company or any of its Subsidiaries
under any criminal statute, or commencement of criminal or civil proceeding
against the Company or any of its Subsidiaries or any executive officer of the
Company or any of its Subsidiaries pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any of the
property of the Company or any of its Subsidiaries;
 
(l)  The Purchase Agreement and Related Agreements. (i) An Event of Default
shall occur under and as defined in the Purchase Agreement or any other Related
Agreement, (ii) the Company or any of its Subsidiaries shall breach any term or
provision of the Purchase Agreement or any other Related Agreement in any
material respect and such breach, if capable of cure, continues unremedied for a
period of twenty (20) days after the occurrence thereof, (iii) the Company or
any of its Subsidiaries attempts to terminate, challenges the validity of, or
its liability under, the Purchase Agreement or any Related Agreement, (iv) any
proceeding shall be brought to challenge the validity, binding effect of the
Purchase Agreement or any Related Agreement or (v) the Purchase Agreement or any
Related Agreement ceases to be a valid, binding and enforceable obligation of
the Company or any of its Subsidiaries (to the extent such persons or entities
are a party thereto);
 
(m)  Stop Trade. An SEC stop trade order or Principal Market trading suspension
of the Common Stock shall be in effect for five (5) consecutive days or five (5)
days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Company shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice; or
 
(n)  Failure to Deliver Common Stock or Replacement Note. The Company’s failure
to deliver Common Stock to the Holder pursuant to and in the form required by
this Note and the Purchase Agreement and, if such failure to deliver Common
Stock shall not be cured within two (2) business days or the Company is required
to issue a replacement Note to the Holder and the Company shall fail to deliver
such replacement Note within seven (7) business days.
 
4.2  Default Interest. Following the occurrence and during the continuance of an
Event of Default, the Company shall pay additional interest on the outstanding
principal balance of this Note in an amount equal to two percent (2%) per month,
and all outstanding obligations under this Note, the Purchase Agreement and each
other Related Agreement, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.
 
4.3  Default Payment. Following the occurrence and during the continuance of an
Event of Default, the Holder, at its option, may demand repayment in full of all
obligations and liabilities owing by Company to the Holder under this Note, the
Purchase Agreement and/or any other Related Agreement and/or may elect, in
addition to all rights and remedies of the Holder under the Purchase Agreement
and the other Related Agreements and all obligations and liabilities of the
Company under the Purchase Agreement and the other Related Agreements, to
require the Company to make a Default Payment (“Default Payment”). The Default
Payment shall be one hundred ten percent (110%) of the outstanding principal
amount of the Note, plus accrued but unpaid interest, all other fees then
remaining unpaid, and all other amounts payable hereunder. The Default Payment
shall be applied first to any fees due and payable to the Holder pursuant to
this Note, the Purchase Agreement, and/or the other Related Agreements, then to
accrued and unpaid interest due on this Note and then to the outstanding
principal balance of this Note. The Default Payment shall be due and payable
immediately on the date that the Holder has demanded payment of the Default
Payment pursuant to this Section 4.3.
 
ARTICLE V
MISCELLANEOUS
 
5.1  Conversion Privileges. The conversion privileges set forth in Article III
shall remain in full force and effect immediately from the date hereof until the
date this Note is indefeasibly paid in full and irrevocably terminated.
 
5.2  Cumulative Remedies. The remedies under this Note shall be cumulative.
 
5.3  Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
 
5.4  Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for the Holder, with a copy to Laurus Capital Management, LLC, Attn: Portfolio
Services, 825 Third Avenue, 17th Floor, New York, New York 10022, facsimile
number (212) 541-4410, or at such other address as the Company or the Holder may
designate by ten days advance written notice to the other parties hereto. A
Notice of Conversion shall be deemed given when made to the Company pursuant to
the Purchase Agreement.
 
5.5  Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument as such successor instrument may be amended or
supplemented.
 
5.6  Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
 
5.7  Cost of Collection. In case of any Event of Default under this Note, the
Company shall pay the Holder the Holder’s reasonable costs of collection,
including reasonable attorneys’ fees.
 
5.8  Governing Law, Jurisdiction and Waiver of Jury Trial.
 
(a)  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
 
(b)  THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR
ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
 
(c)  THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
 
5.9  Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
 
5.10  Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum rate permitted
by such law, any payments in excess of such maximum rate shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.
 
5.11  Security Interest and Guarantee. The Holder has been granted a security
interest (a) in certain assets of the Company and its Subsidiaries as more fully
described in the Master Security Agreement dated as of the date hereof and
various mortgages covering the real property owned by the Company and (b) in the
equity interests of the Company’s Subsidiaries pursuant to the Stock Pledge
Agreement dated as of the date hereof. The obligations of the Company under this
Note are guaranteed by certain Subsidiaries of the Company pursuant to the
Subsidiary Guaranty dated as of the date hereof.
 
5.12  Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other.
 
5.13  Registered Obligation. This Note is intended to be a registered obligation
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the
Company (or its agent) shall register this Note (and thereafter shall maintain
such registration) as to both principal and any stated interest. Notwithstanding
any document, instrument or agreement relating to this Note to the contrary,
transfer of this Note (or the right to any payments of principal or stated
interest thereunder) may only be effected by (a) surrender of this Note and
either the reissuance by the Company of this Note to the new holder or the
issuance by the Company of a new instrument to the new holder, or (b) transfer
through a book entry system maintained by the Company (or its agent), within the
meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
 
 
IN WITNESS WHEREOF, the Company has caused this Secured Convertible Term Note to
be signed in its name effective as of this 31st day of October, 2006.
 
 
 

        MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 
WITNESS:

  By:   /s/   

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

 
Name
Title 

 
EXHIBIT A
 
NOTICE OF CONVERSION
 
(To be executed by the Holder in order to convert all or part of the Secured
Convertible Term Note into Common Stock)
 
Modtech Holdings, Inc.
2830 Barrett Avenue
Perris, California 92571
 
The undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Secured Convertible Term Note dated as of
October 31, 2006 (the “Note”) issued by Modtech Holdings, Inc. (the “Company”)
by delivery of shares of Common Stock of the Company (“Shares”) on and subject
to the conditions set forth in the Note.
 
1.  Date of Conversion_______________________
 
2.  Shares To Be Delivered:_______________________
 

      [HOLDER]  
   
   
    By:   /s/   

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

 
Name
Title 

 
 

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

EXHIBIT A-2
 
FORM OF SECURED TERM NOTE
 
SECURED TERM NOTE
 
FOR VALUE RECEIVED, MODTECH HOLDINGS, INC., a Delaware corporation (the
“Company”), promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or its
registered assigns or successors in interest, the sum of Thirteen Million
Dollars ($13,000,000), together with any accrued and unpaid interest hereon, on
October 31st, 2009 (the “Maturity Date”) if not sooner indefeasibly paid in
full.
 
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Company and the Holder (as amended, modified and/or
supplemented from time to time, the “Purchase Agreement”).
 
The following terms shall apply to this Secured Term Note (this “Note”):
 
ARTICLE I
CONTRACT RATE AND AMORTIZATION
 
1.1  Contract Rate. Subject to Sections 3.2 and 4.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue
at a rate per annum equal to the “prime rate” published in The Wall Street
Journal from time to time (the “Prime Rate”), plus three and three-quarters
percent (3.75%) (the “Contract Rate”). The Contract Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in the Prime Rate is announced in The
Wall Street Journal. The Contract Rate shall not at any time be less than eight
percent (8%). Interest shall be (a) calculated on the basis of a 360 day year,
and (b) payable monthly, in arrears, commencing on November 1, 2006, on the
first business day of each consecutive calendar month thereafter through and
including the Maturity Date, and on the Maturity Date, whether by acceleration
or otherwise.
 
1.2  Contract Rate Payments. The Contract Rate shall be calculated on the last
business day of each calendar month hereafter (other than for increases or
decreases in the Prime Rate which shall be calculated and become effective in
accordance with the terms of Section 1.1) until the Maturity Date and shall be
subject to adjustment as set forth herein.
 
1.3  Principal Payments. Amortizing payments of the aggregate principal amount
outstanding under this Note at any time (the “Principal Amount”) shall be made
by the Company on February 28, 2007 and on the first business day of each
succeeding month thereafter through and including the Maturity Date (each, an
“Amortization Date”). Commencing on the first Amortization Date, the Company
shall make monthly payments to the Holder on each Amortization Date, each such
payment in the amount of $270,833.33 together with any accrued and unpaid
interest on such portion of the Principal Amount plus any and all other unpaid
amounts which are then owing under this Note, the Purchase Agreement and/or any
other Related Agreement (collectively, the “Monthly Amount”). Any outstanding
Principal Amount together with any accrued and unpaid interest and any and all
other unpaid amounts which are then owing by the Company to the Holder under
this Note, the Purchase Agreement and/or any other Related Agreement shall be
due and payable on the Maturity Date.
 
ARTICLE II
REDEMPTION
 
2.1  Optional Redemption in Cash. The Company may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to one hundred
twenty-four percent (124%) of the aggregate amount of (a) the Principal Amount
outstanding and (b) the principal amount outstanding pursuant to that certain
Secured Convertible Term Note dated as of the date hereof, made by the Company
in favor of the Holder, in the original principal amount of $5,000,000, together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Note, the Purchase Agreement or any
other Related Agreement (the “Redemption Amount”) outstanding on the Redemption
Payment Date (as defined below). The Company shall deliver to the Holder a
written notice of redemption (the “Notice of Redemption”) specifying the date
for such Optional Redemption (the “Redemption Payment Date”), which date shall
be within seven (7) business days after the date of the Notice of Redemption
(the “Redemption Period”). On the Redemption Payment Date, the Redemption Amount
must be paid in good funds to the Holder. In the event the Company fails to pay
the Redemption Amount on the Redemption Payment Date as set forth herein, then
such Redemption Notice will be null and void.
 
ARTICLE III
EVENTS OF DEFAULT
 
3.1  Events of Default. The occurrence of any of the following events set forth
in this Section 3.1 shall constitute an event of default (“Event of Default”)
hereunder:
 
(a)  Failure to Pay. The Company fails to pay when due any installment of
principal, interest or other fees hereon in accordance herewith, or the Company
fails to pay any of the other Obligations (under and as defined in the Master
Security Agreement) when due, and, in any such case, such failure shall continue
for a period of three (3) Business Days following the date upon which any such
payment was due.
 
(b)  Breach of Covenant. The Company or any of its Subsidiaries breaches any
covenant or any other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of twenty (20) days
after the occurrence thereof.
 
(c)  Breach of Representations and Warranties. Any representation, warranty or
statement made or furnished by the Company or any of its Subsidiaries in this
Note, the Purchase Agreement or any other Related Agreement shall at any time be
false or misleading in any material respect on the date as of which made or
deemed made.
 
(d)  Default Under Other Agreements. The occurrence of any default (or similar
term) in the observance or performance of any other agreement or condition
relating to any indebtedness or contingent obligation of the Company or any of
its Subsidiaries in excess of $200,000 in the aggregate (including, without
limitation, the indebtedness evidenced by the Subordinated Debt Documentation)
beyond the period of grace (if any), the effect of which default is to cause, or
permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable;
 
(e)  Default Under Subordinated Debt Documentation. The Company or any of its
Subsidiaries shall take or participate in any action which is prohibited under
the provisions of any subordination agreement (each, a “Subordination
Agreement”) entered into in connection with any indebtedness, including, without
limitation, any and all indebtedness owing by Company or any of its Subsidiaries
to Amphora Limited, an exempt company organized under the laws of the Cayman
Islands, evidenced by the Subordinated Debt Documentation (all such
indebtedness, “Subordinated Debt”) among the Company, Laurus and the lender of
such Subordinated Debt (or make any payment on the Subordinated Debt to a Person
that was not entitled to receive such payments under the provisions of the
applicable Subordination Agreement..
 
(f)  Material Adverse Effect. Any change or the occurrence of any event which
could reasonably be expected to have a Material Adverse Effect;
 
(g)  Bankruptcy. The Company or any of its Subsidiaries shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, without challenge within ten (10) days of
the filing thereof, or failure to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
 
(h)  Judgments. Attachments or levies in excess of $200,000 in the aggregate are
made upon the Company or any of its Subsidiary’s assets or a judgment is
rendered against the Company’s property involving a liability of more than
$500,000 which shall not have been vacated, discharged, stayed or bonded within
forty (40) days from the entry thereof;
 
(i)  Insolvency. The Company or any of its Subsidiaries shall admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business;
 
(j)  Change of Control. A Change of Control (as defined below) shall occur with
respect to the Company, unless Holder shall have expressly consented to such
Change of Control in writing. A “Change of Control” shall mean any event or
circumstance as a result of which (i) any “Person” or “group” (as such terms are
defined in Sections 13(d) and 14(d) of the Exchange Act, as in effect on the
date hereof), other than the Holder, is or becomes the “beneficial owner” (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of 51% or more on a fully diluted basis of the then outstanding
voting equity interest of the any Company, (ii) the Board of Directors of the
Company shall cease to consist of a majority of the Company’s Board of Directors
on the date hereof (or directors appointed by a majority of the Board of
Directors in effect immediately prior to such appointment) or (iii) the Company
or any of its Subsidiaries merges or consolidates with, or sells all or
substantially all of its assets to, any other person or entity;
 
(k)  Indictment; Proceedings. The indictment of the Company or any of its
Subsidiaries or any executive officer of the Company or any of its Subsidiaries
under any criminal statute, or commencement of criminal or civil proceeding
against the Company or any of its Subsidiaries or any executive officer of the
Company or any of its Subsidiaries pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any of the
property of the Company or any of its Subsidiaries;
 
(l)  The Purchase Agreement and Related Agreements. (i) An Event of Default
shall occur under and as defined in the Purchase Agreement or any other Related
Agreement, (ii) the Company or any of its Subsidiaries shall breach any term or
provision of the Purchase Agreement or any other Related Agreement in any
material respect and such breach, if capable of cure, continues unremedied for a
period of twenty (20) days after the occurrence thereof, (iii) the Company or
any of its Subsidiaries attempts to terminate, challenges the validity of, or
its liability under, the Purchase Agreement or any Related Agreement, (iv) any
proceeding shall be brought to challenge the validity, binding effect of the
Purchase Agreement or any Related Agreement or (v) the Purchase Agreement or any
Related Agreement ceases to be a valid, binding and enforceable obligation of
the Company or any of its Subsidiaries (to the extent such persons or entities
are a party thereto);
 
3.2  Default Interest. Following the occurrence and during the continuance of an
Event of Default, the Company shall pay additional interest on the outstanding
principal balance of this Note in an amount equal to two percent (2%) per month,
and all outstanding obligations under this Note, the Purchase Agreement and each
other Related Agreement, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.
 
3.3  Default Payment. Following the occurrence and during the continuance of an
Event of Default, the Holder, at its option, may demand repayment in full of all
obligations and liabilities owing by Company to the Holder under this Note, the
Purchase Agreement and/or any other Related Agreement and/or may elect, in
addition to all rights and remedies of the Holder under the Purchase Agreement
and the other Related Agreements and all obligations and liabilities of the
Company under the Purchase Agreement and the other Related Agreements, to
require the Company to make a Default Payment (“Default Payment”). The Default
Payment shall be one hundred five percent (105%) of the outstanding principal
amount of the Note, plus accrued but unpaid interest, all other fees then
remaining unpaid, and all other amounts payable hereunder. The Default Payment
shall be applied first to any fees due and payable to the Holder pursuant to
this Note, the Purchase Agreement, and/or the other Related Agreements, then to
accrued and unpaid interest due on this Note and then to the outstanding
principal balance of this Note. The Default Payment shall be due and payable
immediately on the date that the Holder has demanded payment of the Default
Payment pursuant to this Section 3.3.
 
ARTICLE IV
MISCELLANEOUS
 
4.1  Issuance of New Note. Upon any partial redemption of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Company to the Holder for the principal balance of
this Note and interest which shall not have been paid as of such date. Subject
to the provisions of Article III of this Note, the Company shall not pay any
costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
 
4.2  Cumulative Remedies. The remedies under this Note shall be cumulative.
 
4.3  Failure or Indulgence Not Waiver. No failure or delay on the part of the
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
 
4.4  Notices. Any notice herein required or permitted to be given shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address provided in the Purchase Agreement executed in connection
herewith, and to the Holder at the address provided in the Purchase Agreement
for the Holder, with a copy to Laurus Capital Management, LLC, Attn: Portfolio
Services, 825 Third Avenue, 17th Floor, New York, New York 10022, facsimile
number (212) 541-4410, or at such other address as the Company or the Holder may
designate by ten days advance written notice to the other parties hereto.
 
4.5  Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument as such successor instrument may be amended or
supplemented.
 
4.6  Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. The Company may not assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
 
4.7  Cost of Collection. In case of any Event of Default under this Note, the
Company shall pay the Holder the Holder’s reasonable costs of collection,
including reasonable attorneys’ fees.
 
4.8  Governing Law, Jurisdiction and Waiver of Jury Trial.
 
(a)  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
 
(b)  THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY,
ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR
ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
 
(c)  THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND/OR THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
 
4.9  Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
 
4.10  Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum rate permitted
by such law, any payments in excess of such maximum rate shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.
 
4.11  Security Interest and Guarantee. The Holder has been granted a security
interest (a) in certain assets of the Company and its Subsidiaries as more fully
described in the Master Security Agreement dated as of the date hereof and
various mortgages covering the real property owned by the Company and (b) in the
equity interests of the Company’s Subsidiaries pursuant to the Stock Pledge
Agreement dated as of the date hereof. The obligations of the Company under this
Note are guaranteed by certain Subsidiaries of the Company pursuant to the
Subsidiary Guaranty dated as of the date hereof.
 
4.12  Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other.
 
4.13  Registered Obligation. This Note is intended to be a registered obligation
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the
Company (or its agent) shall register this Note (and thereafter shall maintain
such registration) as to both principal and any stated interest. Notwithstanding
any document, instrument or agreement relating to this Note to the contrary,
transfer of this Note (or the right to any payments of principal or stated
interest thereunder) may only be effected by (a) surrender of this Note and
either the reissuance by the Company of this Note to the new holder or the
issuance by the Company of a new instrument to the new holder, or (b) transfer
through a book entry system maintained by the Company (or its agent), within the
meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

 
IN WITNESS WHEREOF, the Company has caused this Secured Term Note to be signed
in its name effective as of this 31st day of October, 2006.
 

        MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 
 
WITNESS:

  By:   /s/   

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

 
Name
Title 

 
 
 

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

EXHIBIT B-1
 
FORM OF WARRANT FOR 1,540,697 SHARES OF COMMON STOCK
 
 
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
 
Right to Purchase up to 1,540,697 Shares of Common Stock of
 
Modtech Holdings, Inc.
 
(subject to adjustment as provided herein)
 
COMMON STOCK PURCHASE WARRANT
No. 2
Issue Date: October 31, 2006

 
MODTECH HOLDINGS, INC., a corporation organized under the laws of the State of
Delaware (the “Company”), hereby certifies that, for value received, LAURUS
MASTER FUND, LTD., or assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company (as defined herein) from and after
the Issue Date of this Warrant and at any time or from time to time before 5:00
p.m., New York time, through the close of business October 31, 2013 (the
“Expiration Date”), up to 1,540,697 fully paid and nonassessable shares of
Common Stock (as hereinafter defined), $0.01 par value per share, at the
applicable Exercise Price per share (as defined below). The number and character
of such shares of Common Stock and the applicable Exercise Price per share are
subject to adjustment as provided herein.
 
As used herein the following terms, unless the context otherwise requires, have
the following respective meanings:
 
(a)  The term “Company” shall include Modtech Holdings, Inc. and any person or
entity which shall succeed, or assume the obligations of, Modtech Holdings, Inc.
hereunder.
 
(b)  The term “Common Stock” includes (i) the Company’s Common Stock, par value
$0.01 per share; and (ii) any other securities into which or for which any of
the securities described in the preceding clause (i) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
 
(c)  The term “Other Securities” refers to any stock (other than Common Stock)
and other securities of the Company or any other person (corporate or otherwise)
which the holder of the Warrant at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
 
(d)  The “Exercise Price” applicable under this Warrant shall be as follows:
 
(i)  a price of $7.82 for the first 770,349 shares acquired hereunder; and
 
(ii)  a price of $7.31 for any additional shares acquired hereunder.
 
1.  Exercise of Warrant.
 
1.1.  Number of Shares Issuable upon Exercise. From and after the date hereof
through and including the Expiration Date, the Holder shall be entitled to
receive, upon exercise of this Warrant in whole or in part, by delivery of an
original or fax copy of an exercise notice in the form attached hereto as
Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
 
1.2.  Fair Market Value. For purposes hereof, the “Fair Market Value” of a share
of Common Stock as of a particular date (the “Determination Date”) shall mean:
 
(a)  If the Company’s Common Stock is traded on the American Stock Exchange or
another national exchange or is quoted on the Global or Capital Market of The
Nasdaq Stock Market, Inc.(“Nasdaq”), then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date.
 
(b)  If the Company’s Common Stock is not traded on the American Stock Exchange
or another national exchange or on the Nasdaq but is traded on the NASD Over the
Counter Bulletin Board, then the mean of the average of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
 
(c)  Except as provided in clause (d) below, if the Company’s Common Stock is
not publicly traded, then as the Holder and the Company agree or in the absence
of agreement by arbitration in accordance with the rules then in effect of the
American Arbitration Association, before a single arbitrator to be chosen from a
panel of persons qualified by education and training to pass on the matter to be
decided.
 
(d)  If the Determination Date is the date of a liquidation, dissolution or
winding up, or any event deemed to be a liquidation, dissolution or winding up
pursuant to the Company’s charter, then all amounts to be payable per share to
holders of the Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the charter, assuming
for the purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the Determination Date.
 
1.3.  Company Acknowledgment. The Company will, at the time of the exercise of
this Warrant, upon the request of the holder hereof acknowledge in writing its
continuing obligation to afford to such holder any rights to which such holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such holder any such rights.
 
1.4.  Trustee for Warrant Holders. In the event that a bank or trust company
shall have been appointed as trustee for the holders of this Warrant pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and duties
of a warrant agent (as hereinafter described) and shall accept, in its own name
for the account of the Holder or Holder such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
 
2.  Procedure for Exercise.
 
2.1.  Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that
the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares in accordance herewith. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Fair Market Value of one full
share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise.
 
2.2.  Exercise. Payment shall be made either in cash or by certified or official
bank check payable to the order of the Company equal to the applicable aggregate
Exercise Price for the number of Common Shares specified in such Exercise Notice
(as such exercise number shall be adjusted to reflect any adjustment in the
total number of shares of Common Stock issuable to the Holder per the terms of
this Warrant) and the Holder shall thereupon be entitled to receive the number
of duly authorized, validly issued, fully-paid and non-assessable shares of
Common Stock (or Other Securities) determined as provided herein.
 
3.  Effect of Reorganization, Etc.; Adjustment of Exercise Price.
 
3.1.  Reorganization, Consolidation, Merger, Etc. In case at any time or from
time to time, the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a
condition to the consummation of such a transaction, if applicable, proper and
adequate provision shall be made by the Company whereby the Holder, on the
exercise hereof as provided in Section 1 at any time after the consummation of
such reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4.
 
3.2.  Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company,
concurrently with any distributions made to holders of its Common Stock, shall
at its expense deliver or cause to be delivered to the Holder the stock and
other securities and property (including cash, where applicable) receivable by
the Holder pursuant to Section 3.1 to the extent the Holder has exercised the
warrant following the transfer of assets, or, if the Holder shall so instruct
the Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder (the “Trustee”).
 
3.3.  Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company’s
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section
3.2.
 
4.  Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock or any preferred stock issued by the
Company (b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock, then, in each such event, the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then Exercise
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the Exercise
Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described
herein in this Section 4. The number of shares of Common Stock that the Holder
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise (taking into account the provisions of this Section
4). Notwithstanding the foregoing, in no event shall the Exercise Price be less
than the par value of the Common Stock.
 
5.  Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder and any Warrant agent of the
Company (appointed pursuant to Section 11 hereof).
 
6.  Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of this Warrant.
 
7.  Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a “Transferor”) in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor’s
endorsement in the form of Exhibit B attached hereto (the “Transferor
Endorsement Form”) and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, the provision of a legal opinion from the
Transferor’s counsel (at the Company’s expense) that such transfer is exempt
from the registration requirements of applicable securities laws, the Company at
its expense (but with payment by the Transferor of any applicable transfer
taxes) will issue and deliver to or on the order of the Transferor thereof a new
Warrant of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a “Transferee”), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor.
 
8.  Replacement of Warrant. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction of this Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
 
9.  Registration Rights. The Holder has been granted certain registration rights
by the Company. These registration rights are set forth in a Registration Rights
Agreement entered into by the Company and Holder dated as of the date hereof, as
the same may be amended, modified and/or supplemented from time to time.
 
10.  Maximum Exercise. Notwithstanding anything herein to the contrary, in no
event shall the Holder be entitled to exercise any portion of this Warrant in
excess of that portion of this Warrant upon exercise of which the sum of (a) the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of the Warrant or the
unexercised or unconverted portion of any other security of the Holder subject
to a limitation on conversion analogous to the limitations contained herein) and
(b) the number of shares of Common Stock issuable upon the exercise of the
portion of this Warrant with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
Affiliates of any amount greater than 4.99% of the then outstanding shares of
Common Stock (whether or not, at the time of such exercise, the Holder and its
Affiliates beneficially own more than 4.99% of the then outstanding shares of
Common Stock). As used herein, the term “Affiliate” means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act.   For
purposes of the proviso to the second preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (a) of such proviso.  The limitations set forth herein (x)
may be waived by the Holder upon provision of no less than sixty-one (61) days
prior notice to the Company and (y) shall automatically become null and void
following notice to the Company upon the occurrence and during the continuance
of an Event of Default (as defined in the Purchase Agreement dated as of the
date hereof among the Holder and the Company (as amended, modified, restated
and/or supplemented from time to time, the “Purchase Agreement”)), except that
at no time shall the number of shares of Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holder at a price below $5.35 per
share pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement (as defined in the Purchase Agreement) or otherwise, shall not exceed
an aggregate of 3,811,864 shares of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, or other similar recapitalizations
affecting the Common Stock) (the “Maximum Common Stock Issuance”), unless the
issuance of Common Shares hereunder in excess of the Maximum Common Stock
Issuance shall first be approved by the Company’s shareholders. If at any point
in time and from time to time the number of shares of Common Stock issued
pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement or otherwise, together with the number of shares of Common Stock that
would then be issuable by the Company to the Holder in the event of a conversion
pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement or otherwise, would exceed the Maximum Common Stock Issuance but for
this Section 10, the Company shall promptly call a shareholders meeting to
solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance.
 
11.  Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
 
12.  Transfer on the Company’s Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
 
13.  Notices, Etc. All notices and other communications from the Company to the
Holder shall be mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
such Holder or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder who has so furnished an address to
the Company.
 
14.  Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT
SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS
LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE
TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The
individuals executing this Warrant on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorneys’ fees
and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Warrant.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. The Company acknowledges that
legal counsel participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Warrant to favor any party against the other party.

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

        MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 
 
WITNESS:

  By:   /s/   

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

 
Name
Title 

Exhibit A
 
FORM OF SUBSCRIPTION
 
(To Be Signed Only On Exercise Of Warrant)
 
TO: Modtech Holdings, Inc.
 
Attention: Chief Financial Officer
 
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

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

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

 
$__________ in lawful money of the United States; and/or
 
the cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or
 
the cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2.2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

 
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________________ whose
address is
___________________________________________________________________________.
 
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the “Securities Act”) or pursuant to an exemption from
registration under the Securities Act.
 

           
   
   
  Date:  By:   /s/   

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

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

 
 
Exhibit B
 
FORM OF TRANSFEROR ENDORSEMENT
 
(To Be Signed Only On Transfer Of Warrant)
 
For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading “Transferees” the right represented
by the within Warrant to purchase the percentage and number of shares of Common
Stock of Modtech Holdings, Inc. into which the within Warrant relates specified
under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Modtech
Holdings, Inc. with full power of substitution in the premises.
 
Transferees
 
Address
 
Percentage Transferred
 
Number
Transferred
                                                       

 
 
SIGNED IN THE PRESENCE OF:

 
   
   
   Date: By:   /s/   

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

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

 
 
ACCEPTED AND AGREED: [TRANSFEREE]

  By:   /s/   

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

 
Name

 
 

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

EXHIBIT B-2
 
FORM OF WARRANT FOR 581,395 SHARES OF COMMON STOCK
 

 
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO MODTECH HOLDINGS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
 
Right to Purchase up to 581,395 Shares of Common Stock of
 
Modtech Holdings, Inc.
 
(subject to adjustment as provided herein)
 
COMMON STOCK PURCHASE WARRANT
No. 1
Issue Date: October 31, 2006

 
MODTECH HOLDINGS, INC., a corporation organized under the laws of the State of
Delaware (the “Company”), hereby certifies that, for value received, LAURUS
MASTER FUND, LTD., or assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company (as defined herein) from and after
the Issue Date of this Warrant and at any time or from time to time before 5:00
p.m., New York time, through the close of business October 31, 2013 (the
“Expiration Date”), up to 581,395 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $0.01 par value per share, at the applicable
Exercise Price per share (as defined below). The number and character of such
shares of Common Stock and the applicable Exercise Price per share are subject
to adjustment as provided herein.
 
As used herein the following terms, unless the context otherwise requires, have
the following respective meanings:
 
(a)  The term “Company” shall include Modtech Holdings, Inc. and any person or
entity which shall succeed, or assume the obligations of, Modtech Holdings, Inc.
hereunder.
 
(a)  The term “Common Stock” includes (i) the Company’s Common Stock, par value
$0.01 per share; and (ii) any other securities into which or for which any of
the securities described in the preceding clause (i) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
 
(b)  The term “Other Securities” refers to any stock (other than Common Stock)
and other securities of the Company or any other person (corporate or otherwise)
which the holder of the Warrant at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
 
(c)  The “Exercise Price” applicable under this Warrant shall be a price of
$5.69 for any additional shares acquired hereunder.
 
1.  Exercise of Warrant.
 
1.1.  Number of Shares Issuable upon Exercise. From and after the date hereof
through and including the Expiration Date, the Holder shall be entitled to
receive, upon exercise of this Warrant in whole or in part, by delivery of an
original or fax copy of an exercise notice in the form attached hereto as
Exhibit A (the “Exercise Notice”), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.
 
1.2.  Fair Market Value. For purposes hereof, the “Fair Market Value” of a share
of Common Stock as of a particular date (the “Determination Date”) shall mean:
 
(a)  If the Company’s Common Stock is traded on the American Stock Exchange or
another national exchange or is quoted on the National or Capital Market of The
Nasdaq Stock Market, Inc.(“Nasdaq”), then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date.
 
(b)  If the Company’s Common Stock is not traded on the American Stock Exchange
or another national exchange or on the Nasdaq but is traded on the NASD Over the
Counter Bulletin Board, then the mean of the average of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
 
(c)  Except as provided in clause (d) below, if the Company’s Common Stock is
not publicly traded, then as the Holder and the Company agree or in the absence
of agreement by arbitration in accordance with the rules then in effect of the
American Arbitration Association, before a single arbitrator to be chosen from a
panel of persons qualified by education and training to pass on the matter to be
decided.
 
(d)  If the Determination Date is the date of a liquidation, dissolution or
winding up, or any event deemed to be a liquidation, dissolution or winding up
pursuant to the Company’s charter, then all amounts to be payable per share to
holders of the Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the charter, assuming
for the purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the Determination Date.
 
1.3.  Company Acknowledgment. The Company will, at the time of the exercise of
this Warrant, upon the request of the holder hereof acknowledge in writing its
continuing obligation to afford to such holder any rights to which such holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such holder any such rights.
 
1.4.  Trustee for Warrant Holders. In the event that a bank or trust company
shall have been appointed as trustee for the holders of this Warrant pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and duties
of a warrant agent (as hereinafter described) and shall accept, in its own name
for the account of the Holder or Holder such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
 
2.  Procedure for Exercise.
 
2.1.  Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that
the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares in accordance herewith. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
three (3) business days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Fair Market Value of one full
share, together with any other stock or other securities and property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise.
 
2.2.  Exercise. Payment shall be made either in cash or by certified or official
bank check payable to the order of the Company equal to the applicable aggregate
Exercise Price for the number of Common Shares specified in such Exercise Notice
(as such exercise number shall be adjusted to reflect any adjustment in the
total number of shares of Common Stock issuable to the Holder per the terms of
this Warrant) and the Holder shall thereupon be entitled to receive the number
of duly authorized, validly issued, fully-paid and non-assessable shares of
Common Stock (or Other Securities) determined as provided herein.
 
3.  Effect of Reorganization, Etc.; Adjustment of Exercise Price.
 
3.1.  Reorganization, Consolidation, Merger, Etc. In case at any time or from
time to time, the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a
condition to the consummation of such a transaction, if applicable, proper and
adequate provision shall be made by the Company whereby the Holder, on the
exercise hereof as provided in Section 1 at any time after the consummation of
such reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4.
 
3.2.  Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company,
concurrently with any distributions made to holders of its Common Stock, shall
at its expense deliver or cause to be delivered to the Holder the stock and
other securities and property (including cash, where applicable) receivable by
the Holder pursuant to Section 3.1 to the extent the Holder has exercised the
warrant following the transfer of assets, or, if the Holder shall so instruct
the Company, to a bank or trust company specified by the Holder and having its
principal office in New York, NY as trustee for the Holder (the “Trustee”).
 
3.3.  Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the Company’s
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section
3.2.
 
4.  Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock or any preferred stock issued by the
Company (b) subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock, then, in each such event, the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then Exercise
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the Exercise
Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described
herein in this Section 4. The number of shares of Common Stock that the Holder
shall thereafter, on the exercise hereof as provided in Section 1, be entitled
to receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise (taking into account the provisions of this Section
4). Notwithstanding the foregoing, in no event shall the Exercise Price be less
than the par value of the Common Stock.
 
5.  Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder and any Warrant agent of the
Company (appointed pursuant to Section 11 hereof).
 
6.  Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of this Warrant, shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of this Warrant.
 
7.  Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a “Transferor”) in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor’s
endorsement in the form of Exhibit B attached hereto (the “Transferor
Endorsement Form”) and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, the provision of a legal opinion from the
Transferor’s counsel (at the Company’s expense) that such transfer is exempt
from the registration requirements of applicable securities laws, the Company at
its expense (but with payment by the Transferor of any applicable transfer
taxes) will issue and deliver to or on the order of the Transferor thereof a new
Warrant of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a “Transferee”), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor.
 
8.  Replacement of Warrant. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction of this Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
 
9.  Registration Rights. The Holder has been granted certain registration rights
by the Company. These registration rights are set forth in a Registration Rights
Agreement entered into by the Company and Holder dated as of the date hereof, as
the same may be amended, modified and/or supplemented from time to time.
 
10.  Maximum Exercise. Notwithstanding anything herein to the contrary, in no
event shall the Holder be entitled to exercise any portion of this Warrant in
excess of that portion of this Warrant upon exercise of which the sum of (a) the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised portion of the Warrant or the
unexercised or unconverted portion of any other security of the Holder subject
to a limitation on conversion analogous to the limitations contained herein) and
(b) the number of shares of Common Stock issuable upon the exercise of the
portion of this Warrant with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
Affiliates of any amount greater than 4.99% of the then outstanding shares of
Common Stock (whether or not, at the time of such exercise, the Holder and its
Affiliates beneficially own more than 4.99% of the then outstanding shares of
Common Stock). As used herein, the term “Affiliate” means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act.   For
purposes of the proviso to the second preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise
provided in clause (a) of such proviso.  The limitations set forth herein (x)
may be waived by the Holder upon provision of no less than sixty-one (61) days
prior notice to the Company and (y) shall automatically become null and void
following notice to the Company upon the occurrence and during the continuance
of an Event of Default (as defined in the Purchase Agreement dated as of the
date hereof among the Holder and the Company (as amended, modified, restated
and/or supplemented from time to time, the “Purchase Agreement”)), except that
at no time shall the number of shares of Common Stock beneficially owned by the
Holder exceed 19.99% of the outstanding shares of Common Stock. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holder at a price below $5.35 per
share pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement (as defined in the Purchase Agreement) or otherwise, shall not exceed
an aggregate of 3,811,864 shares of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, or other similar recapitalizations
affecting the Common Stock) (the “Maximum Common Stock Issuance”), unless the
issuance of Common Shares hereunder in excess of the Maximum Common Stock
Issuance shall first be approved by the Company’s shareholders. If at any point
in time and from time to time the number of shares of Common Stock issued
pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement or otherwise, together with the number of shares of Common Stock that
would then be issuable by the Company to the Holder in the event of a conversion
pursuant to the terms of this Warrant, the Purchase Agreement, any Related
Agreement or otherwise, would exceed the Maximum Common Stock Issuance but for
this Section 10, the Company shall promptly call a shareholders meeting to
solicit shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance.
 
11.  Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
 
12.  Transfer on the Company’s Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
 
13.  Notices, Etc. All notices and other communications from the Company to the
Holder shall be mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
such Holder or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder who has so furnished an address to
the Company.
 
14.  Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT
SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS
LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE
TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The
individuals executing this Warrant on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorneys’ fees
and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Warrant.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision hereof. The Company acknowledges that
legal counsel participated in the preparation of this Warrant and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Warrant to favor any party against the other party.
 
 
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
 
 
 

        MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 
 
WITNESS:

  By:   /s/   

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

 
Name
Title 

Exhibit A
 
FORM OF SUBSCRIPTION
 
(To Be Signed Only On Exercise Of Warrant)
 
TO: Modtech Holdings, Inc.
 
Attention: Chief Financial Officer
 
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

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

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

 
$__________ in lawful money of the United States; and/or
 
the cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or
 
the cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2.2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

 
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________________ whose
address is
___________________________________________________________________________.
 
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the “Securities Act”) or pursuant to an exemption from
registration under the Securities Act.
 

           
   
   
  Date:  By:   /s/   

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

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

 
Exhibit B
 
FORM OF TRANSFEROR ENDORSEMENT
 
(To Be Signed Only On Transfer Of Warrant)
 
For value received, the undersigned hereby sells, assigns, and transfers unto
the person(s) named below under the heading “Transferees” the right represented
by the within Warrant to purchase the percentage and number of shares of Common
Stock of Modtech Holdings, Inc. into which the within Warrant relates specified
under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Modtech
Holdings, Inc. with full power of substitution in the premises.
 
 
Transferees
 
Address
 
Percentage Transferred
 
Number
Transferred
                                                       

 
 
SIGNED IN THE PRESENCE OF:

 
   
   
   Date: By:   /s/   

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

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

 
 
ACCEPTED AND AGREED: [TRANSFEREE]

  By:   /s/   

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

 
Name

 
 

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

EXHIBIT C

FORM OF OPINION

Omitted
 

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

EXHIBIT D
 
FORM OF ESCROW AGREEMENT
 
 
FUNDS ESCROW AGREEMENT
 
This Agreement (this “Agreement”) is dated as of the 31st day October 2006 among
Modtech Holdings, Inc., a Delaware corporation (the “Company”), Laurus Master
Fund, Ltd. (the “Purchaser”), Bank of America, N.A., a national banking
association (“BOA”), Amphora Limited (“Amphora”) and Loeb & Loeb LLP (the
“Escrow Agent”):
 
W I T N E S S E T H:
 
WHEREAS, the Purchaser has advised the Escrow Agent that (a) the Company and the
Purchaser have entered into a Securities Purchase Agreement (the “Securities
Purchase Agreement”) for the sale by the Company to the Purchaser of a secured
convertible term note (the “Convertible Note”) and a secured non-convertible
term note (the “Term Note” and, together with the Convertible Note, the
“Notes”), (b) the Company has issued to the Purchaser two common stock purchase
warrants (the “Warrants”) in connection with the issuance of the Notes, and (c)
the Company and the Purchaser have entered into a Registration Rights Agreement
covering the registration of the Company’s common stock underlying the
Convertible Note and the Warrants (the “Registration Rights Agreement”);
 
WHEREAS, the Company is currently indebted to BOA and Amphora and certain of the
proceeds of the Notes will be used to pay in whole, in the case of BOA, or in
part, in the case of Amphora, of such indebtedness, in each case in accordance
with the terms of the Disbursement Letter;
 
WHEREAS, the Company, BOA, Amphora and the Purchaser, as applicable, wish to
deliver to the Escrow Agent copies of the Documents (as hereafter defined) and
the Purchaser wishes to deliver the Escrowed Payment (as hereafter defined), in
each case, to be held and released by Escrow Agent in accordance with the terms
and conditions of this Agreement; and
 
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the
terms and conditions of this Agreement;
 
NOW THEREFORE, the parties agree as follows:
 
ARTICLE I
INTERPRETATION
 
1.1.  Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below.
 
(a)  “Agreement” means this Agreement, as amended, modified and/or supplemented
from time to time by written agreement among the parties hereto.
 
(b)  “Closing Payment” means the closing payment to be paid to Laurus Capital
Management, LLC, the fund manager, as set forth on Schedule A hereto.
 
(c)  “Disbursement Letter” means that certain letter delivered to the Escrow
Agent by the Company, acceptable in form and substance to the Purchaser, setting
forth wire instructions and amounts to be funded at the Closing.
 
(d)  “Documents” means copies of the Disbursement Letter, the Securities
Purchase Agreement, the Notes, the Warrants, the Payoff Letters and the
Registration Rights Agreement.
 
(e)  “Escrowed Payment” means $18,000,000.
 
(f)  “Payoff Letters” means that certain letter agreement among BOA, the
Purchaser and the Company attached hereto as Exhibit A and that certain letter
agreement between Amphora and the Company attached hereto as Exhibit B.
 
1.2.  Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the arrangement with the Escrow Agent and
supersedes all prior agreements, understandings, negotiations and discussions of
the parties, whether oral or written with respect to the arrangement with the
Escrow Agent. There are no warranties, representations and other agreements made
by the parties in connection with the arrangement with the Escrow Agent except
as specifically set forth in this Agreement.
 
1.3.  Extended Meanings. In this Agreement words importing the singular number
include the plural and vice versa; words importing the masculine gender include
the feminine and neuter genders. The word “person” includes an individual, body
corporate, partnership, trustee or trust or unincorporated association,
executor, administrator or legal representative.
 
1.4.  Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, in each case only by a written instrument signed by all parties
hereto, or, in the case of a waiver, by the party waiving compliance. Except as
expressly stated herein, no delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder
preclude any other or future exercise of any other right, power or privilege
hereunder.
 
1.5.  Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
 
1.6.  Law Governing this Agreement; Consent to Jurisdiction. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. With respect to any
suit, action or proceeding relating to this Agreement or to the transactions
contemplated hereby (“Proceedings”), each party hereto irrevocably submits to
the exclusive jurisdiction of the courts of the County of New York, State of New
York and the United States District court located in the county of New York in
the State of New York. Each party hereto hereby irrevocably and unconditionally
(a) waives trial by jury in any Proceeding relating to this Agreement and for
any related counterclaim and (b) waives any objection which it may have at any
time to the laying of venue of any Proceeding brought in any such court, waives
any claim that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings, that such
court does not have jurisdiction over such party. As between the Company and the
Purchaser, the prevailing party shall be entitled to recover from the other
party its reasonable attorneys’ fees and costs. In the event that any provision
of this Agreement is determined by a court of competent jurisdiction to be
invalid or unenforceable, then the remainder of this Agreement shall not be
affected and shall remain in full force and effect.
 
1.7.  Construction. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Agreement to favor any party
against the other.
 
ARTICLE II
APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT
 
2.1.  Appointment. The Company, BOA, Amphora and the Purchaser hereby
irrevocably designate and appoint the Escrow Agent as their escrow agent for the
purposes set forth herein, and the Escrow Agent by its execution and delivery of
this Agreement hereby accepts such appointment under the terms and conditions
set forth herein.
 
2.2.  Copies of Documents to Escrow Agent. On or about the date hereof, the
Purchaser, BOA, Amphora and the Company shall deliver to the Escrow Agent copies
of the Documents executed by such parties.
 
2.3.  Delivery of Escrowed Payment to Escrow Agent. Following the satisfaction
of all closing conditions relating to the Documents (other than the receipt of
the Amphora Notice (as defined below) and the funding of the Escrowed Payment),
the Purchaser shall deliver to the Escrow Agent the Escrowed Payment. At such
time, the Escrow Agent shall hold the Escrowed Payment as agent for the Company,
subject to the terms and conditions of this Agreement.
 
2.4.  Intention to Create Escrow Over the Escrowed Payment. The Purchaser, BOA,
Amphora and the Company intend that the Escrowed Payment shall be held in escrow
by the Escrow Agent and released from escrow by the Escrow Agent only in
accordance with the terms and conditions of this Agreement.
 
ARTICLE III
RELEASE OF ESCROW
 
3.1.  Release of Escrow. Subject to the provisions of Section 4.2, the Escrow
Agent shall release the Escrowed Payment from escrow as follows:
 
(a)  Upon receipt by the Escrow Agent of (i) oral instructions from David Grin
and/or Eugene Grin (each of whom is a director of the Purchaser) consenting to
the release of the Escrowed Payment from escrow in accordance with the
Disbursement Letter following the Escrow Agent’s receipt of the Escrowed Payment
which such instructions Laurus acknowledges shall be provided solely upon the
satisfaction of items (ii), (iii) and (iv) below, (ii) the Documents, (iii) the
Escrowed Payment, and (iv) written notice in the form of Exhibit C hereof from
Amphora of its receipt of $5,000,000 (“the “US Bank Cash”) from U.S. Bank (the
“Amphora Notice”), which notice shall be given by Amphora upon receipt of such
funds, the Escrowed Payment shall promptly be disbursed in accordance with the
Disbursement Letter. The Disbursement Letter shall include, without limitation,
Escrow Agent’s authorization to retain from the Escrowed Payment Escrow Agent’s
fee for acting as Escrow Agent hereunder and the Closing Payment for delivery to
Laurus Capital Management, LLC in accordance with the Disbursement Letter. Upon
satisfaction of items (ii) and (iii) above, Escrow Agent shall notify BOA in
writing (which may be by e-mail) of the satisfaction of such items. The Company
hereby agrees that (i) BOA’s consent to the release of the US Bank Cash to
Amphora shall become effective only after BOA has received such notice from the
Escrow Agent and (ii) Amphora’s Payoff Letter shall become effective only after
Amphora has received the US Bank Cash.
 
(b)  Upon receipt by the Escrow Agent (before the disbursement of the Escrowed
Payment as set forth in Section 3.1(a)), of a final and non-appealable judgment,
order, decree or award of a court of competent jurisdiction (a “Court Order”)
relating to the Escrowed Payment, the Escrow Agent shall remit the Escrowed
Payment in accordance with the Court Order. Any Court Order shall be accompanied
by an opinion of counsel for the party presenting the Court Order to the Escrow
Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect
that the court issuing the Court Order is a court of competent jurisdiction and
that the Court Order is final and non-appealable.
 
3.2.  Acknowledgement of Company and Purchaser; Disputes. The Company, BOA,
Amphora and the Purchaser acknowledge that the only terms and conditions upon
which the Escrowed Payment is to be released from escrow are as set forth in
Sections 3 and 4 of this Agreement. The Company, BOA, Amphora and the Purchaser
reaffirm their agreement to abide by the terms and conditions of this Agreement
with respect to the release of the Escrowed Payment. Any dispute with respect to
the release of the Escrowed Payment shall be resolved pursuant to Section 4.2 or
by written agreement among the Company, BOA, Amphora and Purchaser.
 
ARTICLE IV
CONCERNING THE ESCROW AGENT
 
4.1.  Duties and Responsibilities of the Escrow Agent. The Escrow Agent’s duties
and responsibilities shall be subject to the following terms and conditions:
 
(a)  The Purchaser, BOA, Amphora and the Company acknowledge and agree that the
Escrow Agent (i) shall not be required to inquire into whether the Purchaser,
BOA, Amphora the Company or any other party is entitled to receipt of any
Document or all or any portion of the Escrowed Payment; (ii) shall not be called
upon to construe or review any Document or any other document, instrument or
agreement entered into in connection therewith; (iii) shall be obligated only
for the performance of such duties as are specifically assumed by the Escrow
Agent pursuant to this Agreement; (iv) may rely on and shall be protected in
acting or refraining from acting upon any written notice, instruction,
instrument, statement, request or document furnished to it hereunder and
believed by the Escrow Agent in good faith to be genuine and to have been signed
or presented by the proper person or party, without being required to determine
the authenticity or correctness of any fact stated therein or the propriety or
validity or the service thereof; (v) may assume that any person purporting to
give notice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so; (vi) shall not be
responsible for the identity, authority or rights of any person, firm or company
executing or delivering or purporting to execute or deliver this Agreement or
any Document or any funds deposited hereunder or any endorsement thereon or
assignment thereof; (vii) shall not be under any duty to give the property held
by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its
own similar property; and (viii) may consult counsel satisfactory to Escrow
Agent (including, without limitation, Loeb & Loeb, LLP or such other counsel of
Escrow Agent’s choosing), the opinion of such counsel to be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by Escrow Agent hereunder in good faith and in accordance with the opinion of
such counsel.
 
(b)  The Purchaser, BOA, Amphora and the Company acknowledge that the Escrow
Agent is acting solely as a stakeholder at their request and that the Escrow
Agent shall not be liable for any action taken by Escrow Agent in good faith and
believed by Escrow Agent to be authorized or within the rights or powers
conferred upon Escrow Agent by this Agreement. The Purchaser, BOA, Amphora and
the Company hereby, jointly and severally, indemnify and hold harmless the
Escrow Agent and any of Escrow Agent’s partners, employees, agents and
representatives from and against any and all actions taken or omitted to be
taken by Escrow Agent or any of them hereunder and any and all claims, losses,
liabilities, costs, damages and expenses suffered and/or incurred by the Escrow
Agent arising in any manner whatsoever out of the transactions contemplated by
this Agreement and/or any transaction related in any way hereto, including the
fees of outside counsel and other costs and expenses of defending itself against
any claims, losses, liabilities, costs, damages and expenses arising in any
manner whatsoever out the transactions contemplated by this Agreement and/or any
transaction related in any way hereto, except for such claims, losses,
liabilities, costs, damages and expenses incurred by reason of the Escrow
Agent’s gross negligence or willful misconduct. The Escrow Agent shall owe a
duty only to the Purchaser, BOA, Amphora and the Company under this Agreement
and to no other person.
 
(c)  The Purchaser, Amphora and the Company shall jointly and severally
reimburse the Escrow Agent for its reasonable out-of-pocket expenses (including
counsel fees (which counsel may be Loeb & Loeb LLP or such other counsel of the
Escrow Agent’s choosing) incurred in connection with the performance of its
duties and responsibilities hereunder, which shall not (subject to Section
4.1(b)) exceed $4,000.
 
(d)  The Escrow Agent may at any time resign as Escrow Agent hereunder by giving
five (5) business days prior written notice of resignation to the Purchaser,
BOA, Amphora and the Company. Prior to the effective date of resignation as
specified in such notice, the Purchaser, BOA, Amphora and Company will issue to
the Escrow Agent a joint instruction authorizing delivery of the Documents and
the Escrowed Payment to a substitute Escrow Agent selected by the Purchaser,
BOA, Amphora and the Company. If no successor Escrow Agent is named by the
Purchaser, BOA, Amphora and the Company, the Escrow Agent may apply to a court
of competent jurisdiction in the State of New York for appointment of a
successor Escrow Agent, and deposit the Documents and the Escrowed Payment with
the clerk of any such court, and/or otherwise commence an interpleader or
similar action for a determination of where to deposit the same.
 
(e)  The Escrow Agent does not have and will not have any interest in the
Documents and the Escrowed Payment, but is serving only as escrow agent, having
only possession thereof.
 
(f)  The Escrow Agent shall not be liable for any action taken or omitted by it
in good faith and reasonably believed by it to be authorized hereby or within
the rights or powers conferred upon it hereunder, nor for action taken or
omitted by it in good faith, and in accordance with advice of counsel (which
counsel may be Loeb & Loeb, LLP or such other counsel of the Escrow Agent’s
choosing), and shall not be liable for any mistake of fact or error of judgment
or for any acts or omissions of any kind except to the extent any such liability
arose from its own willful misconduct or gross negligence.
 
(g)  This Agreement sets forth exclusively the duties of the Escrow Agent with
respect to any and all matters pertinent thereto and no implied duties or
obligations shall be read into this Agreement.
 
(h)  The Escrow Agent shall be permitted to act as counsel for the Purchaser,
BOA, Amphora or the Company, as the case may be, in any dispute as to the
disposition of the Documents and the Escrowed Payment, in any other dispute
between the Purchaser and the Company, whether or not the Escrow Agent is then
holding the Documents and/or the Escrowed Payment and continues to act as the
Escrow Agent hereunder.
 
(i)  The provisions of this Section 4.1 shall survive the resignation of the
Escrow Agent or the termination of this Agreement.
 
4.2.  Dispute Resolution; Judgments. Resolution of disputes arising under this
Agreement shall be subject to the following terms and conditions:
 
(a)  If any dispute shall arise with respect to the delivery, ownership, right
of possession or disposition of the Documents and/or the Escrowed Payment, or if
the Escrow Agent shall in good faith be uncertain as to its duties or rights
hereunder, the Escrow Agent shall be authorized, without liability to anyone, to
(i) refrain from taking any action other than to continue to hold the Documents
and the Escrowed Payment pending receipt of a joint instruction from the
Purchaser, BOA, Amphora and the Company, (ii) commence an interpleader or
similar action, suit or proceeding for the resolution of any such dispute;
and/or (iii) deposit the Documents and the Escrowed Payment with any court of
competent jurisdiction in the State of New York, in which event the Escrow Agent
shall give written notice thereof to the Purchaser, BOA, Amphora and the Company
and shall thereupon be relieved and discharged from all further obligations
pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to,
institute or defend any legal proceedings which relate to the Documents and the
Escrowed Payment. The Escrow Agent shall have the right to retain counsel if it
becomes involved in any disagreement, dispute or litigation on account of this
Agreement or otherwise determines that it is necessary to consult counsel which
such counsel may be Loeb & Loeb LLP or such other counsel of the Escrow Agent’s
choosing.
 
(b)  The Escrow Agent is hereby expressly authorized to comply with and obey any
Court Order. In case the Escrow Agent obeys or complies with a Court Order, the
Escrow Agent shall not be liable to the Purchaser, BOA, Amphora and the Company
or to any other person, firm, company or entity by reason of such compliance.
 
ARTICLE V
GENERAL MATTERS
 
5.1.  Termination. This escrow shall terminate upon disbursement of the Escrowed
Payment in accordance with the terms of this Agreement or earlier upon the
agreement in writing of the Purchaser, BOA, Amphora and the Company or
resignation of the Escrow Agent in accordance with the terms hereof.
 
5.2.  Notices. All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given when sent by confirmed facsimile if sent during normal business hours of
the recipient, if not, then on the next business day:
 

 (a) 
       If to the Company, to:
Modtech Holdings, Inc.
   
2830 Barrett Avenue
Perris, California 92571
Fax: (951) 943-9655
Attention: Chief Financial Officer
 
       With a copy to:
Haddan & Zepfel LLP
500 Newport Center Drive, Suite 580
Newport, California 92660
Fax: (949) 706-6060
Attention: Robert J. Zepfel, Esq.
 (b)
  If to the Purchaser, to:
Laurus Master Fund, Ltd.
M&C Corporate Services Limited,
P.O. Box 309 GT, Ugland House
South Church Street, George Town
Grand Cayman, Cayman Islands
Fax: (345) 949-8080
Attention: John Tucker, Esq.
 (c)
  If to BOA, to:
Bank of America, N.A.
55 South Lake Avenue, Suite 900
Pasadena, California
Fax: (626) 397-1273
Attention: Scott Ward
 (d)
  If to Amphora, to:
Amphora Limited
c/o Amaranth Advisors L.L.C.
One American Lane
Greenwich, CT 06831
Fax: (203) 422-3350
Attention: General Counsel
 (e)
  If to the Escrow Agent, to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Fax: (212) 407-4990
Attention: Scott J. Giordano, Esq.

or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
 
5.3.  Interest. The Escrowed Payment shall not be held in an interest bearing
account nor will interest be payable in connection therewith.
 
5.4.  Assignment; Binding Agreement. Neither this Agreement nor any right or
obligation hereunder shall be assignable by any party without the prior written
consent of the other parties hereto. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
 
5.5.  Invalidity. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
 
5.6.  Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by different signatories hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same agreement. This Agreement may
be executed by facsimile transmission.
 
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
 

       
COMPANY:  MODTECH HOLDINGS, INC.
 
   
   
    By:   /s/   

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

 
Name
Title 

 

      PURCHASER:  LAURUS MASTER FUND, LTD.  
   
   
    By:   /s/   

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

 
Name
Title 

 

      BOA:  BANK OF AMERICA, N.A.  
   
   
    By:   /s/   

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

 
Name
Title 

 

     
AMPHORA:  AMPHORA LIMITED (Amaranth Advisors L.L.C.)
 
   
   
    By:   /s/   

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

 
Name
Title 

 

      ESCROW AGENT:  LOEB & LOEB LLP  
   
   
    By:   /s/   

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

 
Name
Title 

 
 
SCHEDULE A TO FUNDS ESCROW AGREEMENT
 
PURCHASER
PRINCIPAL NOTE AMOUNT
LAURUS MASTER FUND, LTD.,
M&C Corporate Services Limited,
P.O. Box 309 GT,
Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands
Fax: 345-949-8080
Term Note in an aggregate principal amount of $13,000,000
Secured Convertible Note in an aggregate principal amount of $5,000,000
TOTAL
$18,000,000

FUND MANAGER
CLOSING PAYMENT
LAURUS CAPITAL MANAGEMENT, L.L.C.
825 Third Avenue, 14th Floor
New York, New York 10022
Fax: 212-541-4434
Closing payment payable in connection with investment by Laurus Master Fund,
Ltd. for which Laurus Capital Management, L.L.C. is the Manager.
TOTAL
$657,000

WARRANTS
 
WARRANT RECIPIENT
WARRANTS IN CONNECTION WITH OFFERING
LAURUS MASTER FUND, LTD.
M&C Corporate Services Limited,
P.O. Box 309 GT,
Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands
Fax: 345-949-8080
Warrant exercisable into 1,540,697 shares of common stock of the Company
issuable in connection with the Notes.
Warrant exercisable into 581,395 shares of common stock of the Company issuable
in connection with the Notes
TOTAL
Warrants exercisable into 2,122,092 shares of common stock of the Company

 

 
EXHIBIT A TO FUNDS ESCROW AGREEMENT

BANK OF AMERICA, N.A. EXECUTED PAYOFF LETTER

 

EXHIBIT B TO FUNDS ESCROW AGREEMENT

AMARANTH ADVISORS L.L.C. EXECUTED PAYOFF LETTER

EXHIBIT C TO FUNDS ESCROW AGREEMENT

FORM OF NOTICE OF RECEIPT OF FUNDS

AMPHORA LIMITED
c/o AMARANTH ADVISORS L.L.C.
One American Lane
Greenwich, CT 06831

October__, 2006

Loeb & Loeb, LLP
345 Park Avenue
New York, New York 10154
Attention: Scott Giordano

Re: Receipt of Funds

Ladies and Gentlemen:

In accordance with the terms of Section 3.1(a)(iv) of the Funds Escrow Agreement
(the “Escrow Agreement”) dated as of October 31, 2006 among Modtech Holdings,
Inc. (“Modtech”), Bank of America, N.A., Laurus Master Fund, Ltd., Amaranth
Advisors L.L.C., the trading advisor for Amphora Limited (“Amphora”), and Loeb &
Loeb, LLP as escrow agent (“L&L”), Amphora is hereby notifying L&L that:

(a) it is in receipt of $5,000,000 of funds from U.S. Bank in connection with
the drawing by Amphora of that certain letter of credit issued upon the
application of Modtech by U.S. Bank for the benefit of Amphora; and

(b) its Payoff Letter (as defined in the Escrow Agreement), previously delivered
to L&L, is hereby deemed effective and released from escrow.

This letter agreement shall be governed by and construed in accordance with the
laws of the State of New York.

Any signature delivered by facsimile transmission shall be deemed an original
signature hereto.

Very truly yours,
 

AMPHORA LIMITED
AMARANTH ADVISORS L.L.C.
      /s/   

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

  Name
Title  

 

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

EXHIBIT E
 
ACCOUNT AVAILABILITY
 

 
Applicable Advance Rate
(based on Number of Days from Date of Invoice)
Category of Eligible Accounts
0 to 30
31 to 60
61 to 90
Dealer Receivables
90%
90%
90%
Direct Non-Educational Receivables
85%
85%
85%
Unbonded Classroom Receivables
85%
85%
85%
Bonded Classroom Receivables
65%
50%
50%
Permanent One-Story Receivables
50%
50%
50%
Permanent Two-Story Receivables
0%
0%
0%

 
For the purposes of the foregoing, the following terms have the following
meanings:
 
“Dealer Receivables” shall mean any account receivable arising from a sale of a
relocatable modular building, whether such building is being used for
commercial, educational or governmental purposes, by the Company to an
authorized third-party dealer for the further sale, lease or distribution to the
end user of such building.
 
“Direct Non-Educational Receivables” shall mean any account receivable arising
from the sale by the Company of a relocatable modular building, to the end user
of such building where such end user is not a school, school district or other
government entity which is purchasing such building for educational use.
 
“Unbonded Classroom Receivables” shall mean any account receivable arising from
the sale by the Company of a relocatable modular building, such building being
used for educational purposes, to the end user of such building where such end
user is a school, school district or other government entity which is purchasing
such building for educational use and where such school, school district or
other government entity did not require the Company to post a bond on the
Company’s behalf to secure the Company’s performance under the contract out of
which the Unbonded Classroom Receivable arose.
 
“Bonded Classroom Receivables” shall mean any account receivable arising from
the sale by the Company of a relocatable modular building, such building being
used for educational purposes, to the end user of such building where such end
user is a school, school district or other government entity which is purchasing
such building for educational use and where such school, school district or
other government entity did require the Company to post a bond on the Company’s
behalf to secure the Company’s performance under the contract out of which the
Bonded Classroom Receivable arose.
 
“Permanent One-Story Receivables” shall mean any account receivable arising from
the sale by the Company of a single story, non-relocatable modular building,
whether such building is being used for commercial, educational, governmental or
other purposes, to the end user of such building.
 
“Permanent Two-Story Receivables” shall mean any account receivable arising from
the sale by the Company of a two story, non-relocatable modular building,
whether such building is being used for commercial, educational, governmental or
other purposes, to the end user of such building.

 

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

EXHIBIT F
 
FORM OF SUBSIDIARY GUARANTY
 
New York, New York_____________, 20__
 
FOR VALUE RECEIVED, and in consideration of note purchases from, loans made or
to be made or credit otherwise extended or to be extended by Laurus Master Fund,
Ltd. (“Laurus”) to or for the account of Modtech Holdings, Inc., a Delaware
corporation (“Debtor”), from time to time and at any time and for other good and
valuable consideration and to induce Laurus, in its discretion, to purchase such
notes, make such loans or other extensions of credit and to make or grant such
renewals, extensions, releases of collateral or relinquishments of legal rights
as Laurus may deem advisable, each of the undersigned (and each of them if more
than one, the liability under this Guaranty being joint and several) (jointly
and severally referred to as “Guarantors” or “the undersigned”) unconditionally
guaranties to Laurus, its successors, endorsees and assigns the prompt payment
when due (whether by acceleration or otherwise) of all present and future
obligations and liabilities of any and all kinds of Debtor to Laurus and of all
instruments of any nature evidencing or relating to any such obligations and
liabilities upon which Debtor or one or more parties and Debtor is or may become
liable to Laurus, whether incurred by Debtor as maker, endorser, drawer,
acceptor, guarantors , accommodation party or otherwise, and whether due or to
become due, secured or unsecured, absolute or contingent, joint or several, and
however or whenever acquired by Laurus, whether arising under, out of, or in
connection with (i) that certain Securities Purchase Agreement dated as of the
date hereof by and between the Debtor and Laurus (the “Securities Purchase
Agreement”) and (ii) each Related Agreement referred to in the Securities
Purchase Agreement (the Securities Purchase Agreement and each Related
Agreement, as each may be amended, modified, restated or supplemented from time
to time, are collectively referred to herein as the “Documents”), or any
documents, instruments or agreements relating to or executed in connection with
the Documents or any documents, instruments or agreements referred to therein or
otherwise, or any other indebtedness, obligations or liabilities of the Debtor
to Laurus, whether now existing or hereafter arising, direct or indirect,
liquidated or unliquidated, absolute or contingent, due or not due and whether
under, pursuant to or evidenced by a note, agreement, guaranty, instrument or
otherwise (all of which are herein collectively referred to as the
“Obligations”), and irrespective of the genuineness, validity, regularity or
enforceability of such Obligations, or of any instrument evidencing any of the
Obligations or of any collateral therefor or of the existence or extent of such
collateral, and irrespective of the allowability, allowance or disallowance of
any or all of the Obligations in any case commenced by or against Debtor under
Title 11, United States Code, including, without limitation, obligations or
indebtedness of Debtor for post-petition interest, fees, costs and charges that
would have accrued or been added to the Obligations but for the commencement of
such case. Terms not otherwise defined herein shall have the meaning assigned
such terms in the Securities Purchase Agreement. In furtherance of the
foregoing, the undersigned hereby agrees as follows:
 
1.  No Impairment. Laurus may at any time and from time to time, either before
or after the maturity thereof, without notice to or further consent of the
undersigned, extend the time of payment of, exchange or surrender any collateral
for, renew or extend any of the Obligations or increase or decrease the interest
rate thereon, or any other agreement with Debtor or with any other party to or
person liable on any of the Obligations, or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between Laurus and Debtor or any such other party or person, or make any
election of rights Laurus may deem desirable under the United States Bankruptcy
Code, as amended, or any other federal or state bankruptcy, reorganization,
moratorium or insolvency law relating to or affecting the enforcement of
creditors’ rights generally (any of the foregoing, an “Insolvency Law”) without
in any way impairing or affecting this Guaranty. This Guaranty shall be
effective regardless of the subsequent incorporation, merger or consolidation of
Debtor, or any change in the composition, nature, personnel or location of
Debtor and shall extend to any successor entity to Debtor, including a debtor in
possession or the like under any Insolvency Law.
 
2.  Guaranty Absolute. Subject to Section 5(c) hereof, each of the undersigned
jointly and severally guarantees that the Obligations will be paid strictly in
accordance with the terms of the Documents and/or any other document, instrument
or agreement creating or evidencing the Obligations, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of Debtor with respect thereto. Guarantors hereby
knowingly accept the full range of risk encompassed within a contract of
“continuing guaranty” which risk includes the possibility that Debtor will
contract additional indebtedness for which Guarantors may be liable hereunder
after Debtor’s financial condition or ability to pay its lawful debts when they
fall due has deteriorated, whether or not Debtor has properly authorized
incurring such additional indebtedness. The undersigned acknowledge that (i) no
oral representations, including any representations to extend credit or provide
other financial accommodations to Debtor, have been made by Laurus to induce the
undersigned to enter into this Guaranty and (ii) any extension of credit to the
Debtor shall be governed solely by the provisions of the Documents. The
liability of each of the undersigned under this Guaranty shall be absolute and
unconditional, in accordance with its terms, and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of the Documents or any
other instruments or agreements relating to the Obligations or any assignment or
transfer of any thereof, (b) any lack of validity or enforceability of any
Document or other documents, instruments or agreements relating to the
Obligations or any assignment or transfer of any thereof, (c) any furnishing of
any additional security to Laurus or its assignees or any acceptance thereof or
any release of any security by Laurus or its assignees, (d) any limitation on
any party’s liability or obligation under the Documents or any other documents,
instruments or agreements relating to the Obligations or any assignment or
transfer of any thereof or any invalidity or unenforceability, in whole or in
part, of any such document, instrument or agreement or any term thereof, (e) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to Debtor, or any action taken
with respect to this Guaranty by any trustee or receiver, or by any court, in
any such proceeding, whether or not the undersigned shall have notice or
knowledge of any of the foregoing, (f) any exchange, release or nonperfection of
any collateral, or any release, or amendment or waiver of or consent to
departure from any guaranty or security, for all or any of the Obligations or
(g) any other circumstance which might otherwise constitute a defense available
to, or a discharge of, the undersigned. Any amounts due from the undersigned to
Laurus shall bear interest until such amounts are paid in full at the highest
rate then applicable to the Obligations. Obligations include post-petition
interest whether or not allowed or allowable. Notwithstanding anything contained
herein to the contrary, the Purchaser acknowledges, based upon the
representations and warranties made by the Company and its Subsidiaries under
Section 4.2 of the Securities Purchase Agreement, that the Subsidiaries of the
Company set forth on Schedule 4.1 thereto have either dissolved, suspended
operations and/or filed for their corporate charters to be revolved and such
occurrences shall not constitute a breach under this guaranty.
 
3.  Waivers.
 
(a)  This Guaranty is a guaranty of payment and not of collection. Laurus shall
be under no obligation to institute suit, exercise rights or remedies or take
any other action against Debtor or any other person or entity liable with
respect to any of the Obligations or resort to any collateral security held by
it to secure any of the Obligations as a condition precedent to the undersigned
being obligated to perform as agreed herein and each of the Guarantors hereby
waives any and all rights which it may have by statute or otherwise which would
require Laurus to do any of the foregoing. Each of the Guarantors further
consents and agrees that Laurus shall be under no obligation to marshal any
assets in favor of Guarantors, or against or in payment of any or all of the
Obligations. The undersigned hereby waives all suretyship defenses and any
rights to interpose any defense, counterclaim or offset of any nature and
description which the undersigned may have or which may exist between and among
Laurus, Debtor and/or the undersigned with respect to the undersigned’s
obligations under this Guaranty, or which Debtor may assert on the underlying
debt, including but not limited to failure of consideration, breach of warranty,
fraud, payment (other than cash payment in full of the Obligations), statute of
frauds, bankruptcy, infancy, statute of limitations, accord and satisfaction,
and usury.
 
(b)  Each of the undersigned further waives (i) notice of the acceptance of this
Guaranty, of the making of any such loans or extensions of credit, and of all
notices and demands of any kind to which the undersigned may be entitled,
including, without limitation, notice of adverse change in Debtor’s financial
condition or of any other fact which might materially increase the risk of the
undersigned and (ii) presentment to or demand of payment from anyone whomsoever
liable upon any of the Obligations, protest, notices of presentment, non-payment
or protest and notice of any sale of collateral security or any default of any
sort.
 
(c)  Notwithstanding any payment or payments made by the undersigned hereunder,
or any setoff or application of funds of the undersigned by Laurus, the
undersigned shall not be entitled to be subrogated to any of the rights of
Laurus against Debtor or against any collateral or guarantee or right of offset
held by Laurus for the payment of the Obligations, nor shall the undersigned
seek or be entitled to seek any contribution or reimbursement from Debtor in
respect of payments made by the undersigned hereunder, until all amounts owing
to Laurus by Debtor on account of the Obligations are indefeasibly paid in full
and Laurus’ obligation to extend credit pursuant to the Documents has been
irrevocably terminated. If, notwithstanding the foregoing, any amount shall be
paid to the undersigned on account of such subrogation rights at any time when
all of the Obligations shall not have been paid in full and Laurus’ obligation
to extend credit pursuant to the Documents shall not have been terminated, such
amount shall be held by the undersigned in trust for Laurus, segregated from
other funds of the undersigned, and shall forthwith upon, and in any event
within two (2) business days of, receipt by the undersigned, be turned over to
Laurus in the exact form received by the undersigned (duly endorsed by the
undersigned to Laurus, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as Laurus may determine, subject to
the provisions of the Documents. Any and all present and future debts and
obligations of Debtor to any of the undersigned are hereby waived and postponed
in favor of, and subordinated to the full payment and performance of, all
present and future Obligations of Debtor to Laurus.
 
4.  Security. All sums at any time to the credit of the undersigned and any
property of the undersigned in Laurus’ possession or in the possession of any
bank, financial institution or other entity that directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with, Laurus (each such entity, an “Affiliate”) shall be deemed held by
Laurus or such Affiliate, as the case may be, as security for any and all of the
undersigned’s obligations to Laurus and to any Affiliate of Laurus, no matter
how or when arising and whether under this or any other instrument, agreement or
otherwise.
 
5.  Representations and Warranties. Each of the undersigned hereby jointly and
severally represents and warrants (all of which representations and warranties
shall survive until all Obligations are indefeasibly satisfied in full and the
Documents have been irrevocably terminated), that:
 
(a)  Corporate Status. It is a corporation, partnership or limited liability
company, as the case may be, duly formed, validly existing and in good standing
under the laws of its jurisdiction of formation indicated on the signature page
hereof and has full power, authority and legal right to own its property and
assets and to transact the business in which it is engaged.
 
(b)  Authority and Execution. It has full power, authority and legal right to
execute and deliver, and to perform its obligations under, this Guaranty and has
taken all necessary corporate, partnership or limited liability company, as the
case may be, action to authorize the execution, delivery and performance of this
Guaranty.
 
(c)  Legal, Valid and Binding Character. This Guaranty constitutes its legal,
valid and binding obligation enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditor’s rights and general principles of equity that restrict
the availability of equitable or legal remedies.
 
(d)  Violations. The execution, delivery and performance of this Guaranty will
not violate any requirement of law applicable to it or any contract, agreement
or instrument to which it is a party or by which it or any of its property is
bound or result in the creation or imposition of any mortgage, lien or other
encumbrance other than in favor of Laurus on any of its property or assets
pursuant to the provisions of any of the foregoing, which, in any of the
foregoing cases, could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.
 
(e)  Consents or Approvals. Other than those consents set forth on Schedule 5(e)
hereto which have been previously obtained, no consent of any other person or
entity (including, without limitation, any creditor of the undersigned) and no
consent, license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required in connection with the execution, delivery, performance,
validity or enforceability of this Guaranty by it, except to the extent that the
failure to obtain any of the foregoing could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
 
(f)  Litigation. No litigation, arbitration, investigation or administrative
proceeding of or before any court, arbitrator or governmental authority, bureau
or agency is currently pending or, to the best of its knowledge, threatened (i)
with respect to this Guaranty or any of the transactions contemplated by this
Guaranty or (ii) against or affecting it, or any of its property or assets,
which, in each of the foregoing cases, if adversely determined, could reasonably
be expected to have a Material Adverse Effect.
 
(g)  Financial Benefit. It has derived or expects to derive a financial or other
advantage from each and every loan, advance or extension of credit made under
the Documents or other Obligation incurred by the Debtor to Laurus.
 
(h)  Solvency. As of the date of this Guaranty, (a) the fair saleable value of
its assets exceeds its liabilities and (b) it is meeting its current liabilities
as they mature.
 
Notwithstanding anything contained herein to the contrary, the Purchaser
acknowledges, based upon the representations and warranties made by the Company
and its Subsidiaries under Section 4.2 of the Securities Purchase Agreement,
that the Subsidiary of the Company set forth on Schedule 4.1 thereto have either
dissolved, suspended operations and/or filed for their corporate charters to be
revolved and such occurrences shall not constitute a breach under this guaranty.
 
6.  Acceleration.
 
(a)  If any breach of any covenant or condition or other event of default shall
occur and be continuing under any agreement made by Debtor or any of the
undersigned to Laurus, or either Debtor or any of the undersigned should at any
time become insolvent, or make a general assignment, or if a proceeding in or
under any Insolvency Law shall be filed or commenced by, or in respect of, any
of the undersigned, or if a notice of any lien, levy, or assessment is filed of
record with respect to any assets of any of the undersigned by the United States
of America or any department, agency, or instrumentality thereof, or if any
taxes or debts owing at any time or times hereafter to any one of them becomes a
lien or encumbrance upon any assets of the undersigned in Laurus’ possession, or
otherwise, any and all Obligations shall for purposes hereof, at Laurus’ option,
be deemed due and payable without notice notwithstanding that any such
Obligation is not then due and payable by Debtor.
 
(b)  Each of the undersigned will promptly notify Laurus of any default by such
undersigned in its respective performance or observance of any term or condition
of any agreement to which the undersigned is a party if the effect of such
default is to cause, or permit the holder of any obligation under such agreement
to cause, such obligation to become due prior to its stated maturity and, if
such an event occurs, Laurus shall have the right to accelerate such
undersigned’s obligations hereunder.
 
7.  Payments from Guarantors. Laurus, in its sole and absolute discretion, with
or without notice to the undersigned, may apply on account of the Obligations
any payment from the undersigned or any other guarantors, or amounts realized
from any security for the Obligations, or may deposit any and all such amounts
realized in a non-interest bearing cash collateral deposit account to be
maintained as security for the Obligations.
 
8.  Costs. The undersigned shall pay on demand, all costs, fees and expenses
(including expenses for legal services of every kind) relating or incidental to
the enforcement or protection of the rights of Laurus hereunder or under any of
the Obligations.
 
9.  No Termination. This is a continuing irrevocable guaranty and shall remain
in full force and effect and be binding upon the undersigned, and each of the
undersigned’s successors and assigns, until all of the Obligations have been
indefeasibly paid in full and Laurus’ obligation to extend credit pursuant to
the Documents has been irrevocably terminated. If any of the present or future
Obligations are guarantied by persons, partnerships or entities in addition to
the undersigned, the death, release or discharge in whole or in part or the
bankruptcy, merger, consolidation, incorporation, liquidation or dissolution of
one or more of them shall not discharge or affect the liabilities of any
undersigned under this Guaranty.
 
10.  Recapture. Anything in this Guaranty to the contrary notwithstanding, if
Laurus receives any payment or payments on account of the liabilities guaranteed
hereby, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver, or any other party under any
Insolvency Law, common law or equitable doctrine, then to the extent of any sum
not finally retained by Laurus, the undersigned’s obligations to Laurus shall be
reinstated and this Guaranty shall remain in full force and effect (or be
reinstated) until payment shall have been made to Laurus, which payment shall be
due on demand.
 
11.  Books and Records. The books and records of Laurus showing the account
between Laurus and Debtor shall be admissible in evidence in any action or
proceeding, shall be binding upon the undersigned for the purpose of
establishing the items therein set forth and shall constitute prima facie proof
thereof.
 
12.  No Waiver. No failure on the part of Laurus to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Laurus of any right, remedy
or power hereunder preclude any other or future exercise of any other legal
right, remedy or power. Each and every right, remedy and power hereby granted to
Laurus or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by Laurus at any time and from time
to time.
 
13.  Waiver of Jury Trial. EACH OF THE UNDERSIGNED DESIRES THAT ITS DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH
OF THE UNDERSIGNED HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LAURUS, AND/OR ANY OF THE UNDERSIGNED ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS GUARANTY, ANY DOCUMENT OR THE TRANSACTIONS RELATED
HERETO OR THERETO.
 
14.  Governing Law; Jurisdiction. THIS GUARANTY CANNOT BE CHANGED OR TERMINATED
ORALLY, AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. EACH OF THE
UNDERSIGNED HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY OF THE UNDERSIGNED, ON
THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS GUARANTY OR ANY
OF THE DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS GUARANTY OR
ANY OF THE DOCUMENTS; PROVIDED, THAT EACH OF THE UNDERSIGNED ACKNOWLEDGES THAT
ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN
THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH OF THE UNDERSIGNED EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
UNDERSIGNED HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH OF THE
UNDERSIGNED HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH UNDERSIGNED IN ACCORDANCE WITH SECTION 18 AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH UNDERSIGNED’S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
 
15.  Understanding With Respect to Waivers and Consents. Each Guarantor warrants
and agrees that each of the waivers and consents set forth in this Guaranty is
made voluntarily and unconditionally after consultation with outside legal
counsel and with full knowledge of its significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which such Guarantor
otherwise may have against the Debtor, Laurus or any other person or entity or
against any collateral. If, notwithstanding the intent of the parties that the
terms of this Guaranty shall control in any and all circumstances, any such
waivers or consents are determined to be unenforceable under applicable law,
such waivers and consents shall be effective to the maximum extent permitted by
law.
 
16.  Severability. To the extent permitted by applicable law, any provision of
this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
 
17.  Amendments, Waivers. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by the undersigned therefrom shall in any
event be effective unless the same shall be in writing executed by each of the
undersigned directly affected by such amendment and/or waiver and Laurus.
 
18.  Notice. All notices, requests and demands to or upon the undersigned, shall
be in writing and shall be deemed to have been duly given or made (a) when
delivered, if by hand, (b) three (3) days after being sent, postage prepaid, if
by registered or certified mail, (c) when confirmed electronically, if by
facsimile, or (d) when delivered, if by a recognized overnight delivery service
in each event, to the numbers and/or address set forth beneath the signature of
the undersigned.
 
19.  Successors. Laurus may, from time to time, without notice to the
undersigned, sell, assign, transfer or otherwise dispose of all or any part of
the Obligations and/or rights under this Guaranty. Without limiting the
generality of the foregoing, Laurus may assign, or grant participations to, one
or more banks, financial institutions or other entities all or any part of any
of the Obligations. In each such event, Laurus, its Affiliates and each and
every immediate and successive purchaser, assignee, transferee or holder of all
or any part of the Obligations shall have the right to enforce this Guaranty, by
legal action or otherwise, for its own benefit as fully as if such purchaser,
assignee, transferee or holder were herein by name specifically given such
right. Laurus shall have an unimpaired right to enforce this Guaranty for its
benefit with respect to that portion of the Obligations which Laurus has not
disposed of, sold, assigned, or otherwise transferred.
 
20.  Joinder. It is understood and agreed that any person or entity that desires
to become a Guarantor hereunder, or is required to execute a counterpart of this
Guaranty after the date hereof pursuant to the requirements of any Document,
shall become a Guarantor hereunder by (x) executing a Joinder Agreement in form
and substance satisfactory to Laurus, (y) delivering supplements to such
exhibits and annexes to such Documents as Laurus shall reasonably request and
(z) taking all actions as specified in this Guaranty as would have been taken by
such such Guarantor had it been an original party to this Guaranty, in each case
with all documents required above to be delivered to Laurus and with all
documents and actions required above to be taken to the reasonable satisfaction
of Laurus.
 
21.  Release. Nothing except indefeasible payment in full of the Obligations
shall release any of the undersigned from liability under this Guaranty.
 
22.  Remedies Not Exclusive. The remedies conferred upon Laurus in this Guaranty
are intended to be in addition to, and not in limitation of any other remedy or
remedies available to Laurus.
 
23.  Limitation of Obligations under this Guaranty. Each Guarantor and Laurus
(by its acceptance of the benefits of this Guaranty) hereby confirms that it is
its intention that this Guaranty not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent
Conveyance Act of any similar Federal or state law. To effectuate the foregoing
intention, each Guarantor and Laurus (by its acceptance of the benefits of this
Guaranty) hereby irrevocably agrees that the Obligations guaranteed by such
Guarantor shall be limited to such amount as will, after giving effect to such
maximum amount and all other (contingent or otherwise) liabilities of such
Guarantor that are relevant under such laws and after giving effect to any
rights to contribution pursuant to any agreement providing for an equitable
contribution among such Guarantor and the other Guarantors (including this
Guaranty), result in the Obligations of such Guarantor under this Guaranty in
respect of such maximum amount not constituting a fraudulent transfer or
conveyance.

 
IN WITNESS WHEREOF, this Guaranty has been executed by the undersigned as of the
date and year here above written.
 

      [SUBSIDIARY]  
   
   
    By:   /s/   

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

 
Name
Title 
Address
Telephone
Facsimile
State of Formation

 

        [SUBSIDIARY]  
   
   
    By:   /s/   

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

 
Name
Title 
Address
Telephone
Facsimile
State of Formation

 
 

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

EXHIBIT G
 
FORM OF STOCK PLEDGE AGREEMENT
 
This Stock Pledge Agreement (this “Agreement”), dated as of _____ __, 20__,
among Laurus Master Fund, Ltd. (the “Pledgee”), Modtech Holdings, Inc., a
Delaware corporation (the “Company”), and each of the other undersigned parties
(other than the Pledgee) (the Company and each such other undersigned party, a
“Pledgor” and collectively, the “Pledgors”).
 
BACKGROUND
 
The Company has entered into a Securities Purchase Agreement, dated as of the
date hereof (as amended, modified, restated or supplemented from time to time,
the “Securities Purchase Agreement”) pursuant to which the Pledgee provides or
will provide certain financial accommodations to the Company and certain
subsidiaries of the Company.
 
In order to induce the Pledgee to provide or continue to provide the financial
accommodations described in the Securities Purchase Agreement, each Pledgor has
agreed to pledge and grant a security interest in the collateral described
herein to the Pledgee on the terms and conditions set forth herein.
 
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
 
1.  Defined Terms. All capitalized terms used herein which are not defined shall
have the meanings given to them in the Securities Purchase Agreement.
 
2.  Pledge and Grant of Security Interest. To secure the full and punctual
payment and performance of (the following clauses (a) and (b), collectively, the
“Obligations”) (a) the obligations under the Securities Purchase Agreement and
the Related Agreements referred to in the Securities Purchase Agreement (the
Securities Purchase Agreement and the Related Agreements, as each may be
amended, restated, modified and/or supplemented from time to time, collectively,
the “Documents”) and (b) all other obligations and liabilities of each Pledgor
to the Pledgee whether now existing or hereafter arising, direct or indirect,
liquidated or unliquidated, absolute or contingent, due or not due and whether
under, pursuant to or evidenced by a note, agreement, guaranty, instrument or
otherwise (in each case, irrespective of the genuineness, validity, regularity
or enforceability of such Obligations, or of any instrument evidencing any of
the Obligations or of any collateral therefor or of the existence or extent of
such collateral, and irrespective of the allowability, allowance or disallowance
of any or all of such in any case commenced by or against any Pledgor under
Title 11, United States Code, including, without limitation, obligations of each
Pledgor for post-petition interest, fees, costs and charges that would have
accrued or been added to the Obligations but for the commencement of such case),
each Pledgor hereby pledges, assigns, hypothecates, transfers and grants a
security interest to Pledgee in all of the following (the “Collateral”):
 
(a)  the shares of stock set forth on Schedule A annexed hereto and expressly
made a part hereof (together with any additional shares of stock or other equity
interests acquired by any Pledgor, the “Pledged Stock”), the certificates
representing the Pledged Stock and all dividends, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Stock;
 
(b)  all additional shares of stock of any issuer (each, an “Issuer”) of the
Pledged Stock from time to time acquired by any Pledgor in any manner,
including, without limitation, stock dividends or a distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
 
(c)  all options and rights, whether as an addition to, in substitution of or in
exchange for any shares of any Pledged Stock and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
such options and rights.
 
3.  Delivery of Collateral. All certificates representing or evidencing the
Pledged Stock shall be delivered to and held by or on behalf of Pledgee pursuant
hereto and shall be accompanied by duly executed instruments of transfer or
assignments in blank, all in form and substance satisfactory to Pledgee. Each
Pledgor hereby authorizes the Issuer upon demand by the Pledgee to deliver any
certificates, instruments or other distributions issued in connection with the
Collateral directly to the Pledgee, in each case to be held by the Pledgee,
subject to the terms hereof. Upon the occurrence and during the continuance of
an Event of Default (as defined below), the Pledgee shall have the right, during
such time in its discretion and without notice to the Pledgor, to transfer to or
to register in the name of the Pledgee or any of its nominees any or all of the
Pledged Stock. In addition, the Pledgee shall have the right at such time to
exchange certificates or instruments representing or evidencing Pledged Stock
for certificates or instruments of smaller or larger denominations.
 
4.  Representations and Warranties of each Pledgor. Each Pledgor jointly and
severally represents and warrants to the Pledgee (which representations and
warranties shall be deemed to continue to be made until all of the Obligations
have been paid in full and each Document and each agreement and instrument
entered into in connection therewith has been irrevocably terminated) that:
 
(a)  the execution, delivery and performance by each Pledgor of this Agreement
and the pledge of the Collateral hereunder do not and will not result in any
violation of any agreement, indenture, instrument, license, judgment, decree,
order, law, statute, ordinance or other governmental rule or regulation
applicable to any Pledgor;
 
(b)  this Agreement constitutes the legal, valid, and binding obligation of each
Pledgor enforceable against each Pledgor in accordance with its terms;
 
(c)  (i) all Pledged Stock owned by each Pledgor is set forth on Schedule A
hereto and (ii) each Pledgor is the direct and beneficial owner of each share of
the Pledged Stock;
 
(d)  all of the shares of the Pledged Stock have been duly authorized, validly
issued and are fully paid and nonassessable;
 
(e)  no consent or approval of any person, corporation, governmental body,
regulatory authority or other entity, is or will be necessary for (i) the
execution, delivery and performance of this Agreement, (ii) the exercise by the
Pledgee of any rights with respect to the Collateral or (iii) the pledge and
assignment of, and the grant of a security interest in, the Collateral
hereunder;
 
(f)  there are no pending or, to the best of Pledgor’s knowledge, threatened
actions or proceedings before any court, judicial body, administrative agency or
arbitrator which may materially adversely affect the Collateral;
 
(g)  each Pledgor has the requisite power and authority to enter into this
Agreement and to pledge and assign the Collateral to the Pledgee in accordance
with the terms of this Agreement;
 
(h)  each Pledgor owns each item of the Collateral and, except for the pledge
and security interest granted to Pledgee hereunder, the Collateral shall be,
immediately following the closing of the transactions contemplated by the
Documents, free and clear of any other security interest, mortgage, pledge,
claim, lien, charge, hypothecation, assignment, offset or encumbrance whatsoever
(collectively, “Liens”);
 
(i)  there are no restrictions on transfer of the Pledged Stock contained in the
certificate of incorporation or by-laws (or equivalent organizational documents)
of the Issuer or otherwise which have not otherwise been enforceably and legally
waived by the necessary parties;
 
(j)  none of the Pledged Stock has been issued or transferred in violation of
the securities registration, securities disclosure or similar laws of any
jurisdiction to which such issuance or transfer may be subject;
 
(k)  the pledge and assignment of the Collateral and the grant of a security
interest under this Agreement vest in the Pledgee all rights of each Pledgor in
the Collateral as contemplated by this Agreement; and
 
(l)  Other than as set forth on Schedule A hereto, the Pledged Stock constitutes
one hundred percent (100%) of the issued and outstanding shares of capital stock
of each Issuer.
 
5.  Covenants. Each Pledgor jointly and severally covenants that, until the
Obligations shall be indefeasibly satisfied in full and each Document and each
agreement and instrument entered into in connection therewith is irrevocably
terminated:
 
(a)  No Pledgor will sell, assign, transfer, convey, or otherwise dispose of its
rights in or to the Collateral or any interest therein; nor will any Pledgor
create, incur or permit to exist any Lien whatsoever with respect to any of the
Collateral or the proceeds thereof other than that created hereby.
 
(b)  Each Pledgor will, at its expense, defend Pledgee’s right, title and
security interest in and to the Collateral against the claims of any other
party.
 
(c)  Each Pledgor shall at any time, and from time to time, upon the written
request of Pledgee, execute and deliver such further documents and do such
further acts and things as Pledgee may reasonably request in order to effectuate
the purposes of this Agreement including, but without limitation, delivering to
Pledgee, upon the occurrence of an Event of Default, irrevocable proxies in
respect of the Collateral in form satisfactory to Pledgee. Until receipt
thereof, upon an Event of Default that has occurred and is continuing beyond any
applicable grace period, this Agreement shall constitute Pledgor’s proxy to
Pledgee or its nominee to vote all shares of Collateral then registered in each
Pledgor’s name.
 
(d)  No Pledgor will consent to or approve the issuance of (i) any additional
shares of any class of capital stock or other equity interests of the Issuer; or
(ii) any securities convertible either voluntarily by the holder thereof or
automatically upon the occurrence or nonoccurrence of any event or condition
into, or any securities exchangeable for, any such shares, unless, in either
case, such shares are pledged as Collateral pursuant to this Agreement.
 
6.  Voting Rights and Dividends. In addition to the Pledgee’s rights and
remedies set forth in Section 8 hereof, in case an Event of Default shall have
occurred and be continuing, beyond any applicable cure period, the Pledgee shall
(i) be entitled to vote the Collateral, (ii) be entitled to give consents,
waivers and ratifications in respect of the Collateral (each Pledgor hereby
irrevocably constituting and appointing the Pledgee, with full power of
substitution, the proxy and attorney-in-fact of each Pledgor for such purposes)
and (iii) be entitled to collect and receive for its own use cash dividends paid
on the Collateral. No Pledgor shall be permitted to exercise or refrain from
exercising any voting rights or other powers if, in the reasonable judgment of
the Pledgee, such action would have a material adverse effect on the value of
the Collateral or any part thereof; and, provided, further, that each Pledgor
shall give at least five (5) days’ written notice of the manner in which such
Pledgor intends to exercise, or the reasons for refraining from exercising, any
voting rights or other powers other than with respect to any election of
directors and voting with respect to any incidental matters. Following the
occurrence of an Event of Default, all dividends and all other distributions in
respect of any of the Collateral, shall be delivered to the Pledgee to hold as
Collateral and shall, if received by any Pledgor, be received in trust for the
benefit of the Pledgee, be segregated from the other property or funds of any
other Pledgor, and be forthwith delivered to the Pledgee as Collateral in the
same form as so received (with any necessary endorsement).
 
7.  Event of Default. An “Event of Default” under this Agreement shall occur
upon the happening of any of the following events:
 
(a)  An “Event of Default” or any other default in the performance of any of its
obligations under any Document or any agreement or note related to any Document
shall have occurred and be continuing beyond any applicable cure period;
 
(b)  Any representation or warranty, or statement made or furnished to Laurus
under this Agreement by any Pledgor or on any Pledgor’s behalf shall prove to
any time be false or misleading in any material respect on the date as of which
made or deemed made;
 
(c)  Any portion of the Collateral is subjected to a levy of execution,
attachment, distraint or other judicial process or any portion of the Collateral
is the subject of a claim (other than by the Pledgee) of a Lien or other right
or interest in or to the Collateral and such levy or claim shall not be cured,
disputed or stayed within a period of forty (40) business days after the
occurrence thereof; or
 
(d)  Any Pledgor shall (i) apply for, consent to, or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or other fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing.
 
8.  Remedies. In case an Event of Default shall have occurred and is continuing,
the Pledgee may:
 
(a)  Transfer any or all of the Collateral into its name, or into the name of
its nominee or nominees;
 
(b)  Exercise all corporate rights with respect to the Collateral including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation, the
right to exchange, at its discretion, any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the Issuer thereof, or upon the exercise by the Issuer of any right, privilege
or option pertaining to any of the Collateral, and, in connection therewith, to
deposit and deliver any and all of the Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it; and
 
(c)  Subject to any requirement of applicable law, sell, assign and deliver the
whole or, from time to time, any part of the Collateral at the time held by the
Pledgee, at any private sale or at public auction, with or without demand,
advertisement or notice of the time or place of sale or adjournment thereof or
otherwise (all of which are hereby waived, except such notice as is required by
applicable law and cannot be waived), for cash or credit or for other property
for immediate or future delivery, and for such price or prices and on such terms
as the Pledgee in its sole discretion may determine, or as may be required by
applicable law.
 
Each Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, the Pledgee may bid for and purchase the whole or
any part of the Collateral so sold free from any such right or equity of
redemption. All moneys received by the Pledgee hereunder, whether upon sale of
the Collateral or any part thereof or otherwise, shall be held by the Pledgee
and applied by it as provided in Section 10 hereof. No failure or delay on the
part of the Pledgee in exercising any rights hereunder shall operate as a waiver
of any such rights nor shall any single or partial exercise of any such rights
preclude any other or future exercise thereof or the exercise of any other
rights hereunder. The Pledgee shall have no duty as to the collection or
protection of the Collateral or any income thereon nor any duty as to
preservation of any rights pertaining thereto, except to apply the funds in
accordance with the requirements of Section 10 hereof. The Pledgee may exercise
its rights with respect to property held hereunder without resort to other
security for or sources of reimbursement for the Obligations. In addition to the
foregoing, Pledgee shall have all of the rights, remedies and privileges of a
secured party under the Uniform Commercial Code of New York (the “UCC”)
regardless of the jurisdiction in which enforcement hereof is sought.
 
9.  Private Sale. Each Pledgor recognizes that the Pledgee may be unable to
effect (or to do so only after delay which would adversely affect the value that
might be realized from the Collateral) a public sale of all or part of the
Collateral by reason of certain prohibitions contained in the Securities Act,
and may be compelled to resort to one or more private sales to a restricted
group of purchasers who will be obliged to agree, among other things, to acquire
such Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Each Pledgor agrees that any such private sale
may be at prices and on terms less favorable to the seller than if sold at
public sales and that such private sales shall be deemed to have been made in a
commercially reasonable manner. Each Pledgor agrees that the Pledgee has no
obligation to delay sale of any Collateral for the period of time necessary to
permit the Issuer to register the Collateral for public sale under the
Securities Act.
 
10.  Proceeds of Sale. The proceeds of any collection, recovery, receipt,
appropriation, realization or sale of the Collateral shall be applied by the
Pledgee as follows:
 
(a)  First, to the payment of all costs, reasonable expenses and charges of the
Pledgee and to the reimbursement of the Pledgee for the prior payment of such
costs, reasonable expenses and charges incurred in connection with the care and
safekeeping of the Collateral (including, without limitation, the reasonable
expenses of any sale or any other disposition of any of the Collateral),
attorneys’ fees and reasonable expenses, court costs, any other fees or expenses
incurred or expenditures or advances made by Pledgee in the protection,
enforcement or exercise of its rights, powers or remedies hereunder;
 
(b)  Second, to the payment of the Obligations, in whole or in part, in such
order as the Pledgee may elect, whether or not such Obligations is then due;
 
(c)  Third, to such persons, firms, corporations or other entities as required
by applicable law including, without limitation, Section 9-615(a)(3) of the UCC;
and
 
(d)  Fourth, to the extent of any surplus to the Pledgors or as a court of
competent jurisdiction may direct.
 
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Obligations,
each Pledgor shall be jointly and severally liable for the deficiency plus the
costs and fees of any attorneys employed by Pledgee to collect such deficiency.
 
11.  Waiver of Marshaling. Each Pledgor hereby waives any right to compel any
marshaling of any of the Collateral.
 
12.  No Waiver. Any and all of the Pledgee’s rights with respect to the
Encumbrances (as defined in the Master Security Agreement) granted under this
Agreement shall continue unimpaired, and Pledgor shall be and remain obligated
in accordance with the terms hereof, notwithstanding (a) the bankruptcy,
insolvency or reorganization of any Pledgor, (b) the release or substitution of
any item of the Collateral at any time, or of any rights or interests therein,
provided that if Pledgee shall release its Encumbrance on any Collateral then
Pledgee’s rights with respect to such Encumbrance shall not continue or (c) any
delay, extension of time, renewal, compromise or other indulgence granted by the
Pledgee in reference to any of the Obligations. Each Pledgor hereby waives all
notice of any such delay, extension, release, substitution, renewal, compromise
or other indulgence, and hereby consents to be bound hereby as fully and
effectively as if such Pledgor had expressly agreed thereto in advance. No delay
or extension of time by the Pledgee in exercising any power of sale, option or
other right or remedy hereunder, and no failure by the Pledgee to give notice or
make demand, shall constitute a waiver thereof, or limit, impair or prejudice
the Pledgee’s right to take any action against any Pledgor or to exercise any
other power of sale, option or any other right or remedy.
 
13.  Expenses. The Collateral shall secure, and each Pledgor shall pay to
Pledgee on demand, from time to time, all reasonable costs and expenses,
(including but not limited to, reasonable attorneys’ fees and costs, taxes, and
all transfer, recording, filing and other charges) of, or incidental to, the
custody, care, transfer, administration of the Collateral or any other
collateral, or in any way relating to the enforcement, protection or
preservation of the rights or remedies of the Pledgee under this Agreement or
with respect to any of the Obligations.
 
14.  The Pledgee Appointed Attorney-In-Fact and Performance by the Pledgee. Upon
the occurrence of an Event of Default, each Pledgor hereby irrevocably
constitutes and appoints the Pledgee as such Pledgor’s true and lawful
attorney-in-fact, with full power of substitution, to execute, acknowledge and
deliver any instruments and to do in such Pledgor’s name, place and stead, all
such acts, things and deeds for and on behalf of and in the name of such
Pledgor, which such Pledgor could or might do or which the Pledgee may deem
necessary, desirable or convenient to accomplish the purposes of this Agreement,
including, without limitation, to execute such instruments of assignment or
transfer or orders and to register, convey or otherwise transfer title to the
Collateral into the Pledgee’s name. Each Pledgor hereby ratifies and confirms
all that said attorney-in-fact may so do and hereby declares this power of
attorney to be coupled with an interest and irrevocable. If any Pledgor fails to
perform any agreement herein contained, the Pledgee may itself perform or cause
performance thereof, and any costs and expenses of the Pledgee incurred in
connection therewith shall be paid by the Pledgors as provided in Section 10
hereof.
 
15.  WAIVERS. THE PARTIES HERETO DESIRES THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
LAURUS, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEN IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER DOCUMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
 
16.  Recapture. Notwithstanding anything to the contrary in this Agreement, if
the Pledgee receives any payment or payments on account of the Obligations,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver, or any other party under the United States
Bankruptcy Code, as amended, or any other federal or state bankruptcy,
reorganization, moratorium or insolvency law relating to or affecting the
enforcement of creditors’ rights generally, common law or equitable doctrine,
then to the extent of any sum not finally retained by the Pledgee, each
Pledgor’s obligations to the Pledgee shall be reinstated and this Agreement
shall remain in full force and effect (or be reinstated) until payment shall
have been made to Pledgee, which payment shall be due on demand.
 
17.  Captions. All captions in this Agreement are included herein for
convenience of reference only and shall not constitute part of this Agreement
for any other purpose.
 
18.  Miscellaneous.
 
(a)  This Agreement constitutes the entire and final agreement among the parties
with respect to the subject matter hereof and may not be changed, terminated or
otherwise varied except by a writing duly executed by the parties hereto.
 
(b)  No waiver of any term or condition of this Agreement, whether by delay,
omission or otherwise, shall be effective unless in writing and signed by the
party sought to be charged, and then such waiver shall be effective only in the
specific instance and for the purpose for which given.
 
(c)  In the event that any provision of this Agreement or the application
thereof to any Pledgor or any circumstance in any jurisdiction governing this
Agreement shall, to any extent, be invalid or unenforceable under any applicable
statute, regulation, or rule of law, such provision shall be deemed inoperative
to the extent that it may conflict therewith and shall be deemed modified to
conform to such statute, regulation or rule of law, and the remainder of this
Agreement and the application of any such invalid or unenforceable provision to
parties, jurisdictions, or circumstances other than to whom or to which it is
held invalid or unenforceable shall not be affected thereby, nor shall same
affect the validity or enforceability of any other provision of this Agreement.
 
(d)  This Agreement shall be binding upon each Pledgor, and each Pledgor’s
successors and assigns, and shall inure to the benefit of the Pledgee and its
successors and assigns.
 
(e)  Any notice or other communication required or permitted pursuant to this
Agreement shall be given in accordance with the Securities Purchase Agreement.
 
(f)  THIS AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
 
(g)  EACH PLEDGOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY PLEDGOR,
ON THE ONE HAND, AND THE PLEDGEE, ON THE OTHER HAND, PERTAINING TO THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS, PROVIDED, THAT EACH
PLEDGOR ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE PLEDGEE FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION TO COLLECT THE INDEBTEDNESS, TO REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE INDEBTEDNESS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE PLEDGEE. EACH PLEDGOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH PLEDGOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH PLEDGOR
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH PLEDGOR AT THE ADDRESS SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
THE SUCH PLEDGOR’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
 
(h)  It is understood and agreed that any person or entity that desires to
become a Pledgor hereunder, or is required to execute a counterpart of this
Agreement after the date hereof pursuant to the requirements of any Document,
shall become a Pledgor hereunder by (x) executing a Joinder Agreement in form
and substance satisfactory to the Pledgee, (y) delivering supplements to such
exhibits and annexes to such Documents as the Pledgee shall reasonably request
and/or set forth in such joinder agreement and (z) taking all actions as
specified in this Agreement as would have been taken by such Pledgor had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to the Pledgee and with all documents and actions required
above to be taken to the reasonable satisfaction of the Pledgee.
 
(i)  This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature hereto.

 
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day
and year first written above.
 

        MODTECH HOLDINGS, INC.  
   
   
    By:   /s/   

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

 
Name
Title 

 

        LAURUS MASTER FUND, LTD.  
   
   
    By:   /s/   

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

 
Name
Title 

 
 
SCHEDULE A to the Stock Pledge Agreement
 
Pledged Stock
Pledgor
 
Issuer
 
Class of Stock
 
Stock Certificate Number
 
Par Value
 
Number of
Shares
 
 
% of outstanding Shares
                                                                               
                       

 
 
 

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