SECURITIES PURCHASE AGREEMENT LAURUS MASTER FUND, LTD. and MODTECH HOLDINGS, INC. Dated: October 31, 2006
EXHIBIT
10.38
LAURUS
MASTER FUND, LTD.
and
MODTECH
HOLDINGS, INC.
Dated:
October 31, 2006
TABLE
OF CONTENTS
Page
|
1.
|
Agreement
to Sell and Purchase
|
1
|
|
|
2.
|
Fees
and Warrant
|
2
|
|
|
3.
|
Closing,
Delivery and Payment
|
2
|
|
|
3.1
|
Closing
|
2
|
|
|
3.2
|
Delivery
|
2
|
|
|
4.
|
Representations
and Warranties of the Company
|
3
|
|
|
4.1
|
Organization,
Good Standing and Qualification
|
3
|
|
|
4.2
|
Subsidiaries
|
4
|
|
|
4.3
|
Capitalization;
Voting Rights
|
4
|
|
|
4.4
|
Authorization;
Binding Obligations
|
5
|
|
|
4.5
|
Liabilities;
Solvency
|
5
|
|
|
4.6
|
Agreements;
Action
|
6
|
|
|
4.7
|
Obligations
to Related Parties
|
8
|
|
|
4.8
|
Changes
|
8
|
|
|
4.9
|
Title
to Properties and Assets; Liens, Etc
|
10
|
|
|
4.10
|
Intellectual
Property
|
10
|
|
|
4.11
|
Compliance
with Other Instruments
|
11
|
|
|
4.12
|
Litigation
|
11
|
|
|
4.13
|
Tax
Returns and Payments
|
11
|
|
|
4.14
|
Employees
|
12
|
|
|
4.15
|
Registration
Rights and Voting Rights
|
12
|
|
|
4.16
|
Compliance
with Laws; Permits
|
12
|
|
|
4.17
|
Environmental
and Safety Laws
|
13
|
|
|
|
4.18
|
Valid
Offering
|
13
|
|
4.19
|
Full
Disclosure
|
13
|
|
|
4.20
|
Insurance
|
14
|
|
|
4.21
|
SEC
Reports
|
14
|
|
|
4.22
|
Listing
|
14
|
|
|
4.23
|
No
Integrated Offering
|
14
|
|
|
4.24
|
Stop
Transfer
|
14
|
|
|
4.25
|
Dilution
|
15
|
|
|
4.26
|
Patriot
Act
|
15
|
|
|
4.27
|
ERISA
|
15
|
|
|
5.
|
Representations
and Warranties of the Purchaser
|
16
|
|
|
5.1
|
No
Shorting
|
16
|
|
|
5.2
|
Requisite
Power and Authority
|
16
|
|
|
5.3
|
Investment
Representations
|
16
|
|
|
5.4
|
The
Purchaser Bears Economic Risk
|
17
|
|
|
5.5
|
Acquisition
for Own Account
|
17
|
|
|
5.6
|
The
Purchaser Can Protect Its Interest
|
17
|
|
|
5.7
|
Accredited
Investor
|
17
|
|
|
5.8
|
Legends
|
17
|
|
|
6.
|
Covenants
of the Company
|
18
|
|
|
6.1
|
Stop-Orders
|
18
|
|
|
|
6.2
|
Listing
|
18
|
|
6.3
|
Market
Regulations
|
18
|
|
|
6.4
|
Reporting
Requirements
|
19
|
|
|
6.5
|
Use
of Funds
|
20
|
|
|
6.6
|
Access
to Facilities
|
20
|
|
|
6.7
|
Taxes
|
21
|
|
|
6.8
|
Insurance
|
21
|
|
|
6.9
|
Intellectual
Property
|
22
|
|
|
6.10
|
Properties
|
22
|
|
|
6.11
|
Confidentiality
|
22
|
|
|
6.12
|
Required
Approvals
|
22
|
|
|
6.13
|
Reissuance
of Securities
|
23
|
|
|
6.14
|
Opinion
|
24
|
|
|
6.15
|
Margin
Stock
|
24
|
|
|
6.16
|
FIRPTA
|
24
|
|
|
6.17
|
Financing
Right of First Refusal
|
24
|
|
|
6.18
|
Authorization
and Reservation of Shares
|
24
|
|
|
6.19
|
Minimum
Borrowing Base Eligibility
|
24
|
|
|
6.20
|
Prohibitions
of Payment Under Subordinated Debt Documentation
|
26
|
|
|
7.
|
Covenants
of the Purchaser
|
27
|
|
|
7.1
|
Confidentiality
|
27
|
|
|
7.2
|
Non-Public
Information
|
27
|
|
|
7.3
|
Limitation
on Acquisition of Common Stock of the Company
|
27
|
|
|
8.
|
Covenants
of the Company and the Purchaser Regarding Indemnification
|
28
|
|
|
8.1
|
Company
Indemnification
|
28
|
|
|
8.2
|
Purchaser’s
Indemnification
|
28
|
|
|
9.
|
Conversion
of Convertible Note; Exercise of the Warrants
|
28
|
|
|
9.1
|
Mechanics
of Conversion
|
28
|
|
|
9.2
|
Mechanics
of Exercise.
|
29
|
|
|
10.
|
Registration
Rights
|
31
|
|
|
10.1
|
Registration
Rights Granted
|
31
|
|
|
10.2
|
Offering
Restrictions
|
31
|
|
|
11.
|
Miscellaneous
|
31
|
|
|
|
11.1
|
Governing
Law, Jurisdiction and Waiver of Jury Trial
|
31
|
|
11.2
|
Severability
|
32
|
|
|
11.3
|
Survival
|
32
|
|
|
|
11.4
|
Successors
|
33
|
|
11.5
|
Entire
Agreement; Maximum Interest
|
33
|
|
|
11.6
|
Amendment
and Waiver
|
33
|
|
|
11.7
|
Delays
or Omissions
|
33
|
|
|
11.8
|
Notices
|
33
|
|
|
11.9
|
Attorneys’
Fees
|
35
|
|
|
11.10
|
Titles
and Subtitles
|
35
|
|
|
11.11
|
Facsimile
Signatures; Counterparts
|
35
|
|
|
11.12
|
Broker’s
Fees
|
35
|
|
|
11.13
|
Construction
|
35
|
|
LIST
OF EXHIBITS
|
Form
of Secured Convertible Term Note
|
Exhibit
A-1
|
|
Form
of Secured Term Note
|
Exhibit
A-2
|
|
Form
of Warrant
|
Exhibit
B-1
|
|
Form
of Warrant
|
Exhibit
B-2
|
|
Form
of Opinion
|
Exhibit
C
|
|
Form
of Escrow Agreement
|
Exhibit
D
|
|
Account
Availability
|
Exhibit
E
|
|
Form
of Subsidiary Guaranty
|
Exhibit
F
|
|
Form
of Stock Pledge Agreement
|
Exhibit
G
|
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
Xxxxxxxx-Xxxxx 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
Xxxxxxxx Xxx 0000, 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 xxxx 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 xxxxxxxx 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 Xxxxxxxx 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:
|
0000
Xxxxxxx Xxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
Attention: Chief
Financial Officer
Facsimile: 000-000-0000
|
|
|
with
a copy to:
|
||
|
Xxxxxx
& Zepfel LLP
000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx
Xxxxxx, Esq.
Facsimile: 000-000-0000
|
||
|
If
to the Purchaser, to:
|
Laurus
Master Fund, Ltd.
c/o
M&C Corporate Services Limited
X.X.
Xxx 000 XX
Xxxxxx
Xxxxx
Xxxxxx
Xxxx
South
Church Street
Grand
Cayman, Cayman Islands
Facsimile: 000-000-0000
|
|
|
with
a copy to:
|
||
|
Portfolio
Services
Laurus
Capital Management, LLC
000
Xxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Facsimile: 212-541-4410
|
||
|
and:
|
||
|
Loeb
& Loeb LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention: Xxxxx
Xxxxxxxx, Esq.
Facsimile: 000-000-0000
|
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
|
||
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, X.X. Xxx 000 XX, Xxxxxx House, South Church Street, Xxxxxx
Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (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, 000 Xxxxx Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, 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. | ||
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WITNESS:
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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.
0000
Xxxxxxx Xxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
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] | ||
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Name
Title
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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, X.X. Xxx 000 XX, Xxxxxx House, South Church Street, Xxxxxx
Town, Grand
Cayman, Cayman Islands, Fax: 000-000-0000 (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, 000 Xxxxx
Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, 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. | ||
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Name
Title
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WITNESS:
| By: | /s/ | |
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Name
Title
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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
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Issue
Date: October 31, 2006
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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. | ||
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Name
Title
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WITNESS:
| By: | /s/ | |
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Name
Title
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Exhibit
A
FORM
OF SUBSCRIPTION
(To
Be
Signed Only On Exercise Of Warrant)
TO: Modtech
Holdings, Inc.
Attention: Chief
Financial Officer
The
undersigned, pursuant to the provisions set forth in the attached
Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):
|
________
shares of the Common Stock covered by such Warrant; or
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the
maximum number of shares of Common Stock covered by such
Warrant pursuant
to the cashless exercise procedure set forth in Section
2.
|
The
undersigned herewith makes payment of the full Exercise Price for
such shares at
the price per share provided for in such Warrant, which is $___________.
Such
payment takes the form of (check applicable box or boxes):
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$__________
in lawful money of the United States; and/or
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|
the
cancellation of such portion of the attached Warrant as
is exercisable for
a total of _______ shares of Common Stock (using a Fair
Market Value of
$_______ per share for purposes of this calculation);
and/or
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the
cancellation of such number of shares of Common Stock as
is necessary, in
accordance with the formula set forth in Section 2.2, to
exercise this
Warrant with respect to the maximum number of shares of
Common Stock
purchasable pursuant to the cashless exercise procedure
set forth in
Section 2.
|
The
undersigned requests that the certificates for such shares be issued
in the name
of, and delivered to ______________________________________________
whose
address is
___________________________________________________________________________.
The
undersigned represents and warrants that all offers and sales by
the undersigned
of the securities issuable upon exercise of the within Warrant shall
be made
pursuant to registration of the Common Stock under the Securities
Act of 1933,
as amended (the “Securities
Act”)
or
pursuant to an exemption from registration under the Securities
Act.
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| Date: | By: | /s/ |
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(Signature
must conform to name of holder as specified on the face
of the
Warrant)
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| 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.
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Transferees
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Address
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Percentage
Transferred
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Number
Transferred
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SIGNED
IN THE PRESENCE OF:
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| Date: | By: | /s/ |
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(Signature
must conform to name of holder as specified on the face
of the
Warrant)
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Name
Address
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ACCEPTED
AND AGREED: [TRANSFEREE]
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Name
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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. | ||
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Name
Title
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WITNESS:
| By: | /s/ | |
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Name
Title
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Exhibit
A
FORM
OF SUBSCRIPTION
(To
Be
Signed Only On Exercise Of Warrant)
TO: Modtech
Holdings, Inc.
Attention: Chief
Financial Officer
The
undersigned, pursuant to the provisions set forth in the attached
Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):
|
________
shares of the Common Stock covered by such Warrant; or
|
|
|
the
maximum number of shares of Common Stock covered by such
Warrant pursuant
to the cashless exercise procedure set forth in Section
2.
|
The
undersigned herewith makes payment of the full Exercise Price for
such shares at
the price per share provided for in such Warrant, which is $___________.
Such
payment takes the form of (check applicable box or boxes):
|
$__________
in lawful money of the United States; and/or
|
|
|
the
cancellation of such portion of the attached Warrant as
is exercisable for
a total of _______ shares of Common Stock (using a Fair
Market Value of
$_______ per share for purposes of this calculation);
and/or
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|
|
the
cancellation of such number of shares of Common Stock as
is necessary, in
accordance with the formula set forth in Section 2.2, to
exercise this
Warrant with respect to the maximum number of shares of
Common Stock
purchasable pursuant to the cashless exercise procedure
set forth in
Section 2.
|
The
undersigned requests that the certificates for such shares be issued
in the name
of, and delivered to ______________________________________________
whose
address is
___________________________________________________________________________.
The
undersigned represents and warrants that all offers and sales by
the undersigned
of the securities issuable upon exercise of the within Warrant shall
be made
pursuant to registration of the Common Stock under the Securities
Act of 1933,
as amended (the “Securities
Act”)
or
pursuant to an exemption from registration under the Securities
Act.
| |
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| Date: | By: | /s/ |
|
(Signature
must conform to name of holder as specified on the face of
the
Warrant)
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||
| 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.
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Transferees
|
Address
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Percentage
Transferred
|
Number
Transferred
|
|||
SIGNED
IN THE PRESENCE OF:
| |
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| 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/ | |
|
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||
|
Name
|
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FORM
OF OPINION
Omitted
FORM
OF ESCROW AGREEMENT
FUNDS
ESCROW AGREEMENT
This
Agreement (this “Agreement”)
is
dated as of the 31st
day
October 2006 among Modtech Holdings, Inc., a Delaware corporation
(the
“Company”),
Laurus Master Fund, Ltd. (the “Purchaser”),
Bank
of America, N.A., a national banking association (“BOA”),
Amphora Limited (“Amphora”)
and
Loeb & Loeb LLP (the “Escrow
Agent”):
W I T N E S S E T H:
WHEREAS,
the Purchaser has advised the Escrow Agent that (a) the Company
and the
Purchaser have entered into a Securities Purchase Agreement (the
“Securities
Purchase Agreement”)
for
the sale by the Company to the Purchaser of a secured convertible
term note (the
“Convertible
Note”)
and a
secured non-convertible term note (the “Term
Note”
and,
together with the Convertible Note, the “Notes”),
(b)
the Company has issued to the Purchaser two common stock purchase
warrants (the
“Warrants”)
in
connection with the issuance of the Notes, and (c) the Company
and the Purchaser
have entered into a Registration Rights Agreement covering the
registration of
the Company’s common stock underlying the Convertible Note and the Warrants
(the
“Registration
Rights Agreement”);
WHEREAS,
the Company is currently indebted to BOA and Amphora and certain
of the proceeds
of the Notes will be used to pay in whole, in the case of BOA,
or in part, in
the case of Amphora, of such indebtedness, in each case in accordance
with the
terms of the Disbursement Letter;
WHEREAS,
the Company, BOA, Amphora and the Purchaser, as applicable, wish
to deliver to
the Escrow Agent copies of the Documents (as hereafter defined)
and the
Purchaser wishes to deliver the Escrowed Payment (as hereafter
defined), in each
case, to be held and released by Escrow Agent in accordance with
the terms and
conditions of this Agreement; and
WHEREAS,
the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and
conditions of this Agreement;
NOW
THEREFORE, the parties agree as follows:
ARTICLE
I
INTERPRETATION
1.1. Definitions.
Whenever used in this Agreement, the following terms shall have
the meanings set
forth below.
(a) “Agreement”
means
this Agreement, as amended, modified and/or supplemented from time
to time by
written agreement among the parties hereto.
(b) “Closing
Payment”
means
the closing payment to be paid to Laurus Capital Management, LLC,
the fund
manager, as set forth on Schedule A hereto.
(c) “Disbursement
Letter”
means
that certain letter delivered to the Escrow Agent by the Company,
acceptable in
form and substance to the Purchaser, setting forth wire instructions
and amounts
to be funded at the Closing.
(d) “Documents”
means
copies of the Disbursement Letter, the Securities Purchase Agreement,
the Notes,
the Warrants, the Payoff Letters and the Registration Rights
Agreement.
(e) “Escrowed
Payment”
means
$18,000,000.
(f) “Payoff
Letters”
means
that certain letter agreement among BOA, the Purchaser and the
Company attached
hereto as Exhibit A and that certain letter agreement between Amphora
and the
Company attached hereto as Exhibit B.
1.2. Entire
Agreement.
This
Agreement constitutes the entire agreement among the parties hereto
with respect
to the arrangement with the Escrow Agent and supersedes all prior
agreements,
understandings, negotiations and discussions of the parties, whether
oral or
written with respect to the arrangement with the Escrow Agent.
There are no
warranties, representations and other agreements made by the parties
in
connection with the arrangement with the Escrow Agent except as
specifically set
forth in this Agreement.
1.3. Extended
Meanings.
In this
Agreement words importing the singular number include the plural
and vice versa;
words importing the masculine gender include the feminine and neuter
genders.
The word “person”
includes an individual, body corporate, partnership, trustee or
trust or
unincorporated association, executor, administrator or legal
representative.
1.4. Waivers
and Amendments.
This
Agreement may be amended, modified, superseded, cancelled, renewed
or extended,
and the terms and conditions hereof may be waived, in each case
only by a
written instrument signed by all parties hereto, or, in the case
of a waiver, by
the party waiving compliance. Except as expressly stated herein,
no delay on the
part of any party in exercising any right, power or privilege hereunder
shall
operate as a waiver thereof, nor shall any waiver on the part of
any party of
any right, power or privilege hereunder preclude any other or future
exercise of
any other right, power or privilege hereunder.
1.5. Headings.
The
division of this Agreement into articles, sections, subsections
and paragraphs
and the insertion of headings are for convenience of reference
only and shall
not affect the construction or interpretation of this Agreement.
1.6. Law
Governing this Agreement; Consent to Jurisdiction.
THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS. With
respect to any suit, action or proceeding relating to this Agreement
or to the
transactions contemplated hereby (“Proceedings”),
each
party hereto irrevocably submits to the exclusive jurisdiction
of the courts of
the County of New York, State of New York and the United States
District court
located in the county of New York in the State of New York. Each
party hereto
hereby irrevocably and unconditionally (a) waives trial by jury
in any
Proceeding relating to this Agreement and for any related counterclaim
and (b)
waives any objection which it may have at any time to the laying
of venue of any
Proceeding brought in any such court, waives any claim that such
Proceedings
have been brought in an inconvenient forum and further waives the
right to
object, with respect to such Proceedings, that such court does
not have
jurisdiction over such party. As between the Company and the Purchaser,
the
prevailing party shall be entitled to recover from the other party
its
reasonable attorneys’ fees and costs. In the event that any provision of this
Agreement is determined by a court of competent jurisdiction to
be invalid or
unenforceable, then the remainder of this Agreement shall not be
affected and
shall remain in full force and effect.
1.7. Construction.
Each
party acknowledges that its legal counsel participated in the preparation
of
this Agreement and, therefore, stipulates that the rule of construction
that
ambiguities are to be resolved against the drafting party shall
not be applied
in the interpretation of this Agreement to favor any party against
the
other.
ARTICLE
II
APPOINTMENT
OF AND DELIVERIES TO THE ESCROW AGENT
2.1. Appointment.
The
Company, BOA, Amphora and the Purchaser hereby irrevocably designate
and appoint
the Escrow Agent as their escrow agent for the purposes set forth
herein, and
the Escrow Agent by its execution and delivery of this Agreement
hereby accepts
such appointment under the terms and conditions set forth herein.
2.2. Copies
of Documents to Escrow Agent.
On or
about the date hereof, the Purchaser, BOA, Amphora and the Company
shall deliver
to the Escrow Agent copies of the Documents executed by such
parties.
2.3. Delivery
of Escrowed Payment to Escrow Agent.
Following the satisfaction of all closing conditions relating to
the Documents
(other than the receipt of the Amphora Notice (as defined below)
and the funding
of the Escrowed Payment), the Purchaser shall deliver to the Escrow
Agent the
Escrowed Payment. At such time, the Escrow Agent shall hold the
Escrowed Payment
as agent for the Company, subject to the terms and conditions of
this
Agreement.
2.4. Intention
to Create Escrow Over the Escrowed Payment.
The
Purchaser, BOA, Amphora and the Company intend that the Escrowed
Payment shall
be held in escrow by the Escrow Agent and released from escrow
by the Escrow
Agent only in accordance with the terms and conditions of this
Agreement.
ARTICLE
III
RELEASE
OF ESCROW
3.1. Release
of Escrow.
Subject
to the provisions of Section 4.2, the Escrow Agent shall release
the Escrowed
Payment from escrow as follows:
(a) Upon
receipt by the Escrow Agent of (i) oral instructions from Xxxxx
Grin and/or
Xxxxxx 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.
|
|
0000
Xxxxxxx Xxxxxx
Xxxxxx,
Xxxxxxxxxx 00000
Fax:
(000) 000-0000
Attention:
Chief Financial Officer
|
||
|
With a copy to:
|
Xxxxxx
& Zepfel LLP
000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxxxxx 00000
Fax:
(000) 000-0000
Attention:
Xxxxxx X. Xxxxxx, Esq.
|
|
|
(b)
|
If
to the Purchaser, to:
|
Laurus
Master Fund, Ltd.
M&C
Corporate Services Limited,
X.X.
Xxx 000 XX, Xxxxxx House
South
Church Street, Xxxxxx Town
Grand
Cayman, Cayman Islands
Fax: (000)
000-0000
Attention: Xxxx
Xxxxxx, Esq.
|
|
(c)
|
If
to BOA, to:
|
Bank
of America, N.A.
00
Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx,
Xxxxxxxxxx
Fax: (000)
000-0000
Attention: Xxxxx
Xxxx
|
|
(d)
|
If
to Amphora, to:
|
Amphora
Limited
c/o
Amaranth Advisors L.L.C.
Xxx
Xxxxxxxx Xxxx
Xxxxxxxxx,
XX 00000
Fax: (000)
000-0000
Attention: General
Counsel
|
|
(e)
|
If
to the Escrow Agent, to:
|
Loeb
& Loeb LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Fax: (000)
000-0000
Attention: Xxxxx
X. Xxxxxxxx, Esq.
|
or
to
such other address as any of them shall give to the others by notice
made
pursuant to this Section 5.2.
5.3. Interest.
The
Escrowed Payment shall not be held in an interest bearing account
nor will
interest be payable in connection therewith.
5.4. Assignment;
Binding Agreement.
Neither
this Agreement nor any right or obligation hereunder shall be assignable
by any
party without the prior written consent of the other parties hereto.
This
Agreement shall inure to the benefit of and be binding upon the
parties hereto
and their respective legal representatives, successors and assigns.
5.5. Invalidity.
In the
event that any one or more of the provisions contained herein,
or the
application thereof in any circumstance, is held invalid, illegal,
or
unenforceable in any respect for any reason, the validity, legality
and
enforceability of any such provision in every other respect and
of the remaining
provisions contained herein shall not be in any way impaired thereby,
it being
intended that all of the rights and privileges of the parties hereto
shall be
enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by
different
signatories hereto on separate counterparts, each of which, when
so executed,
shall be deemed an original, but all such counterparts shall constitute
but one
and the same agreement. This Agreement may be executed by facsimile
transmission.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date
and year first above written.
|
COMPANY:
MODTECH HOLDINGS, INC.
|
||
| |
|
|
| By: | /s/ | |
|
|
||
|
Name
Title
|
||
| PURCHASER: LAURUS MASTER FUND, LTD. | ||
| |
|
|
| By: | /s/ | |
|
|
||
|
Name
Title
|
||
| BOA: BANK OF AMERICA, N.A. | ||
| |
|
|
| By: | /s/ | |
|
|
||
|
Name
Title
|
||
|
AMPHORA:
AMPHORA LIMITED (Amaranth Advisors L.L.C.)
|
||
| |
|
|
| By: | /s/ | |
|
|
||
|
Name
Title
|
||
| ESCROW AGENT: LOEB & LOEB LLP | ||
| |
|
|
| By: | /s/ | |
|
|
||
|
Name
Title
|
||
SCHEDULE
A TO FUNDS ESCROW AGREEMENT
|
PURCHASER
|
PRINCIPAL
NOTE AMOUNT
|
|
LAURUS
MASTER FUND, LTD.,
M&C
Corporate Services Limited,
X.X.
Xxx 000 XX,
Xxxxxx
House, South Church Street,
Xxxxxx
Town, Grand Cayman, Cayman Islands
Fax: 000-000-0000
|
Term
Note in an aggregate principal amount of $13,000,000
Secured
Convertible Note in an aggregate principal amount of
$5,000,000
|
|
TOTAL
|
$18,000,000
|
|
FUND
MANAGER
|
CLOSING
PAYMENT
|
|
LAURUS
CAPITAL MANAGEMENT, L.L.C.
000
Xxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Fax:
000-000-0000
|
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,
X.X.
Xxx 000 XX,
Xxxxxx
House, South Church Street,
Xxxxxx
Town, Grand Cayman, Cayman Islands
Fax: 000-000-0000
|
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.
Xxx
Xxxxxxxx Xxxx
Xxxxxxxxx,
XX 00000
October__,
2006
Loeb
& Loeb, LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx Xxxxxxxx
Re: Receipt
of Funds
Ladies
and Gentlemen:
In
accordance with the terms of Section 3.1(a)(iv) of the Funds Escrow
Agreement
(the “Escrow
Agreement”)
dated
as of October 31, 2006 among Modtech Holdings, Inc. (“Modtech”), Bank of
America, N.A., Laurus Master Fund, Ltd., Amaranth Advisors L.L.C.,
the trading
advisor for Amphora Limited (“Amphora”),
and
Loeb & Loeb, LLP as escrow agent (“L&L”), Amphora is hereby notifying
L&L that:
(a)
it is
in receipt of $5,000,000 of funds from U.S. Bank in connection
with the drawing
by Amphora of that certain letter of credit issued upon the application
of
Modtech by U.S. Bank for the benefit of Amphora; and
(b)
its
Payoff Letter (as defined in the Escrow Agreement), previously
delivered to
L&L, is hereby deemed effective and released from escrow.
This
letter agreement shall be governed by and construed in accordance
with the laws
of the State of New York.
Any
signature delivered by facsimile transmission shall be deemed an
original
signature hereto.
Very
truly yours,
| AMPHORA
LIMITED
AMARANTH
ADVISORS L.L.C.
|
|
| /s/ | |
|
|
|
| Name Title |
EXHIBIT
E
ACCOUNT
AVAILABILITY
|
Applicable
Advance Rate
(based
on Number of Days from Date of Invoice)
|
|||
|
Category
of Eligible Accounts
|
0
to 30
|
31
to 60
|
61
to 90
|
|
Dealer
Receivables
|
90%
|
90%
|
90%
|
|
Direct
Non-Educational Receivables
|
85%
|
85%
|
85%
|
|
Unbonded
Classroom Receivables
|
85%
|
85%
|
85%
|
|
Bonded
Classroom Receivables
|
65%
|
50%
|
50%
|
|
Permanent
One-Story Receivables
|
50%
|
50%
|
50%
|
|
Permanent
Two-Story Receivables
|
0%
|
0%
|
0%
|
For
the
purposes of the foregoing, the following terms have the following
meanings:
“Dealer
Receivables” shall mean any account receivable arising from a sale of a
relocatable modular building, whether such building is being used
for
commercial, educational or governmental purposes, by the Company
to an
authorized third-party dealer for the further sale, lease or distribution
to the
end user of such building.
“Direct
Non-Educational Receivables” shall mean any account receivable arising from the
sale by the Company of a relocatable modular building, to the end
user of such
building where such end user is not a school, school district or
other
government entity which is purchasing such building for educational
use.
“Unbonded
Classroom Receivables” shall mean any account receivable arising from the sale
by the Company of a relocatable modular building, such building
being used for
educational purposes, to the end user of such building where such
end user is a
school, school district or other government entity which is purchasing
such
building for educational use and where such school, school district
or other
government entity did not require the Company to post a bond on
the Company’s
behalf to secure the Company’s performance under the contract out of which the
Unbonded Classroom Receivable arose.
“Bonded
Classroom Receivables” shall mean any account receivable arising from the sale
by the Company of a relocatable modular building, such building
being used for
educational purposes, to the end user of such building where such
end user is a
school, school district or other government entity which is purchasing
such
building for educational use and where such school, school district
or other
government entity did require the Company to post a bond on the
Company’s behalf
to secure the Company’s performance under the contract out of which the Bonded
Classroom Receivable arose.
“Permanent
One-Story Receivables” shall mean any account receivable arising from the sale
by the Company of a single story, non-relocatable modular building,
whether such
building is being used for commercial, educational, governmental
or other
purposes, to the end user of such building.
“Permanent
Two-Story Receivables” shall mean any account receivable arising from the sale
by the Company of a two story, non-relocatable modular building,
whether such
building is being used for commercial, educational, governmental
or other
purposes, to the end user of such building.
EXHIBIT
F
FORM
OF SUBSIDIARY GUARANTY
New
York,
New York_____________,
20__
FOR
VALUE
RECEIVED, and in consideration of note purchases from, loans made or to be
made
or credit otherwise extended or to be extended by Laurus Master Fund, Ltd.
(“Laurus”)
to or
for the account of Modtech Holdings, Inc., a Delaware corporation (“Debtor”),
from
time to time and at any time and for other good and valuable consideration
and
to induce Laurus, in its discretion, to purchase such notes, make such loans
or
other extensions of credit and to make or grant such renewals, extensions,
releases of collateral or relinquishments of legal rights as Laurus may deem
advisable, each of the undersigned (and each of them if more than one, the
liability under this Guaranty being joint and several) (jointly and severally
referred to as “Guarantors”
or
“the
undersigned”)
unconditionally guaranties to Laurus, its successors, endorsees and assigns
the
prompt payment when due (whether by acceleration or otherwise) of all present
and future obligations and liabilities of any and all kinds of Debtor to Laurus
and of all instruments of any nature evidencing or relating to any such
obligations and liabilities upon which Debtor or one or more parties and Debtor
is or may become liable to Laurus, whether incurred by Debtor as maker,
endorser, drawer, acceptor, guarantors , accommodation party or otherwise,
and
whether due or to become due, secured or unsecured, absolute or contingent,
joint or several, and however or whenever acquired by Laurus, whether arising
under, out of, or in connection with (i) that certain Securities Purchase
Agreement dated as of the date hereof by and between the Debtor and Laurus
(the
“Securities
Purchase Agreement”)
and
(ii) each Related Agreement referred to in the Securities Purchase Agreement
(the Securities Purchase Agreement and each Related Agreement, as each may
be
amended, modified, restated or supplemented from time to time, are collectively
referred to herein as the “Documents”),
or
any documents, instruments or agreements relating to or executed in connection
with the Documents or any documents, instruments or agreements referred to
therein or otherwise, or any other indebtedness, obligations or liabilities
of
the Debtor to Laurus, whether now existing or hereafter arising, direct or
indirect, liquidated or unliquidated, absolute or contingent, due or not due
and
whether under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or otherwise (all of which are herein collectively referred to as
the
“Obligations”),
and
irrespective of the genuineness, validity, regularity or enforceability of
such
Obligations, or of any instrument evidencing any of the Obligations or of any
collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of
the
Obligations in any case commenced by or against Debtor under Xxxxx 00, Xxxxxx
Xxxxxx 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.
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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 Xxxxx 00, Xxxxxx
Xxxxxx 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
|
||||||
