**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
              12.
              Fees
                  and Warrant
              23.
              Closing,
                  Delivery and Payment
              23.1
              Closing
              23.2
              Delivery
              24.
              Representations
                  and Warranties of the Company
              34.1
              Organization,
                  Good Standing and Qualification
              34.2
              Subsidiaries
              44.3
              Capitalization;
                  Voting Rights
              44.4
              Authorization;
                  Binding Obligations
              54.5
              Liabilities;
                  Solvency
              54.6
              Agreements;
                  Action
              64.7
              Obligations
                  to Related Parties
              84.8
              Changes
              84.9
              Title
                  to Properties and Assets; Liens, Etc
              104.10
              Intellectual
                  Property
              104.11
              Compliance
                  with Other Instruments
              114.12
              Litigation
              114.13
              Tax
                  Returns and Payments
              114.14
              Employees
              124.15
              Registration
                  Rights and Voting Rights
              124.16
              Compliance
                  with Laws; Permits
              124.17
              Environmental
                  and Safety Laws
              134.18
              Valid
                  Offering
              134.19
              Full
                  Disclosure
              134.20
              Insurance
              144.21
              SEC
                  Reports
              144.22
              Listing
              144.23
              No
                  Integrated Offering
              144.24
              Stop
                  Transfer
              144.25
              Dilution
              154.26
              Patriot
                  Act
              154.27
              ERISA
              155.
              Representations
                  and Warranties of the Purchaser
              165.1
              No
                  Shorting
              165.2
              Requisite
                  Power and Authority
              165.3
              Investment
                  Representations
              165.4
              The
                  Purchaser Bears Economic Risk
              175.5
              Acquisition
                  for Own Account
              175.6
              The
                  Purchaser Can Protect Its Interest
              175.7
              Accredited
                  Investor
              175.8
              Legends
              176.
              Covenants
                  of the Company
              186.1
              Stop-Orders
              186.2
              Listing
              186.3
              Market
                  Regulations
              186.4
              Reporting
                  Requirements
              196.5
              Use
                  of Funds
              206.6
              Access
                  to Facilities
              206.7
              Taxes
              216.8
              Insurance
              216.9
              Intellectual
                  Property
              226.10
              Properties
              226.11
              Confidentiality
              226.12
              Required
                  Approvals
              226.13
              Reissuance
                  of Securities
              236.14
              Opinion
              246.15
              Margin
                  Stock
              246.16
              FIRPTA
              246.17
              Financing
                  Right of First Refusal
              246.18
              Authorization
                  and Reservation of Shares
              246.19
              Minimum
                  Borrowing Base Eligibility
              246.20
              Prohibitions
                  of Payment Under Subordinated Debt Documentation
              267.
              Covenants
                  of the Purchaser
              277.1
              Confidentiality
              277.2
              Non-Public
                  Information
              277.3
              Limitation
                  on Acquisition of Common Stock of the Company
              278.
              Covenants
                  of the Company and the Purchaser Regarding Indemnification
              288.1
              Company
                  Indemnification
              288.2
              Purchaser’s
                  Indemnification
              289.
              Conversion
                  of Convertible Note; Exercise of the Warrants
              289.1
              Mechanics
                  of Conversion
              289.2
              Mechanics
                  of Exercise.
              2910.
              Registration
                  Rights
              3110.1
              Registration
                  Rights Granted
              3110.2
              Offering
                  Restrictions
              3111.
              Miscellaneous
              3111.1
              Governing
                  Law, Jurisdiction and Waiver of Jury Trial
              3111.2
              Severability
              3211.3
              Survival
              3211.4
              Successors
              3311.5
              Entire
                  Agreement; Maximum Interest
              3311.6
              Amendment
                  and Waiver
              3311.7
              Delays
                  or Omissions
              3311.8
              Notices
              3311.9
              Attorneys’
                  Fees
              3511.10
              Titles
                  and Subtitles
              3511.11
              Facsimile
                  Signatures; Counterparts
              3511.12
              Broker’s
                  Fees
              3511.13
              Construction
              35
 
 
    **LIST
        OF EXHIBITS**
 Form
                  of Secured Convertible Term Note
              Exhibit
                  A-1Form
                  of Secured Term Note
              Exhibit
                  A-2Form
                  of Warrant
              Exhibit
                  B-1Form
                  of Warrant
              Exhibit
                  B-2Form
                  of Opinion
              Exhibit
                  CForm
                  of Escrow Agreement
              Exhibit
                  DAccount
                  Availability
              Exhibit
                  EForm
                  of Subsidiary Guaranty
              Exhibit
                  FForm
                  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,
          17 th 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,
              17 th 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; orthe
                          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/orthe
                          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/orthe
                          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
                      
                      PercentageTransferred
                      
                      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; orthe
                          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/orthe
                          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/orthe
                          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
                        
                        PercentageTransferred
                        
                        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 31 st 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 OfficerWith 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 AMOUNTLAURUS
                            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
                            PAYMENTLAURUS
                            CAPITAL MANAGEMENT, L.L.C.
                          825
                            Third Avenue, 14thFloor
                          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/NameTitle
 
  
 **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